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Panama


Panama is important to world energy markets because the Panama Canal is a major transit center for oil shipments and a potential choke point. Panama is key to plans to connect the electricity and natural gas grids of North and South America.
Note: information contained in this report is the best available as of August 2000 and can change.
Map Of Panama Central America
BACKGROUND:   Panama has maintained positive economic growth since 1989, although growth for 2000 is expected to fall below the 3.4% gross domestic product (GDP) expansion seen in 1999. Factors impacting the Panamanian economy include issues related to the Panama Canal, world oil prices, and the prices for Panama's major exports. The Panama Canal, built and operated by the United States for over 80 years, came under Panamanian control on December 31, 1999. The according departure of U.S. troops has had a small negative impact on the local economy. Panama is an oil importer, and high world oil prices coupled with low prices for Panama's shrimp and banana exports also are expected to contribute to less rapid economic expansion in 2000. Government revenue from planned privatization will increase in 2000. Panama's century-old currency fix to the U.S. dollar encourages foreign investment. Panama's President Mireya Moscoso rules with a slim majority. International attention is focussed on how her administration manages the Canal; to date, the transition to Panamanian control has gone smoothly. Clashes along the Panamanian-Colombian border, a spill over from inter-Colombian political unrest, have become increasingly common in 2000. Panama has had no army since the 1989 removal from office of Manuel Noriega, leaving police forces to secure the border area. Free trade talks between Panama and its Central American neighbors resumed in 2000, and trade liberalization talks between Panama and other Latin American countries, including Mexico and Chile, are currently on hold.


ENERGY IN PANAMA: Panama has negligible hydrocarbon energy reserves and imports over 70% of its energy. Virtually all oil is imported, and the country neither produces nor consumes natural gas. In June 2000, neighboring Colombia's Senate approved a bill allowing natural gas exports, which previously had been banned.

Panamanian EnergyThis paves the way for the possible construction of a gas pipeline leading from offshore Colombian gas sources directly to Panama. U.S.-based Enron in April 2000 announced plans to invest about $400 million to build such a pipeline. Electricity generation accounts for most of Panama's domestic energy production, with hydroelectric generation alone accounting for 75% of the country's total energy production. In 1998, the state-owned electricity company, IRHE, was broken up. There are currently eight electricity generators and three distributors operating in Panama. Foreign company involvement in the Panamanian electricity sector includes U.S.-based Coastal, AES, Enron, Illinova, and Noresco, Canada's Hydro Quebec, and Spain's Union Fenosa. EGE Fortuna, owned by Coastal and Hydro Quebec (51%) and the Panamanian government (49%), is the country's largest generator, with 300 megawatts (MW) of hydropower. Transmission remains in the hands of the government through the publicy-owned Etesa company. Also in 1998, a regulatory body was created, Ente Regulador, to oversee the electric, telecommunications, and water sectors. Electricity demand is expected to grow significantly in the coming few years, and new projects are planned to help meet this demand. In May 2000, the Inter-American Development Bank (IDB) Private Sector Department approved its first project in Panama. The IDB will loan $59.8 million to IGC/ERI Pan Am Thermal Generating Limited (PATG) for the construction and operation of a 96-MW, $92-million thermal electric plant near Panama City. Construction of AES's $200-million, 132-MW Esti hydroelectric project in Panama's Chiriqui province began in early August 2000. Esti is made up of two hydroelectric plants, Guasquitas and Canjilones, on the Chiriqui river. By September 2000, Etesa is expected to launch the bidding for the construction of a $144-million transmission line to transport power from Esti. Central America has been discussing plans to link the region's electricity grids. The Sistema de Interconexion Electrica para America Central (SIEPAC) project calls for the construction of transmission lines connecting 35 million consumers in Panama, Costa Rica, Honduras, Nicaragua, El Salvador, and Guatemala. The project remains in the planning stages, and consultants involved in the project estimate that the line could become operational by 2003 at the earliest. SIEPAC could cost an estimated $300 million. Panama has become increasingly concerned about its environment. With the 1998 electricity restructuring, the government also restructured its environmental regulatory framework. Autoridad National del Ambiente (ANAM) became the government agency responsible for the implementation and administration of environmental law. ANAM holds significant enforcement authority, in contrast to the regulatory body that preceded it.


