“Get me 100 megaliters of August Poland Springs at the thousand handle”—a trader near you may be squawking this into his box soon.
The launch of a new futures exchange in Australia is the latest sign that water is becoming a speculative commodity, just like crude oil.
Since it opened in late March, 1.6 million Australian dollars in forward contracts representing about 16.5 billion liters of water have changed hands on Waterfind’s online market. That’s a drop in the ocean of global reserves, but it’s a significant symbolic step in the gradual “commodification” of water.
Critics and proponents of water markets alike say the emergence of a futures market could change how people perceive water, transforming it from a free and common property, like the air we breathe, to a dollar-denominated commodity like the stuff we dig out of the ground.
With Waterfind, a trader can now buy water for delivery at a given date. Some investors buy water contracts to gain exposure to agricultural commodities in general, says Tom Rooney, co-founder and chief executive of Waterfind.
“They can continue to hold that right to take delivery of water in a particular system, or sell that right for a greater price,” says Rooney. “It’s just like buying orange-juice concentrate futures or pork bellies. You could actually take physical delivery of pork bellies, and eat a lot of pork bellies….” Or you could sell your contract at a profit.
Agricultural and oil futures contracts have traded for centuries the world over, though commodities markets grew significantly in both size and influence after the global oil spikes of the 1970s.
An Aussie innovation
Waterfind was founded in 2003 in Adelaide, South Australia, because “it’s the driest state in the driest continent on earth,” says Rooney. Oodnadatta, site of the highest recorded temperature in the Southern hemisphere, is in South Australia and much of the state gets less than seven inches of rain a year.
Large parts of the American plains and West are starting to look more like South Australia, and droughts in parts of Texas and California may soon rival the decade-long event in Australia in the 2000s. Rooney’s futures market could work well in these regions, but Australian water markets are more developed. The constant scarcity of water there heightens the value—both spiritual and financial—of H2O.
A 1994 Australian regulation separated land and water rights, much like what had happened during the settlement of the American West. This allowed landowners to sell access to water on their land more easily and opened the way for the growth of water markets.
These water rights are traded on Waterfind’s website and on other water exchanges in Australia. Rights owners can sell access to their water on a temporary or permanent basis. In both circumstances, the contracts are priced per megaliter, where each megaliter represents a million liters. On a temporary contract, the buyer has the right to consume the designated volume of water in the 12 months following the delivery date. On a permanent contract, where the prices are much higher, the buyer can consume the designated volume every year in perpetuity.
While water trading takes place in the U.S. and other parts of the world, Australia is unique in that it made markets an explicit part of its national water-conservation initiative in 2004. Original water rights must be registered with the Australian states, which limit the aggregate drawdown of supplies, leading some to describe Australia’s initiative as a ‘cap-and-trade’ program. The Australian government has also “bought back” water rights at market prices in a sort of aquatic version of America’s National Petroleum Reserve.
Bob O’Brien, an economist and founder of consultancy Percat Water, estimates that around A$1.5 billion worth of water has traded in the last couple of years.
Rooney of Waterfind estimates that about A$300 million to A$400 million of water is owned “purely for investment purposes,” some of it by U.S. firms.