WATER MARKETS REPORT 2019-20 REVIEW AND 2020-21 OUTLOOK Thank You - - PowerPoint PPT Presentation

WATER MARKETS REPORT

2019-20 REVIEW AND 2020-21 OUTLOOK

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Aither 2020, Water Markets Report: 2019-20 Review and 2020-21 Outlook. Presentation 18 August 2020. Melbourne, Aither Pty Ltd.

Thank You

For further information

Chris Olszak Director

+61 425 707 170 chris.olszak@aither.com.au

Erin Smith Water Markets Sector Lead | Principal Consultant

+61 410 207 852 erin.smith@aither.com.au

Presentation delivered: 18 August 2020

Three things you need to know about the 2019-20 water year, and what they mean for 2020-21.

2019-20 2020-21

Allocation prices

74% January to June Largest price decrease since Millennium drought.

End-of-season carryover

1,200 GL (Victoria & NSW) Equivalent to 50% of the water allocated in 2019-20 (Victoria & NSW).

Entitlement prices

6% February to June The first month-on-month pull back in the Aither Entitlement Index (AEI) for

• ver three years.

In 2019-20, we saw the largest price decrease in the second half of a water year since 2009-10 when the Millennium drought broke.

2019-20 2020-21

Southern MDB allocation price

74% January to June

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In 2018-19, water allocation prices steadily increased throughout the year.

Monthly volume-weighted average prices, southern MDB, (2018-19 to 2019-20)

Source: Aither, 2020. Based on Victorian, New South Wales, and South Australian water registers.

2019-20 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 1/07/2018 1/10/2018 1/01/2019 1/04/2019 1/07/2019 1/10/2019 1/01/2020 1/04/2020 Water allocation price (per ML)

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In the first half

• f 2019-20,

prices continued the upwards trend from 2018-19.

Monthly volume-weighted average prices, southern MDB, (2018-19 to 2019-20)

Source: Aither, 2020. Based on Victorian, New South Wales, and South Australian water registers.

2019-20 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 1/07/2018 1/10/2018 1/01/2019 1/04/2019 1/07/2019 1/10/2019 1/01/2020 1/04/2020 Water allocation price (per ML)

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In the second half of the water year, prices tumbled more than 70 per cent.

Monthly volume-weighted average prices, southern MDB, (2018-19 to 2019-20)

Source: Aither, 2020. Based on Victorian, New South Wales, and South Australian water registers.

2019-20 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 1/07/2018 1/10/2018 1/01/2019 1/04/2019 1/07/2019 1/10/2019 1/01/2020 1/04/2020 Water allocation price (per ML)

74%

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Water supply during the first half of the water year was very tight; then it rained (a bit).

Six-month rainfall deciles, Murray-Darling Basin

2019-20

Second half of the year, January to June 2020 First half of the year, July to December 2019

Source: Aither, 2020. Based on Bureau of Meteorology, 2019; 2020.

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Water held in storage (ML)

Source: Aither, 2020. Based on Bureau of Meteorology, 2020. Note: includes Dartmouth, Hume, Lake Eildon, Blowering and Burrinjuck

2019-20

Volume held in storage, southern Murray-Darling Basin major headwater storages, 2018-19 to 2019-20

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Water held in storage (ML)

Drawdown on storages was

• approx. half of

the 2018-19 drawdown.

1,953 GL

Source: Aither, 2020. Based on Bureau of Meteorology, 2020. Note: includes Dartmouth, Hume, Lake Eildon, Blowering and Burrinjuck

2019-20

Volume held in storage, southern Murray-Darling Basin major headwater storages, 2018-19 to 2019-20

4,053 GL

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Water held in storage (ML)

Drawdown on storages was a year of two halves in 2019- 20.

1,953 GL

Source: Aither, 2020. Based on Bureau of Meteorology, 2020. Note: includes Dartmouth, Hume, Lake Eildon, Blowering and Burrinjuck

2019-20

Volume held in storage, southern Murray-Darling Basin major headwater storages, 2018-19 to 2019-20

4,053 GL 1,255 GL 699 GL

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Water held in storage (ML)

1,953 GL

Source: Aither, 2020. Based on Bureau of Meteorology, 2020. Note: includes Dartmouth, Hume, Lake Eildon, Blowering and Burrinjuck

2019-20

Volume held in storage, southern Murray-Darling Basin major headwater storages, 2018-19 to 2019-20

4,053 GL 1,255 GL 699 GL 1,914 GL 2,139 GL

Drawdown on storages was a year of two halves in 2019- 20.

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500 1,000 1,500 2,000 2,500 3,000 3,500 15 December 2019 actual 15 December 2020 (f) average inflows Volume (GL)

Timing of allocation increases will be crucial.

