Severe droughts affect critical shipping arteries, sending more disruption to energy markets

Severe droughts are affecting several of the world's critical shipping arteries, adding further pressure to energy markets already reeling from disruption at the Strait of Hormuz, according to the latest data from Wood Mackenzie's VesselTracker.

El Niño-driven drought conditions are restricting Panama Canal operations, sending water levels to their lowest compared to both 2025 and the five-year average. Rainfall deficits have forced authorities to impose draft restrictions that reduce effective vessel carrying capacity, with significant consequences for LNG shipping at a moment when the market is already under stress.

Asian LNG markets are navigating the downstream effects of the Strait of Hormuz closure, which has removed approximately 20% of global LNG supply, according to Wood Mackenzie analysis. The Panama Canal drought adds a second constraint, squeezing Pacific buyers from two directions simultaneously.

Panama Canal: a tightening corridor

Daily transits at the Panama Canal fell from approximately 325 per day in early May to as low as 271 in late May before partially recovering to approximately 308 per day through June, according to Wood Mackenzie VesselTracker ship data. The pattern signals a tightening corridor rather than a normalising one.

LNG, LPG, and refined products bear the most direct exposure to canal constraints. The canal links US Gulf Coast export terminals to Pacific basin demand centres, and when draft restrictions apply, carriers either load below capacity, compete for transit slots, or reroute via the Cape of Good Hope, adding approximately 10 to 15 days to voyage times. The result is higher tonne-mile demand, tighter vessel availability, and elevated freight costs, even when underlying supply and demand fundamentals are unchanged.

Among energy commodities, LNG is the most sensitive given narrow arbitrage margins, followed by LPG and product flows where even modest freight increases can close trading windows.

“Monitoring El Niño-driven disruptions to canal operations and Gulf Coast logistics will be critical for staying ahead of further commodity flow dislocations through Q3 and Q4 2026,” said Ian Solis, data associate for Wood Mackenzie. “As many regions, and particularly the Pacific, are facing energy crunches, disruptions like this could further exacerbate already extremely tight markets.”

Rhine: record lows, now recovering

Europe's key inland energy artery also felt the strain of drought conditions this month. The water level at Kaub, the Rhine's critical chokepoint for barge navigation in western Germany, dropped to just 15 cm on 11 August, down from 30 cm on 28 July, the lowest level on record.

Wood Mackenzie data shows most barges were operating at around 25% of their cargo capacity as of 12 August. Freight rates responded sharply: the cost of moving cargo from Rotterdam to Cologne reached €80 per metric tonne in the week ending 7 August, up from €17 per metric tonne in mid-June. Rates to Frankfurt climbed to €150 per metric tonne from €29 per metric tonne over the same period.

The combination of reduced barge capacity and elevated freight costs risks pressuring margins for inland refiners if conditions persist through August and September, historically the driest months for the Rhine basin.

Wood Mackenzie's VesselTracker recorded an improvement in conditions last week following rainfall across the Rhine basin.

Notes to editors

Wood Mackenzie's Vessel Tracker monitors global vessel movements in real time across all major shipping lanes and chokepoints. For comprehensive waterborne crude import, export and intra-PADD movement data, see Wood Mackenzie's North American Waterborne Crude Report.

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