Panama Canal drought tightens LNG flows to Asia

Pacific buyers are facing longer voyages as carriers weigh alternative routes.

The Panama Canal drought is tightening liquefied natural gas (LNG) flows to Asia, with lower water levels forcing draft restrictions that reduce vessel carrying capacity, according to Wood Mackenzie’s VesselTracker data.

El Niño-driven drought conditions have pushed Panama Canal water levels below both 2025 levels and the five-year average, forcing authorities to impose draft restrictions as rainfall deficits limit canal operations.

Asian LNG markets are also dealing with the effects of the Strait of Hormuz closure, which has removed about 20% of global LNG supply, according to Wood Mackenzie. The canal constraint adds another pressure point for Pacific buyers facing energy crunches.

The canal connects US Gulf Coast export terminals with Pacific demand centres. LNG carriers facing draft restrictions can load below capacity, compete for transit slots, or reroute through the Cape of Good Hope.

A Cape rerouting adds about 10 to 15 days to voyages, increasing tonne-mile demand, tightening vessel availability, and raising freight costs.

Daily transits fell from about 325 in early May to as low as 271 in late May before recovering to about 308 through June, Wood Mackenzie said.

LNG has the greatest exposure amongst energy commodities because of its narrow arbitrage margins, followed by liquefied petroleum gas and refined products, Wood Mackenzie said.

“As many regions, and particularly the Pacific, are facing energy crunches, disruptions like this could further exacerbate already extremely tight markets,” said Ian Solis, data associate at Wood Mackenzie.

Solis said monitoring El Niño-driven disruption to canal operations and Gulf Coast logistics would be important through the third and fourth quarters of 2026.

Lower vessel capacity, longer voyages, and higher freight costs could further constrain LNG flows into Pacific markets if canal restrictions persist.