Drought in California Expected to Drive Increasing Spot Market Water Transfer Prices

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Department of water resources announces decreased state water project allocation in 2013. WestWater Research LLC reports projections.

While the price gain in 2013 will be significant, we will likely see even steeper price appreciation in 2014 and 2015 if critical drought conditions persist.

Single-year surface water transfer prices in California will be 35 to 40 percent higher than last year, according to projections by WestWater Research, the leading economic consulting firm in the water industry. In California, the single-year water transfer market is known as the “spot market” for water. The spot market is a critical mechanism through which urban, agricultural and environmental water users purchase short-term water supplies to offset the impacts of drought. Extensive Central Valley Project and State Water Project aqueducts enable water users throughout the state to trade surface water supplies.

On March 22, the California Department of Water Resources decreased the water supply to State Water Project contractors to only 35 percent of annual water allocations, indicating critical drought conditions. As water users scramble to address this shortage, it is expected that spot market surface water trading activity will increase in 2013.

“We anticipate that competition for scarce water supplies in 2013 will place upward pressure on prices for single-year surface water transfers,” said WestWater Research associate Matt Payne “While the price gain in 2013 will be significant, we will likely see even steeper price appreciation in 2014 and 2015 if critical drought conditions persist.”

Other factors impacting water transfer prices include the location of the water source, losses incurred while transporting the water, the location of the buyer, the cost of local supply alternatives and the economic returns from the buyer’s type of water use. In general, urban buyers offer higher prices than agricultural or environmental water users. Prices are particularly high in California’s South Coast region where water demand is inelastic and there are few low-cost supply alternatives.

Detailed spot market surface water price projections are available on WestWater’s website, http://www.waterexchange.com. The Water & Agriculture Real Asset Investor Summit, produced by WestWater Research and Global Water Intelligence in Los Angeles May 16-17, will cover the spot market for surface water and other key topics relating to water and agricultural investments in California. More information regarding the conference is available online at http://agwaterinvest.com/.

WestWater Research LLC is the leading advisory firm and market leader in the water rights industry. Since 2001, WestWater has forged new approaches to water markets by developing innovative contracting solutions, unique marketing approaches and in-depth market analysis. With offices in four states, the WestWater team is composed of economists, MBAs and geographic information system (GIS) analysts with over fifty years of combined experience in the water rights industry. WestWater is a proven resource, and it maintains the largest, high-quality database of water right transactions in the western U.S. Our expertise includes water asset valuation, transaction advisory, water marketing, water investment, economic planning and market and price information. WestWater excels at finding creative solutions to complex water marketing issues. For more information, visit http://www.waterexchange.com.

Global Water Intelligence (GWI) is the market leader for high value business information on the international water industry. GWI publishes a monthly publication that combines insightful business journalism with project tracking services, in-depth primary research and market data analysis. GWI also publish a range of special market reports, including the most recent Global Water Market 2014 - meeting the world's water and wastewater needs until 2018. GWI has recently launched the new AWI Tracker, which is a comprehensive database tracking more than $270 billion in capital improvement water projects. For more information, please visit http://www.globalwaterintel.com.

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