'We all need water': Panama's canal, and people, thirst for more

As a colossal Chinese container ship manoeuvered into the narrow Miraflores locks on the Panama Canal, about 27 million gallons of water rose around it, propelling the vessel along this vital maritime shortcut between the Pacific and Atlantic Oceans.

But the critical water cushion that lifts and lowers ships through a series of locks along the canal is deflating because of repeated droughts, disrupting a key global trade route and slashing revenues that underpin Panama's economy.

What is happening along this artificial waterway on the Isthmus of Panama shines a spotlight on how global warming and extreme weather caused by climate change might affect the ocean shipping industry that moves 80% of world trade.

The Panama Canal handles nearly 3% of all maritime trade - moving roughly $270 billion worth of cargo each year - and restrictions on shipping because of water shortages caused by drought have far-reaching consequences.

The slowdown in activity also comes as attacks on ships in the Red Sea by Yemen's Houthi group have prompted shipowners to divert vessels from a route that usually runs through the world's busiest waterway, the Suez Canal.

But right now, the Panama Canal is ill-placed to take up the slack. With the volume of its transits down by about one-third, global maritime trade flows face being reshaped.

This could see thousands of ships taking longer routes, which in turn would increase climate-changing carbon dioxide emissions and shipping costs, according to industry experts.

A severe drought last year caused water levels in Gatún Lake, the main rainfall-fed reservoir that feeds the canal locks, to fall. October saw the lowest rainfall on record for that month since 1950.

Hotter-than-average temperatures - 2023 was the hottest year on record - worsened by the El Niño weather phenomenon that sees warmer ocean surface temperatures in the eastern and central Pacific have also increased evaporation from the lake.

"We depend on rainwater," said Ilya Espino de Marotta, the canal's first chief sustainability officer, who was appointed in January and is also charged with reducing the waterway's carbon footprint.

"You used to see a dry year every 15 to 20 years. Now we saw a dry year in 2016, one in 2019, one in 2023 so obviously there's a climate issue we need to address," she said.

The resulting water scarcity is a major problem for canal authorities as each vessel passing through the 50-mile (80-km) trans-oceanic waterway uses some 51 million gallons (193 million litres) of water from Gatún Lake.

The lake also provides drinking water to about half of Panama's 4.5 million people and balancing these key but competing demands on a finite resource will be a critical issue for whoever comes to power after a presidential election in May.

"When you think about the number of people who take (drinking) water from the lakes, we give priority to potable water," said Espino de Marotta.

"But the canal is very important for the economy of Panama, so we need to maintain both things very viable – potable water and shipping."

Standing alongside the Miraflores locks as the hefty gates open to let the Chinese ship through, Erick Córdoba, manager of the canal's water division, said the priority is to ensure water for the 2.5 million people who rely on Gatún Lake, including the residents of Panama City, the capital, and city of the Colón.

"Drinking water always wins," said Córdoba, who leads a team of engineers and meteorologists monitoring 60 water and humidity level stations across the canal's watershed.

But that means change. Last year, for the first time in its more than 100-year history, the Panama Canal Authority (ACP) was forced to restrict ship transits due to the "unusually low water levels" at Gatún Lake.

It also placed restrictions on the weight of vessels passing through. Queues of ships built up, and shipping costs increased because of the bottlenecks.

In normal times, around 36 ships carrying everything from liquefied natural gas and soybeans from the United States to copper and cherries from Chile and beef from Brazil, cross the canal each day but this number has been cut to 24 this year.

Worse could yet be to come.

"I need to be preparing for a drought in the next four years," said Córdoba.

"During the next drought, drinking water needs will surpass the water available for the transit of ships. That's the problem," he said.

Hailed as one of the world's great wonders when it was opened in 1914, the canal was built by the United States during a 10-year construction endeavour after a failed French dig.

For much of the century the canal zone was operated as a sovereign U.S. territory but Panama took it over at the end of 1999. For years, decisions on shipping transits were dictated by the canal's capacity but today water shortages are the most critical factor.

While Panama is the world's fifth-wettest country, the area around the canal experienced one of the two driest years in the country's 143 years of keeping records in 2023.

The current shipping restrictions will apply at least until the end of the dry season in April and if rains arrive in May as expected, the canal plans to progressively increase daily slots, canal authorities have said.

But if the rains are delayed or scarce, there could be more restrictions on the number of ships crossing, or limits placed on the draft - or maximum depth - of ships allowed through, meaning that some will have to reduce their loads.

Canal authorities have calculated to "a very fine degree of accuracy" how much rainfall Gatún Lake receives and how much water can be used for lock operations, said scientist Steven Paton at the Smithsonian Tropical Research Institute in Panama.

This means they know how many ships they can send through and have adjusted the number of transits accordingly, said Paton, who heads the Physical Monitoring Program at the institute.

Dealing with weather extremes, including too little or too much rainfall, has become the new reality, disrupting weather patterns witnessed over the past 100 years, Córdoba said.

"It's no longer a theory. It's now a reality that the lack of water is affecting us," he said.

The hardest part of his job is "dealing with the uncertainty of the future" as his team tries to develop reliable models for rainfall.

"The canal needs to redefine or redesign itself to operate in these conditions of minimum water ... the solution is in investing in new projects focused on water issues," he said.

In the meantime, canal authorities must adapt to the new reality. They have increased toll fees for crossings and held auctions for transit slots that allow vessels to skip the queues, albeit at a cost. One Japanese shipping company reportedly paid a record of nearly $4 million for a slot in November.

Despite the surcharges, vessel restrictions have caused toll revenues to fall by about $100 million per month since October, and that has a wider effect on Panama's economy.

In 2022, canal authorities contributed about $2.5 billion to government coffers, equivalent to about 3% of Panama's GDP.

