Panama Canal Approves $1.2bn New Reservoir Project

The Panama Canal board of directors has given the green light for funding a major project to construct a new lake within the middle course of the Indio River watershed. This ambitious initiative is aimed at bolstering the waterway’s resilience against drought.

Throughout much of last year and 2023, the canal had to reduce both transits and maximum drafts as Panama grappled with its worst drought on record—a situation that disrupted global seaborne trading patterns, which have yet to fully stabilize.

The $1.2bn project, which includes building a large dam, is scheduled to commence in 2027 and will span four years. It will involve creating a reservoir with a capacity of 1.5bn cubic meters in the Indio River basin, along with constructing an 8.7 km transfer tunnel linking this reservoir to the Panama Canal basin. The objective is to enhance the freshwater reserves of the two artificial lakes, Gatún and Alajuela, that supply the canal.

Between June 2023 and September 2024, low water levels in Gatún Lake led to restrictions on both the number of transits and ship drafts, causing vessels to compete for limited slots. Although operations returned to normal by the fourth quarter of last year, overall shipping volumes have not yet rebounded fully.

Analysis by BIMCO indicates that from September 2024 to January 2025, the deadweight tonnage capacity of ships transiting the canal was 10% lower than the 2019–22 average.

“Although there were no transit restrictions during this period, transits of dry bulk, LNG and, to a lesser extent, tanker ships have not recovered to their historical levels,” said Filipe Gouveia, shipping analysis manager at BIMCO. “Transit fees, changes in trade patterns and the establishment of a new normal could all be keeping ships from fully returning to the canal,” he added.