Drought in the Panama Canal threatens fuel markets

It was the driest October in the Panama Canal since records began in 1950.

After a major lake feeding the artery dried up due to drought, it was announced that only 18 ships per day would be able to pass through the Panama Canal until February.

Although the decline in the number of ship crossings to about half of last year is a problem for almost all commodities, trade in energy products is an especially serious problem. Last year, almost half of the goods sent through the canal by weight were oil and gas-based products. From diesel to gasoline to liquefied petroleum gas, the world uses the Panama Canal to transport energy.

This is especially important at a time when the United States exports more propane, a type of LPG, than ever before. According to weekly data from the US Energy Information Administration, shipments, which averaged 1.3 million barrels per day in 2022, broke a record, reaching 2.1 million barrels per day in October.

SHIP CROSSING HAS BECOME DIFFICULT, DIFFERENT WAYS ARE BEING TRIED

As the passage of ships becomes difficult due to the drought in Panama, different methods are being tested.

One tanker owner said he sent one of his ships to the southern tip of South America earlier this year to avoid queues in the canal, and the journey took about 16 days longer. In recent weeks, tankers also making U-turns away from the canal have become a more common detour.

Aside from ships trying different routes instead of the canal, an LPG carrier that tried a more expensive route last week paid $4 million to jump to the front of the queue and get one of the increasingly scarce passage permits. .

Disruption in fuel transportation potentially increases fuel costs.