THE PANAMA CANAL: The Panama Canal extends approximately 50 miles from Panama City on the Pacific Ocean to Colon on the Caribbean Sea. It is widely considered to be one of the world's great engineering achievements. The United States is the largest user of the Canal in terms of cargo tonnage, as either port of origin or destination, although Asian countries are beginning to close the gap. The Panama CanalAbout 12% of U.S. sea-borne international trade, in terms of tonnage, passes through the Canal annually. Ships bound for Japan from the East Coast of the United States save about 3,000 miles by going through the Canal; ships sailing from Ecuador to Europe save about 5,000 miles. Treaties In 1903, the Republic of Panama and the United States signed the original Panama Canal Treaty, which allowed the United States to build and operate a canal connecting the Pacific Ocean with the Caribbean Sea through the Isthmus of Panama. The Treaty granted the United States the use, occupation, and control of a Canal Zone, approximately 10 miles wide, in which the United States possessed full sovereign rights. In return, the United States guaranteed the independence of Panama and paid the government of Panama $10 million, as well as an annuity of $250,000, which each year increased at a rate far beyond that of inflation. On September 7, 1977, a new Panama Canal Treaty was signed by President Torrijos of Panama and President Carter of the United States that transferred full control of the Canal to Panama on December 31, 1999. Under this Treaty, the Panama Canal Company, the Canal Zone, and its government were disenfranchised on October 1, 1979, and replaced by the Panama Canal Commission that operated the Canal during the 20-year transition period that began with the Treaty. The Panama Canal Commission has now been replaced by a new Panamanian entity, the Panama Canal Authority. The treaty guarantees permanent neutrality of the Canal. Control over U.S. military facilities in the former Panama Canal Zone has reverted to Panamanian authority. The U.S. Southern Command and U.S. Army South troops moved out of Panama at the end of 1999. A Hong Kong-based company, Hutchison-Whampoa, now operates the ports at both entrances to the Canal. This has been a cause for security concerns among some lawmakers in the United States, although the United States is legally entitled to intervene to maintain the neutrality of the Canal. Canal Traffic The U.S. Gulf/East Coast-Asia route is the dominant trade route for the Panama Canal, boosted by increased U.S.-China trade. Movement between Europe and the west coast of the United States and Canada comprise the waterway's second major trade route. However, the Panama Canal is seeing a boost in North-South trade, which is expected to grow as Latin America evolves as an increasingly important trading partner of North America. In fiscal year 1998 (ending September 30), approximately 625,000 barrels per day of crude oil and petroleum products passed through the Panama Canal. Over 60% of total oil shipments went from the Atlantic to the Pacific, and oil products dominated this traffic. Crude oil accounted for the majority of Pacific to Atlantic oil traffic, with much of this coming from the Alaskan North Slope. Petroleum products combined accounted for over 60% of all petroleum shipments through the Canal. The United States has become increasingly less reliant on the Panama Canal for its oil imports. U.S. crude oil imports transiting the Panama Canal totaled 78,670 barrels per day (bbl/d) in 1999, out of total U.S. imports of 9.8 million bbl/d. While the U.S. imports only slightly less oil through the Canal than 20 years ago, it no longer relies heavily on the Canal to move oil from one coast to the other. In 1979, 265,768 bbl/d went through the Canal that both originated in and was destined to the United States; this number fell to 2,210 bbl/d in 1999. 1999 U.S. Panama Canal Petroleum Traffic (Barrels per day) Crude Oil Diesel Gasoline Jet Fuel Kerosene Originating in U.S. 2,843 9,930 39,655 2,783 600 Destined to U.S. 78,670 14,105 68,186 25,840 0 Originating in and Destined to U.S. 2,210 1,596 29,020 2,761 0 U.S. Exports 633 8,334 10,635 22 600 U.S. Imports 76,460 12,509 39,167 23,079 0
1999 U.S. Panama Canal Petroleum Traffic (Barrels per day)

1999 U.S. Panama Canal Petroleum Traffic (Barrels per day)

Crude Oil

Diesel

Gasoline

Jet Fuel

Kerosene

Originating in U.S.

2,843

9,930

39,655

2,783

600

Destined to U.S.

