Water Journal : Water Journal August 2015
water AUGUST 2015 34 Feature article Allocation trades typically happen quickly because a significant proportion of market demand results from short-term needs, such as: • Elevated crop water demand due to unanticipated high seasonal temperatures or lack of seasonal rainfall events; • To manage carryover arrangements; and • Rebalancing of water accounts to avoid paying over-use penalties. Figure 4 summarises the key steps in an allocation trade. AUSTRALIA’S WATER MARKETS: hISTORICAL TRADING ACTIVITy By value, the water access entitlement market (permanent market) is the largest water market, whereas the allocation market is the largest measured by trade volume and number of transactions. In 2012–2013 the National Water Commission estimated that annual turnover in Australia’s water markets was $1.4 billion, down from $1.6 billion in 2011–2012. Of this, around $250–300 million involved allocation trades. Marsden Jacob maintains a database of allocation water trades across the MDB that are used for price and trade forecasting. Figures 5 and 6 show price correlations in the southern and northern MDB. Figure 7 details the volume weighted average price (VWAP) and volume across the southern MDB over 2009–2015. These figures highlight that: • Southern MDB allocation prices converge, whereas in the northern MDB prices are trading zone-specific. Price convergence in the southern MDB reflects the ability to trade water across the inter-connected southern trade region. Northern markets are not interconnected, so these markets operate independently of each other. • Prices in the southern and northern allocation markets are volatile and heavily driven by seasonal water availability. During the millennium drought the VWAP in the southern MDB peaked at $300 per ML. When the drought broke, prices tumbled to around $20–$30 per ML as supply exceeded demand, but more recently prices have increased and allocation water is currently trading for around $200 per ML across the southern MDB. • Prices over the last three years have witnessed sustained growth, as has the volume of water being traded. Discussions with our network of market intermediaries suggest that the allocation market will remain strong and prices will increase in the 2015–2016 water year. Table 1. Tradeable water rights. Rights Definition Water access rights The right to hold and take water from a water resource. Water access entitlements A perpetual or ongoing entitlement to exclusive access to a share of water from a specified consumptive pool as defined in the relevant water plan. Water allocations The specific volume of water allocated to water access entitlements in a given season, defined according to rules established in the relevant water plan. Riparian rights Water right held by rural landowners for domestic, on-farm purposes. Riparian rights allow landowners whose property adjoins a body of water to make reasonable use of it, for purposes such as drinking water, domestic use and fishing. Stock and domestic rights Water right held by rural landowners for domestic, on-farm purposes. Stock and domestic means uses such as household purposes, watering of animals kept as pets, watering of cattle or other stock, and irrigation of a kitchen garden. Water delivery rights The right to have water delivered by an irrigation infrastructure operator. Irrigation rights The right to receive water from an irrigation infrastructure operator, which are not water access rights or water delivery rights Figure 4. Allocation trade steps.
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