September 2026
The year’s El Niño weather pattern is affecting the Panama Canal through lower rainfall, declining reservoir inflows and increasingly defensive water management measures. For VLGC shipping, the principal risk is not simply lower permissible draft, but the combination of fewer transit opportunities, possibly longer and less predictable waiting times, and increasingly high auction premiums. These factors are weakening US Gulf to Asia arbitrage economics and increasing vessel demand.
According to the Panama Canal Authority (ACP), cumulative rainfall across the Canal watershed between May and August 2026 was 34% below the historical average, while watershed inflows were 44% below normal. ACP has warned that the year’s El Niño weather could further reduce rainfall and runoff during the remainder of the wet season, leaving less water available for the January-April 2027 dry season.
The Neopanamax locks face significant exposure to hydrological risks because they handle larger vessels, including very large gas carriers (VLGC), which require substantial freshwater for each transit. Following a series of progressive draft reductions, the ACP announced further cuts to 14.63 meters and 14.48 meters, though it has since postponed their effective dates to September 2 and October 1, 2026, respectively. The postponement provides short term relief but does not alter the underlying risk, as available draft and transit capacity remain vulnerable to reservoir levels and rainfall.
According to ACP, total daily booking slots will drop to 34 on September 4, comprising 9 Neopanamax and 25 Panamax slots, before falling further to 32 on September 15 as Panamax availability drops to 23. Neopanamax capacity will remain steady at 9 daily slots throughout this period.
To resolve severe bidding wars and supply chain distortions caused by water shortage transit slot cuts, ACP introduced four distinct market segments, placing LNG and LPG vessels in Group 1. Effective August 21 for booking dates beginning September 4, this framework restricts any bidding to specific days designated exclusively for each group, preventing different sectors from competing against one another. Additional restrictions include limiting customers to one competitive booking per day, reducing operational flexibility regarding date changes, substitutions and advanced transits, freezing September customer rankings, and imposing stricter penalties for late cancellations under specified conditions.
Congestion has already become commercially significant. By late July, 121 vessels were waiting to transit the Canal, including 36 at the Neopanamax locks. By August 26, the ACP indicated an average northbound waiting time of approximately 13 days for unbooked Neopanamax vessels.
These delays are particularly consequential for VLGCs ballasting from Asia to the US Gulf as it can jeopardize the vessel’s next loading window, expose the charterer to contractual risk and reduce the number of voyages achievable over a given period.
Source: Poten, Market Sources
For shipowners, however, this operational disruption strongly supports the freight market. Prolonged waiting time, extended voyages, and long-distance diversions effectively contract active vessel supply, turning the situation into a shipowner’s market. Should these canal delays persist longer, the combination of elevated ton-mile demand and depressed fleet productivity is expected to sustain high VLGC freight rates, even if weaker arbitrage economics temporarily reduce US cargo liftings.
Auction pricing has risen to unprecedented levels. SK Gas reportedly paid $4.6 million for the northbound transit of the 2013-built G. Arete (82,000 cbm) on August 20, followed by a record $5.3 million for the 2018-built G. Spirit (84,000 cbm) for northbound transit on September 1. Auction expenses at these levels can consume a substantial proportion of the US-Asia propane spread. Paying such a premium may only be commercially defensible where the vessel is protecting a profitable cargo, meeting a critical laycan, preventing wider scheduling losses, or avoiding a lengthy diversion.
Source: Poten, Market Sources
The combined effect of reduced Canal capacity, record auction costs and limited routing flexibility is likely to keep the VLGC market tight in the coming weeks. Even if weaker US-Asia arbitrage economics reduce cargo liftings, longer waiting times and voyage diversions should continue to absorb excess vessel capacity and support freight. Unless rainfall and reservoir inflows recover materially, this disruption in Panama Canal shipping operations is expected to remain a key source of cost, scheduling risk and owners’ pricing power.
El Nino shipping disruptions
The 2023-2024 El Niño weather pattern had a severe and immediate impact on the Panama Canal, triggering the worst drought-related disruption in the waterway’s history. As lake levels fell sharply and the drought peaked in December 2023, the Panama Canal Authority (ACP) was forced to reduce daily transits to 22 vessels, including only 6 Neopanamax and 16 Panamax slots. At one stage, the ACP even considered further cuts to 20 transits in January and 18 in February 2024 before improving rainfall and water conservation measures helped stabilize operations.
While the current El Niño weather has yet to cause a comparable disruption, similar to the unprecedented transit restrictions seen during the 2023-2024 event, climate agencies like the National Oceanic and Atmospheric Administration (NOAA) predict that there is a 70% chance that the current El Niño cycle will be worse than the one in 2023-2024. El Niño events during the past 40 years have become 36% stronger than those before the industrial revolution, when people began to generate large volumes of climate pollution.
High transit auction fees and extended waiting times have already begun to influence operational decisions for VLGCs loading in the US Gulf or East Coast and discharging in the Far East. The emergence of cargo transfer arrangements and longer voyages around South America suggests that operators are increasingly exploring alternative solutions to mitigate rising transit costs and scheduling uncertainty.
Shiptracking data shows that the 2026-built Panamax VLGC Energia Grandeur (88,000 m³), which loaded at the Nederland terminal in early August, transferred its cargo to the 2022-built Neopanamax VLGC Eneos Wisdom (91,000 m³) on the Pacific side of the Panama Canal in late August. Having completed a discharge in South Korea, Eneos Wisdom was ballasting toward the Canal and therefore avoided a Neopanamax lock transit. The vessel is expected to discharge the cargo in South Korea during the final decade of September.
In another example, the 2018-built Neopanamax VLGC Gas Scorpio (84,000 m³) bypassed Balboa and proceeded via Cape Horn at the southern tip of South America, en route to the US Gulf for loading.
Impact on freight
The VLGC spot freight rate for Houston to Chiba voyage via the Panama Canal (BLPG3) averaged $245/t from June to August 2026, during the ongoing El Niño period. By comparison, BLPG3 averaged $169/t during the previous El Niño period, from June 2023 to April 2024. While much of this substantial increase can be attributed to widespread disruptions across Arabian Gulf supply chains and the resulting shift in trade flows, which increased reliance on US exports, elevated Panama Canal transit costs and prolonged waiting times have further exacerbated the situation.
Rising Canal expenses and persistent congestion have severely compressed US Gulf-Asia arbitrage economics, triggering the cancellation of at least 11 US Gulf FOB cargoes scheduled for August loading. Middle East suppliers have also faced heightened uncertainty due to disruptions at the Strait of Hormuz, stemming from the US-Iran conflict. In addition, a few Arabian Gulf producers have undertaken DES/CFR deliveries, which involve complex and time-consuming processes, thereby reducing overall VLGC availability.
Meanwhile, in the Red Sea, Yemen’s Houthis have maintained attacks and threats against commercial shipping around the Bab al-Mandeb Strait, compelling vessels loading at Yanbu to transit through the Suez Canal for discharge in Asia, leading to further upward pressure on freight markets by curtailing available fleet supply. The reopening of these routes would enable Middle Eastern suppliers to better meet Asian demand, easing pressure on alternative supply chains and helping to reduce congestion along the Panama route. Until then, freight rates are likely to remain firm.
If forward markets could be of guidance, BLPG3 FFA for September was over $289/t as of September 2, while it was $259/t for the fourth quarter of 2026 and $206/t for the first quarter of 2027.
This excerpt is taken from Poten’s LPG in World Markets. Complete the form below to learn more or request a trial.