Panama Canal set to diversify operations to bolster ‘climate neutrality’ targets

November 18, 2024, by Sara Kosmajac

In his keynote address at a recently held maritime conference in Houston, Texas, Panama Canal administrator Ricaurte Vásquez shared details of a plan to evaluate alternative initiatives to expand the canal’s operations and support Panama’s role as an “integral” shipping hub.

Panama Canal Administrator Dr. Ricaurte Vásquez. Credit: Panama Canal Authority

Vásquez revealed that an ‘important’ collaboration, expected to bolster the canal’s goals, is the one with the Port of Houston—believed to be the canal’s biggest client—seeing as Panama has held an ‘important’ role in supporting Texas ports’ trade activities.

Moreover, according to the Panama Canal’s administrator, during these times of transition, particularly the energy transition, ‘longevity and sustainability’ have taken the top spot among the Panama Canal Authority’s (ACP) priorities to keep its waterway functioning ‘effectively’.

“Fresh water is one of the main resources used by the Panama Canal, and to that end, we depend on the rainfall to transit vessels. Due to climate change, we expect to see an increase in the number of episodes caused by the El Niño phenomenon. Over that, we have no control, and that’s why we see an opportunity to diversify our operations and to serve the maritime industry in a different manner,” Vásquez stressed.

“In response to President Mulino’s request to increase the volume of WTI [West Texas Intermediate oil] going through the Canal, we are looking at different diversification options, including other forms of transportation, such as pipelines that will allow the Panama Canal to look beyond maritime transportation and take advantage of its (…) geographical location to find alternative income streams,” he added.

El Niño—a complex, global weather pattern that results from variations in ocean temperatures in the Equatorial Pacific—has had a tremendous impact on the canal and, wider, in the entire Central America. Last year and this year, especially, the phenomenon has led to drier-than-usual conditions, which weighed heavy on a canal that relies on freshwater from nearby lakes for its lock systems.

As a means of conserving water, the ACP introduced several sustainability-focused measures over the years. For instance, the number of vessels that could travel through the canal each day was reduced. Even though this did, to a certain degree, protect Panama’s operations, it also led to delays as well as a jump in shipping prices.

In addition to this, to ‘strengthen’ the waterway’s position as a ‘green corridor for international trade’, the ACP unveiled a greenhouse gas (GHG) emissions fee back in 2021 that backs efforts and projects intended to lead the canal towards its climate neutrality targets.

To meet its fiscal goals despite diminished transits, the ACP introduced the Freshwater Surcharge (cargo por agua dulce or CAD) and bettered the water yield through structural and operational upgrades.

Another big step that Vásquez discussed at the Houston event was the staggering investment of $8.5 billion, allocated for the period of the next five years, intended for ecologically forward initiatives that would help the Panama Canal achieve its net zero carbon emissions goal by 2050.

The largest portion of the money ($3.5 billion) was put aside for equipment and infrastructure, with more than $2 billion allocated for efforts such as implementing a more ‘robust’ water management system. As disclosed, the remaining funds were to go toward digital transformation and sustainability-oriented improvements at the waterway.

Despite a reduction in total transits and tonnage, however, the Panama Canal, as per the entity’s representative, has managed to start wriggling through the hurdles, having closed FY2024 with 4.99 billion PAB (circa $4.89 billion) in revenue growth and with a disclosed $1.8 billion increase over the past five years.

Vasquez has further emphasized that, beyond supporting the Panama Canal Authority’s operations, these financial elements are anticipated to have a role to play in facilitating trade for Texas ports in general.

As made known at the conference, the Lone Star state accounts for 23% of Panama’s overall transiting cargo, which is said to amount to 63.5 million tons. The Port of Houston alone is believed to import container cargo totaling 3.9 million tons from Panama while petroleum and petroleum products export is at 42.7 million tons.