78,670

14,105

68,186

25,840

0

Originating in and Destined to U.S.

2,210

1,596

29,020

2,761

0

U.S. Exports

633

8,334

10,635

22

600

U.S. Imports

76,460

12,509

39,167

23,079

0


Petroleum is one of the largest commodities (by tonnage) shipped through the Canal and accounted for 16%-17% of total canal shipments during fiscal years 1996-1998. Some coal is shipped through the canal as well, accounting for 5%-6% of total Canal traffic. Over 10 million short tons passed through the canal in fiscal year 1998 (down from over 12 million short tons in fiscal years 1996-1997), with almost 80% going from the Pacific to the Caribbean.

Principle Commodities Shipped through the Panama Canal, Fiscal Year 1999

Originating in U.S.

Destined to U.S.

Originating in and Destined to U.S.

Long Tons

% of Total

Long Tons

% of Total

Long Tons

% of Total

Corn

22,763,083

26%

19,106

0.02%

17,992

0.01%

Soybeans

11,388,353

13%

4,919

<0.01%

4,919

<0.01%

Container Cargo

9,717,317

11%

10,755,167

21%

172,081

5%

Petroleum *

8,379,587

10%

11,443,905

22%

2,182,686

63%

Chemicals (not including petrochemicals)

5,151,612

6%

2,822,739

0.05%

715,795

2%

Lumber

4,420,501

5%

55,506

<0.01%

8,792

<0.01%

Fertilizer

4,280,465

5%

371,068

0.01%

0

0%

Wheat

3,692,905

4%

82,220

<0.01%

1,862

<0.01%

Phosphates

3,352,836

4%

34,534

<0.01%

0

0%

Coal

1,509,770

2%

76,743

<0.01%

0

0%


* Petroleum includes: Asphalt, Crude oil, Diesel oil, Gasoline, Jet fuel, Kerosene, Liquefied gas, Lubricating oil, Petroleum coke, Petrochemicals, Other petroleum products, and Residual fuel oil.

The Canal is capable of accommodating about 50 ships per day (the maximum has been 65 transits per day). Oceangoing vessel transits totaled 13,025 in fiscal year 1998, or an average of 35.7 vessels per day, a 1.0 percent decline from 1997's 13,158, or 36.0 vessels per day. Transit by the 50,000-ton Panamax class ships, the largest vessels that the waterway can accommodate, totaled 3,998 or 30.7% of the total oceangoing transit.

Trans-Panama Pipeline:
If transit were halted through the Canal, the Trans-Panama pipeline (Petroterminal de Panama, S.A.) could be re-opened to carry oil in either direction. This pipeline is located outside the former Canal Zone near the Costa Rican border, and runs from the port of Charco Azul on the Pacific Coast (near Puerto Armuelles, southwest of David) to the port of Chiriqui Grande, Bocas del Toro on the Caribbean. It was opened in October 1982 as an economical alternative to the Panama Canal for transporting Alaskan oil across Panama en route to Gulf Coast ports. Transit time from Alaska to the U.S. Gulf Coast via Panama is about 16 days, whereas a tanker would take 40 days to reach the Gulf Coast from Alaska if rerouted around Cape Horn (the southern tip of South America). More than 2.2 billion barrels of Alaskan crude oil has been transported through the 81-mile pipeline. However, the 860,000-bbl/d pipeline was closed in April 1996 after Alaskan oil shipments to the Gulf Coast declined with falling Alaskan oil production (Alaska now produces about 1 million bbl/d) and increased oil consumption on the west coast of the United States, especially in California. In addition, the decision to allow Alaskan oil to be exported outside the U.S. reduced the incentives to ship Alaskan oil to the Gulf Coast. There has been some discussion of reversing the direction of the pipeline to allow Caribbean oil producers a less expensive outlet to Pacific destinations.

Canal Expansion and Modernization:
The Panama Canal Authority (ACP) currently is studying the possibility of expanding the Canal. Feasibility studies for a series of capacity-enchancing projects are nearly complete. Projects currently under study include plans for damming new water resources, building hydroelectric power generation plants (the Canal already has two hydroelectric plants and one thermal electricity plant), widening and deepening existing channels, and the construction of two new sets of locks.

