Water, water markets

Water Availability: January 2019

4 February 2019

The following chart shows the volume of water held in storage (gray line) across the southern Murray-Darling Basin (sMDB) including Dartmouth, Hume, Eildon, Blowering, Burrinjuck & Menindee. The monthly volume weighted allocation price (VWAP) for Victorian Murray zone 7 is shown by the black line taken from the Victorian Water Register.

The Millenium Drought had a significant impact on storages from 2001-02 through to 2009-10. Only once during that period did the combined volume in storage exceed 50%. The floods in 2010-11 filled the storages. Since then, the storages have followed a typical inflow/use cycle and the allocation prices have been relative – decreasing in times of plenty and increasing as water availability decreases.

The allocation prices during the 2018-19 season have been peculiarly high given the relative volume of water in storage, especially when compared to 2015-6 when prices hovered around $250/ML for most of the season. On current trends, the VWAP for 2018-19 is set to exceed that of 2008-09 when storages were below 30%!

The following chart shows the January VWAP since 2007-08 compared to water availability across the southern-connected Murray-Darling Basin. Water availability is essentially the same as 2015-16 when the VWAP was almost half of what it is today. From 2007-08 through to 2009-10 when there was less water available than this season however the prices were substantially lower.

(The above chart assumes all allocation from CEWH entitlement was unavailable to irrigators from 2007-08. In reality the entitlement was progressively purchased and therefore the water availability would have been substantially higher prior to 2014-15).

What is driving the market?

The Commonwealth have acquired over 1,800GL of water entitlements to implement the Basin Plan since 2008-09.

The impact of the Commonwealth purchases hasn’t been significant to-date given the relatively high water availability up until now.

Since 2007-08, we have also seen an increasing amount of investor capital pouring into the water market to acquire entitlements. Unlike the Commonwealth, allocations from these entitlement are traded into the market through various water products and therefore remain part of the consumptive pool.

A significant change in the market over the last 4-5 years has been the increasing percentage of water being used by permanent plantings. This is compounded as they crops mature and require additional water. Not only is this change skewing more of the water use to the middle of the season (Oct-Mar) it also means a greater percentage of available water is needed by these commodities in low water availability years.

This causes inflexibility in the market in a number of ways. During dry times, entitlement owners generally receive lower determinations meaning less water coming into the market. The permanent plantings need a fixed (but increasing) volume of water. This creates challenges for permanent plantings as there are less water owners with volumes available, meaning they then need to extract any additional volume from a larger number of small water owners.

Ultimately this “squeeze” means increased competition for the smaller volume of available water.


The water market is likely to experience more extreme prices when water availability is low. This has been compounded by changes in water ownership and the composition of irrigated commodities.

Understanding these changing water use patterns is critical to formulating a strategy to secure water supply.