The Panama Canal is an important route connecting the Pacific Ocean with the Caribbean Sea and Atlantic Ocean. According to the Panama Canal Authority, 0.5 million bbl/d of crude and petroleum products were transported through the canal in 2006. However, the relevance of the Panama Canal to the global oil trade has diminished, as many modern tankers are too large to travel through the canal. Some oil tankers, such as ultra-large crude carriers (ULCC), can be nearly five times larger than the maximum capacity of the canal. The largest vessel that can transit the Panama Canal is known as a PANAMAX-size vessel (ships ranging from 50,000 – 80,000 dead weight tons in size and no wider than 108 ft.)

Source: U.S. Government

The Canal is 50 miles long, and only 110 feet wide at its narrowest point called Culebra Cut on the Continental Divide. Around 14,000 vessels transit the Canal annually of which around half account for traffic to and from the United States. However, the Panama Canal is not a significant route for U. S. petroleum imports.

In September of 2007 the Government of Panama began work on a US$ 5 billion project to expand the Canal. The expansion will add a third lane of traffic that will handle wider loads and new locks that will be 150 feet wide (compared to the current 110 feet) as well as deeper and wider access canals that will allow for larger modern ships to pass. This expansion is expected increase transit volume and almost double the current maximum size of ships able to use the canal. The plan is to be financed, in part, by raising current tolls through the Canal, the remaining funds will come from foreign credit.

It is unlikely that oil flows would increase dramatically, as many oil tankers would still be unable to use the canal. On the other hand, the expansion would open the new possibility of using the canal to transport liquefied natural gas (LNG), as almost all existing LNG tankers are too large to use the canal as it now stands. In addition, the expansion could allow greater flows of coal from South America, especially Colombia, into the Pacific Rim.

Like all important thoroughfares, closure of the Panama Canal would greatly increase transit times and costs adding over 8,000 miles of travel. Vessels would have to reroute around the Straights of Magellan, Cape Horn and Drake Passage over the tip of South America.

The Trans-Panama Pipeline (TPP - Petroterminal de Panama, S.A.) is located outside the former Canal Zone near the Costa Rican border and runs from the port of Charco Azul on the Pacific Coast to the port of Chiriquie Grande, Bocas del Toro on the Caribbean. The pipeline was built in 1982 with the original purpose being to facilitate crude oil shipments from Alaska’s North Slope to refineries in the Caribbean and the U.S. Gulf Coast. However, in 1996, the 800,000 bbl/d TPP was shut down as oil companies began shipping Alaskan crude along alternative routes. Since 1996 there have been intermittent requests and proposals to utilize the TPP. For example, EnCana shipped small volumes of Ecuadorian oil through the system in 2003. In 2005, Venezuela reportedly began talks about using the pipeline to facilitate oil exports to China.