The 86-year-old Canal already has undertaken some improvement and modernization projects. The expansion of the narrow Gaillard Cut is over 90% complete, and tow track locomotive replacement plans are on schedule. The Canal’s new Enhanced Vessel Management System (EVTMS), designed to achieve maximum safety and efficiency during Canal transits, has been installed and is in the final stages of adjustment. There also are plans to modify the Canal's booking system and to minimize maintenance-related delays in traffic.

COUNTRY OVERVIEW
President: Mireya Elisa Moscoso
Independence: 1903 (from Colombia)
Population (1999E): 2.8 million
Location/Size: Middle America, bordering both the Caribbean Sea and the North Pacific Ocean, between Colombia and Costa Rica/30,200 square miles
Capital City: Panama City
Languages: Spanish (official), English (14%; many Panamanians are bilingual)
Ethnic Groups: Mestizo (mixed Amerindian and white) 70%, Amerindian and mixed (West Indian) 14%, White 10%, Amerindian 6%
Religions: Roman Catholic 85%, Protestant 15%

ECONOMIC OVERVIEW
Currency: Balboa
Market Exchange Rate: US $1=1 Balboa (fixed)
Nominal Gross Domestic Product (GDP, 1999E): $9.6 billion
Real GDP Growth Rate (1999E): 3.4% (2000E): 2.6%
Inflation Rate (1999E): 1.3% (2000E): 1.5%
Colon Free Zone Imports (3/99-3/00): $330 million
Colon Free Zone Re-exports (3/99-3/00): $410 million
Number of ships through Panama Canal per month (average, 3/99-3/00): 1,154
Foreign Debt: $7.9 billion

ENERGY OVERVIEW
Oil Production (1999E): 1,000 barrels per day (bbl/d)
Oil Consumption (1999E): 52,000 bbl/d
Net Oil Imports (1999E): 51,000 bbl/d
Crude Refining Capacity (1/1/00): 60,000 bbl/d
Coal Consumption (1998E): 60,000 Short tons
Electric Generation Capacity (1/1/98): 1.05 million kilowatts
Electricity Generation (1998E): 4.5 billion kilowatthours
Electricity Consumption (1998E): 4.3 billion kilowatthours

ENVIRONMENTAL OVERVIEW
Total Energy Consumption (1999E): 0.16 quadrillion Btu*(<0.1% of world total energy consumption)
Energy-Related Carbon Emissions (1999E): 2.5 million metric tons of carbon(<0.1% of world total carbon emissions)
Per Capita Energy Consumption (1999E): 56.2 million Btu (vs U.S. value of 355.8 million Btu)
Per Capita Carbon Emissions (1999E): 0.88 metric tons of carbon (vs U.S. value of 5.5 metric tons of carbon)
Energy Intensity (1999E): 19,685 Btu/$1990 (vs U.S. value of 12,638 Btu/$1990)**
Carbon Intensity (1999E): 0.31 metric tons of carbon/thousand $1990 (vs U.S. value of 0.19 metric tons/thousand $1990)**
Sectoral Share of Energy Consumption (1998E): Industrial (16.2%), Transportation (46.5%), Residential (36.3%), Commercial (1.0%)
Sectoral Share of Carbon Emissions (1998E): Industrial (24.7%), Transportation (41.0%), Residential (32.2%), Commercial (2.1%)
Fuel Share of Energy Consumption (1999E): Coal (1.0%), Oil (78.4%), Natural Gas (0.0%)
Fuel Share of Carbon Emissions (1998E): Coal (1.5%), Oil (98.5%), Natural Gas (0.0%)
Renewable Energy Consumption (1998E): 41 trillion Btu*
Number of People per Motor Vehicle (1998): 9.8 (vs U.S. value of 1.3)
Status in Climate Change Negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified on May 23rd, 1995). Ratified the Kyoto Protocol on March 5th, 1999.
Major Environmental Issues: water pollution from agricultural runoff threatens fishery resources; deforestation of tropical rain forest; land degradation.
Major International Environmental Agreements: Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar and wind electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.


Sources for this report include: Dow Jones News wire service; Economist Intelligence Unit ViewsWire; Financial Times; Oil Daily; Oil and Gas Journal; Panama Canal Authority; U.S. Energy Information Administration; Washington Times; WEFA Asia Economic Outlook.

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