Estimated consumptive water allocations, 15 December 2019 and 2020 (f).

2020-21

Source: Aither, 2020. Based on Victorian, New South Wales, and South Australian water registers. Source: ABARES, 2020, includes irrigated and dry land winter crops.

90%

(New South Wales; smaller increases in Victoria and South Australia)

Area planted to winter crops

77% 1,450 GL

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Allocation prices unlikely to reach the same levels as 2019-20.

Actions to watch

2020-21

❷ How much cotton will be planted in the Murrumbidgee? ❸ Influence of 62 per cent more carryover in the system than at the start of 2019-20. ❶ Inter-valley trade constraints,

• esp. the Goulburn to Murray

trade rule review.

End-of-season carryover was equivalent to 50 per cent of the total water allocated in 2019-20.

(major Victorian and NSW entitlements)

1,200 GL (Victoria & NSW)

2019-20 2020-21

End-of-season carryover

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1,248 1,198

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2016-17 2017-18 2018-19 2019-20 Volume (GL)

Volume of carryover acquired in 2019- 20 was similar to 2017-18.

Source: Aither, 2020. Victorian Water Register and NSW Department of Planning, Industry and Environment.

2019-20

Consumptive carryover on Victorian and NSW entitlements, (2016-17 to 2019-20)

Year carryover was acquired

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Volume of carryover acquired in 2019-20 was similar to 2017- 18.

2019-20

Consumptive carryover on Victorian and NSW entitlements and total water allocated, (2017-18 and 2019-20)

Year carryover was acquired

Source: Aither, 2020. Victorian Water Register and NSW Department of Planning, Industry and Environment.

1,248 1,198

0% 10% 20% 30% 40% 50% 60%

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2017-18 2019-20 Percentage of total water allocated Volume (GL) Water allocated to major Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of total water allocated

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More carryover was brought in 2020-21 than would be expected given 2019-20 allocations.

2019-20

Consumptive carryover on Victorian and NSW entitlements and total water allocated, (2017-18 and 2019-20)

Year carryover was acquired

Source: Aither, 2020. Victorian Water Register and NSW Department of Planning, Industry and Environment.

4,403 2,405 1,248 1,198

0% 10% 20% 30% 40% 50% 60%

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2017-18 2019-20 Percentage of total water allocated Volume (GL) Water allocated to major Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of total water allocated

• 45%

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More carryover was brought in 2020-21 than would be expected given 2019-20 allocations.

2019-20

Consumptive carryover on Victorian and NSW entitlements and total water allocated, (2017-18 and 2019-20)

Year carryover was acquired

Source: Aither, 2020. Victorian Water Register and NSW Department of Planning, Industry and Environment.

4,403 2,405 1,248 1,198

0% 10% 20% 30% 40% 50% 60% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2017-18 2019-20 Percentage of total water allocated Volume (GL) Water allocated to major Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of total water allocated

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More carryover was brought in 2020-21 than would be expected given 2019-20 allocations.

2019-20

Consumptive carryover on Victorian and NSW entitlements and total water allocated, (2017-18 and 2019-20)

Year carryover was acquired

Source: Aither, 2020. Victorian Water Register and NSW Department of Planning, Industry and Environment.

0% 10% 20% 30% 40% 50% 60% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2016-17 2017-18 2018-19 2019-20 Percentage of total water allocated Volume (GL) Water allocated to major Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of total water allocated

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More carryover was brought in 2020-21 than would be expected given 2019-20 allocations.

2019-20

Consumptive carryover on Victorian and NSW entitlements and total water allocated, (2017-18 and 2019-20)

Year carryover was acquired

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 10% 20% 30% 40% 50% 60% 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2016-17 2017-18 2018-19 2019-20 Percentage of water allocated Volume (GL) Water allocated to major Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of total water allocated

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As at 17 August 2020, new season allocations exceed consumptive carryover.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

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2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 20% 40% 60% 80% 100% 200 400 600 800 1,000 1,200 1,400 1,600 2018-19 2019-20 2020-21 (YTD) Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (mid-August) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated

As at 17 August 2020, new season allocations exceed consumptive carryover.

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As at 17 August 2020, water supply is slightly better than 2018-19.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 20% 40% 60% 80% 100% 200 400 600 800 1,000 1,200 1,400 1,600 2018-19 2019-20 2020-21 (YTD) Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (mid-August) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated

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0% 20% 40% 60% 80% 100% 200 400 600 800 1,000 1,200 1,400 1,600 2018-19 2019-20 2020-21 (YTD) Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (mid-August) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated 2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

$339 / ML $581 / ML $291 / ML

Prices shown are volume-weighted average prices across the southern Murray-Darling Basin in the second week of August each year.

