Water Markets Report shows record trade activity

The Australian Water Markets Report 2008–2009 has been released by the National Water Commission, showing record trade activity in water markets over the past year.

This year’s report finds that in the 2008–09 year, the trade of water entitlements almost doubled (1800 GL compared to 920 GL in 2007–08), and that allocation trade continued to grow significantly (2158 GL compared to 1594 GL in 2007–08).

The report finds:

• The overall value of the water market transactions for the year was estimated to be approximately $2.8 billion, an increase of 75% on the estimated $1.6 billion in 2007–08, with most trading activity occurring in the Murray–Darling states.
• Activity in the water trading market has been driven in large part by the variable rainfall around Australia and the continuing severe drought in the southern connected Murray–Darling Basin.
• Each government around Australia has played an important role in facilitating trade arrangements in recent years.
• The total volume of entitlement water traded was 1800 GL, up 95% from 920 GL in 2007–08. This indicates that about 7% by volume of the total entitlements on issue in Australia were traded.
• There was also increased water allocation trade, with 2158 GL being traded in 2008–09, up 35% from 1594 GL last year.
• New South Wales had the most active market with over $2 billion in turnover (of the $2.8 billion total), accounting for 71% of the total national entitlement trade (by volume).

Murray–Darling Basin
The bulk of trading activity occurred in the southern connected Murray–Darling Basin:

• 1080 GL of entitlement trade representing 60% of the Australian total and a 75% increase on last year. 
  -  High reliability entitlements in the basin averaged at $2000/ML, up from $1750 last year.
• 1739 GL of water allocation trade, representing 81% of the Australian total and an increase of 41% from 2007-08.
  - Allocation prices were far less volatile, peaking around $500/ML in September then levelling out around $300 – 350/ML. This contrasts with last year’s prices, which peaked at over $1000/ML in October 2007.

Other regions
There was a proportionally larger increase in entitlement trading activity in water systems outside the southern connected Murray–Darling Basin:

• 720 GL of entitlement trade – 40% of the Australian total, a significant increase of 138% on 2007-08 figures.
  - In Tasmania, the volume of entitlement trade rose from 56 GL to 104 GL
  - In Western Australia, entitlement trade increased from 0.5 GL to 8 GL.
• There was also an increase in water allocation trade (proportionately less significant) - 419 GL of water allocation trade, which represents 19% of the Australian total and an increase of 17% on 2007-08 figures. 

Interstate trades
There was no interstate entitlement trade during 2008–09, whereas there was a solitary ‘tagged’ trade in 2007–08 representing 200ML.
Interstate allocation trade witnessed another year of significant down-stream trade, with New South Wales exporting 553 GL (net change) of water allocations to Victoria (236 GL) and South Australia (317 GL).

South Australia continued to be a large net importer of water, acquiring 336 GL – a 132% increase on last year. The SA Government publicly announced the purchase of 291 GL during the year (231 GL for critical human needs and 60 GL for essential permanent plantings).

Australian Government water purchases
In 2008–09, the Australian Government continued to purchase entitlements through the Restoring the Balance in the Murray–Darling Basin program. By 30 June 2009, the Commonwealth Environmental Water Holder had total registered holdings of 64 GL (24 GL from the 2007–08 tender and 40 GL from the 2008–09 tenders). 

• In addition to the 40 GL that had been registered as a result of the 2008–09 tenders, by 30 June 2009 the Australian Government had exchanged contracts for a further 382 GL of entitlement (an agreed 422 GL for the 2008–09 water year).
• By 30 September 2009, the agreed purchases from the 2008–09 tenders (i.e. contracts exchanged, but not necessarily registered) had risen to a total of 588 GL of entitlements from the tender, at a cost of $913 million.

Of the 1800 GL of registered entitlement trade in Australia in 2008–09, 1643 GL was traded in the Murray-Darling Basin, and 1534 GL were the type of entitlement products that were purchased under the Restoring the Balance in the Murray-Darling Basin Program.  The 64 GL of entitlements purchased by the Australian Government and registered during 2008-09 represents 3.9% of the total entitlement trade registered in the Murray-Darling Basin. The larger volume of entitlements purchased by the government, but not registered by 30 June 2009, is likely to represent a higher proportion of the total entitlement trade in 2009-10.

The report is available at www.nwc.gov.au