Energy is generally considered a part of industry, to the extent that it is an intermediate input in the production process. In Panama, however, the largest shares of energy are sold to the consumer and to commerce. Therefore, a significant portion of energy used in Panama should be considered a part of the services sector for the sake of this analysis, however, energy is placed under industry, following conventional practice.

Panama's energy production has increased substantially, from an average annual growth rate of 6.9 percent between 1965 and 1980 to 11.1 percent between 1980 and 1985. The expansion of hydroelectric generating capability has been responsible for most of the growth. Per capita energy consumption has increased, from 576 kilograms of oil equivalent in 1965 to 634 kilograms in 1985. This figure is higher than that of Nicaragua (259 kilograms) and Costa Rica (534 kilograms) but lower than that of Colombia (755 kilograms) and Mexico (1,290 kilograms).

Panama depended on petroleum for 80 percent of its domestic energy needs in the late 1980s. Petroleum exploration has been underway since 1920, but without success as a result, the country is dependent on imported petroleum. Saudi Arabia and Venezuela were the primary suppliers until 1981, when Mexico replaced Saudi Arabia and joined Venezuela in the San José Agreement of 1980, under which the two countries supply oil to Caribbean Basin countries on concessionary terms. Panama nearly halved its imports of oil between 1977 (20.5 million barrels) and 1983 (11.8 million) in response to rising oil prices. Oil imports have declined as a share of the total value of imports, from 33 percent in 1977 to 19 percent in 1985 in the latter year, the value of oil imports was US$19.2 million.

The country's only oil refinery, near Colón, has a capacity of 100,000 barrels per day. Since 1976 it has been operating far below capacity, because greater use has been made of hydroelectricity. Refinery products supplied the domestic fuel for thermal power plants, most of the transportation system, and other minor uses. In 1977 about 64 percent of the imported crude was reexported after refining, mostly to ships' bunkers by 1983 that figure had fallen to 35 percent. The government has approved the construction of a second refinery, also near Colón, with a capacity of 75,000 barrels per day.

Hydroelectricity accounted for 10 percent of energy consumption and was the country's main domestic energy resource in the late 1980s. Panama has been substituting hydroelectric power generation for petroleum-based thermal generation since the late 1970s. By 1980, some 30 sites had been identified on the country's numerous rivers, which, if developed, could generate 1,900 megawatts of power. The capacity for generating electricity was 300 megawatts in 1979 in 1984 it had increased to 980 megawatts, of which 650 megawatts was hydroelectric and 330 was thermal. The increase was due in large measure to the Edwin Fábrega Dam, on the Río Chiriquí, which began operation in 1984 with a generating capacity of 300 megawatts.

In 1985 the Institute of H79e Hydraulic Resources and Electrification, responsible for power generation and distribution, initiated a five-year program to expand Panama's electrical generating capacity. At the time, there were 275,429 electricity consumers. A major goal of the program was to increase the distribution of electricity to an additional 12,000 people in rural areas.

Other energy sources, such as bagasse, charcoal, and wood, accounted for the remainder of energy demand. Firewood supplied half of the country's energy requirements as late as the 1950s but declined rapidly thereafter, partly because of the deforestation it engendered. Bagasse was used as fuel at sugar mills. Coal reserves were discovered in the Bocas del Toro region in the 1970s, near the border with Costa Rica. If commercially exploitable, the coal in the region could be used for generating electricity. In August 1985, the government announced plans to explore the reserves, with funding from the United States Agency for International Development and the United States Geological Survey.

Data as of December 1987