Severe droughts are disrupting traffic on the Panama Canal and the Rhine, driving up shipping costs and adding pressure to energy markets already strained by disruptions at the Strait of Hormuz, Wood Mackenzie strategists said in a note on Wednesday.
Wood Mackenzie analysts said that El Nino-driven drought conditions have pushed water levels in the Panama Canal below both last year's levels and the five-year average, prompting draft restrictions that limit how much cargo vessels can carry.
The disruption is significant for liquefied natural gas, liquefied petroleum gas and refined products, with the canal providing a key link between US Gulf Coast export terminals and markets in the Pacific basin.
The latest data from Wood Mackenzie's VesselTracker showed that daily transits fell from about 325 in early May to as low as 271 in late May, then recovered to about 308 through June.
The restrictions mean carriers must either reduce their cargo loads, compete for limited transit slots or take longer routes around the Cape of Good Hope, adding about 10 to 15 days to voyages.
Wood Mackenzie said that can increase ton-mile demand, tighten vessel availability and push up freight rates, even without a change in underlying commodity supply or demand.
LNG is vulnerable because relatively narrow arbitrage margins can be quickly eroded by higher freight costs, with LPG and refined products following.
Asian LNG markets are already facing tighter conditions following disruptions in the Strait of Hormuz, which Wood Mackenzie estimates have removed about 20% of global LNG supply from the market.
"The Pacific in particular is facing energy crunches, and disruptions like this could further exacerbate already extremely tight markets," said Ian Solis, a data associate at Wood Mackenzie.
Europe's Rhine river has also been hit by low water levels, restricting the movement of energy products and other commodities into the continent.
Wood Mackenzie said that water levels at Kaub, a key navigation point in western Germany, fell to 15 cm on Aug. 11 from 30 cm on July 28, the lowest level on record.
Most barges were operating at about 25% of their normal cargo capacity as of Aug. 12, increasing the cost of transporting goods along the river.
Freight rates from Rotterdam to Cologne reached 80 euros ($92.73) per metric ton in the week ending Aug. 7, compared with 17 euros in mid-June. Rates to Frankfurt climbed to 150 euros per ton from 29 euros over the same period.
The Rhine is a major transport route for fuels and other energy commodities from the North Sea and Rotterdam into Germany and inland Europe. Lower water levels force vessels to reduce cargoes, increasing the number of trips needed to move the same volume of products.
The resulting freight inflation could squeeze margins for inland refiners if low water levels persist through August and September, usually among the driest months in the Rhine basin.
Wood Mackenzie said continued monitoring of El Nino-related disruption to the Panama Canal and Gulf Coast logistics would be important through Q3 and Q4, as weather-related restrictions risk compounding existing energy-market dislocations.