As at 17 August 2020, water supply is slightly better than 2018-19.

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Forecast water supply is much higher than 2018-19.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

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Forecast water supply is much higher than 2018-19.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 10% 20% 30% 40% 50% 60% 70% 500 1,000 1,500 2,000 2,500 3,000 2018-19 2019-20 2020-21 (f) average inflows Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated

28 www.aither.com.au

Forecast water supply is much higher than 2018-19.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 10% 20% 30% 40% 50% 60% 70% 500 1,000 1,500 2,000 2,500 3,000 2018-19 2019-20 2020-21 (f) average inflows Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated

29 www.aither.com.au

Forecast water supply is much higher than 2018-19.

2020-21

Consumptive carryover on Victorian and NSW entitlements and consumptive water allocated, (2018-19 to 2020-21)

Year water was carried into

Source: Aither, 2020. Victorian Water Register, NSW Water Register and NSW Department of Planning, Industry and Environment.

0% 10% 20% 30% 40% 50% 60% 70% 500 1,000 1,500 2,000 2,500 3,000 2018-19 2019-20 2020-21 (f) average inflows Percentage of consumptive water allocated Volume (GL) Water allocated to major consumptive Victorian and NSW entitlements (end-of-season) Consumptive carryover (Victoria and NSW) Consumptive carryover as a percentage of consumptive water allocated

$424 / ML

• Annual. VWAP (sMDB)

$583 / ML

• Annual. VWAP (sMDB)

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Price divergences between upstream and downstream zones likely to be a feature of 2020-21.

Actions to watch

❷ How horticulturalists draw on their carryover and the positions they take for next season.

2020-21

❶

Influence of inter-valley trade constraints on access to increased volumes of carryover in upstream zones.

The first month-on-month pull back in the Aither Entitlement Index for over three years.

2019-20 2020-21

Entitlement prices

6% February to June

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The AEI reached its all time high in January 2020, then declined 6 percent between February and March.

The Aither Entitlement Index, 2008-09 to 2019-20.

Source: Aither, 2020.

2019-20 50 100 150 200 250 300 Index 50 100 150 200 250 300 Index

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0% 2% 4% 6% 8% 10% 12% Estimated turnover 2018-19 2019-20 0% 2% 4% 6% 8% 10% 12% Estimated turnover 2018-19 2019-20

Reduced turnover for most entitlements in 2019-20: Are market participants cautious?

Estimated turnover of major southern MDB entitlements types (2018-19 and 2019-20).

High security and high reliability General security and low reliability

Source: Aither, 2020. Based on Victorian, New South Wales, and South Australian water registers.

2019-20 0% 2% 4% 6% 8% 10% 12% Estimated turnover 2018-19 2019-20

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The AEI has decreased 6 per cent since February 2020, back to similar levels as October 2019.

The Aither Entitlement Index, 2008-09 to 2019-20.

Source: Aither, 2020.

2019-20 50 100 150 200 250 300 Index

October 2019

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The long-term outlook for entitlement markets remains strong.

But, short-term factors may continue to influence entitlement markets in 2020-21.

2020-21

Value of major entitlements in southern MDB 2019-20: $26.3 billion.

Almost 4x since 2013-14

The Aither Entitlement Index since 2013.

300%

Long-term

• Long-term, fundamental drivers of entitlement price growth

remain in place.

• Australian agriculture is weathering the COVID-19 storm well.

Short-term

• Emerging economic ramifications of COVID-19.
• Ongoing regulatory uncertainty.

ACCC’s Water Markets in the Murray-Darling Basin Inquiry

37 www.aither.com.au

Water trading has brought substantial benefits to water users across the Basin. But… Water markets are not working

• ptimally; regulation

and governance can be improved. A suite of relatively minor changes that can be easily implemented. Fundamental changes to governance and architecture.

What were the ACCC’s key findings? What is the ACCC’s proposed way forward?

Overview of the ACCC’s interim report

38 www.aither.com.au

Aither’s Water Market Analysis and Insights

Visit aither.com.au/products or email watermarkets@aither.com.au to find out more. Southern Murray-Darling Basin Water Asset Valuations

Our monthly or quarterly independent southern Murray-Darling Basin water asset valuations provide an independent and timely assessment of key water products.

Aither Entitlement Index

Our Aither Entitlement Index provides you with simple, reliable and timely monthly snapshots of water entitlement performance throughout the southern Murray-Darling Basin.

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Monthly independent snapshots of the important issues affecting Australia’s water markets, including both market analysis and policy and management insights.

Water Markets Quarterly Email Updates

Freely available.

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