As well as a crucial revenue-generator, the canal is a source of national pride with many Panamanians viewing it as a symbol of power that allows the small nation to remain a key geopolitical player.

Latin American countries particularly depend on the canal, and about 14% of seaborne trade into and out of the United States also passes through, according to consulting firm McKinsey.

The Panama Canal is not the only waterway in Latin America dealing with the fallout from climate change.

Late last year, Brazil's port of Manaus recorded its lowest water levels in 121 years because of the effects of a record-breaking drought on the Amazon River and its tributaries, with access for container ships disrupted for more than 50 days.

Canal authorities have also implemented a series of water-saving measures to avoid imposing more restrictions, while noting "there is no silver bullet", to tackle water scarcity.

One initiative - known as cross-filling - reuses water by transferring it from one lock chamber to another, saving the equivalent of six daily crossings.

Another logistically challenging measure - tandem lockages - involves getting two ships to cross at the same time and occupy just one chamber if their size allows it.

"You have to sychronise the planning. It's really complicated but we have to do it to save water," said Córdoba.

The ACP has also suspended hydraulic assistance usually provided to help ship captains manoeuvre vessels into the locks.

Water management also involves protecting and restoring the surrounding tropical forests to mitigate soil erosion, increase water flows and better capture and store water, said Raúl Martinez, who heads the canal's basin management programme.

Forests are crucial in managing water because of their "sponge effect", said Paton.

"Forest cover is really important in managing the flow during periods of water scarcity and then on the flipside when you have years of major storms, the forest slows the movement of that water through the system into Lake Gatún," he said.

The ACP also runs projects to help raise yields for the thousands of small-scale farmers and coffee producers who are among 320,000 people living in the canal's basin. Some of these residents receive financial incentives and technical assistance from the ACP to protect the rainforests.

For example, under one such programme 450 families are paid $130 per hectare a year to conserve and restore forests, including by planting native tree species, said Martinez, adding that deforestation rates in canal watershed areas are lower than in other areas across Panama.

"Environmental issues must be related to the economy. Communities need to see economic benefits for protecting forests," said Martinez.

Yet despite such measures, new sources of freshwater will be needed to allow the canal's locks to operate at full capacity and handle more trade.

After years of studies and various ideas, the ACP board has proposed creating a new reservoir on the Indio River, about a two-hour drive away from the canal.

With an estimated cost of about $1.2 billion, the reservoir would take 4-6 years to build and would involve drilling an 8-km (5-mile) tunnel through a mountain to pipe water from the reservoir to the Gatún Lake, according to Espino de Marotta.

The new reservoir would allow for an additional 11 to 15 ship crossings daily, and "maintain a very good reliability" for canal operations and drinking water needs until 2075, she said.

"It's getting to the point where everything is increasing - shipping, water consumption - so we do need a new reservoir."

But the Indio River project needs government approval and would also require laws to be changed as the site for the planned reservoir sits outside the defined watershed area over which the canal currently has jurisdiction.

These decisions now await whoever wins the election in May.

Finance has also yet to be secured. Espino de Marotta said funds would most likely be a combination of canal revenues and loans from multilateral development banks.

For the project to proceed, it needs the free, prior and informed consent of around 230 communities who depend on the river for their livelihoods. They must be properly consulted by the ACP, although their approval is not needed for the project to go ahead.

The construction of the reservoir would affect about 2,500 people, authorities estimate.

"You want to go to the communities, explain to them, let them know they are going to be taken care of, (that) no project will be developed without their consent," said Espino de Marotta, stressing that this consent was not the same as authorisation.

But in the forest villages where these communities live, a world away from the gleaming high-rises of Panama City and the bustle of the canal, it is clear that communication with canal authorities and community buy-in are both lacking.

Among riverside communities the main concern is that building the new reservoir would mean farms and homes would be flooded and their owners would have to be resettled.

"We don't agree with the project," said Yaritza Marin, a River Indio Bajo community leader.

"We don't know how the dam will affect our community ... (the ACP) say the ships can't get through because of the low water levels and that means less money for them. Instead why don't they invest in our communities? We lack basic services, healthcare, education and running water," she said.

Environmental issues and defending community rights have become an increasingly important source of public anger and frustration towards the government in Panama.

Thousands of Panamanians took to the streets last November to protest against the government's renewal of a copper mining contract for the Cobre Panama mine, one of the newest and biggest copper mines in the world.

People were angered by a perceived lack of transparency around negotiations with the mine's operator, Canada's First Quantum Minerals, and this fuelled broader dissatisfaction with the government. The River Indio dam project is dogged by similar distrust and this could be a stumbling block in the future.

"How will having a dam affect communities like us living downstream?" said Marin.

"We don't know if we will be able to navigate the river ... after the dam is built. What will happen to the farmers, their homes?" she said, noting that communities already have to collect rainwater from the River Indio as there are no aqueducts to supply drinking water.

The ACP says that affected communities would "have equal or better living conditions" if they are resettled. And they are aware that communication with residents will be paramount.

"It's a lot of learning that the people in the watershed need to do because we haven't been in that area so it's going to be a lot of communication with the residents," said Espino de Marotta.

Another Rio Indio Bajo resident, Bolívar Sanchez, said he first heard about the reservoir project in 2000 when canal operators hosted workshops in the area.

"But they came with the project already planned. There was no opportunity for consultation," said Sanchez, as he steered a small motorboat along the Indio River, passing horses and cattle grazing in pastures.

"The authorities have to respect the communities and have a proper dialogue. We all need water."

Reporting: Anastasia Moloney

Editing: Clar Ni Chonghaile and Zoe Tabary

Photography: Enea Lebrun

Graphics: Diana Baptista

Production: Amber Milne