18 June 2008

Texas Pump 'em

Businessweek covers T. Boone Pickens' plan to export water from the Texas Panhandle to Dallas. Pickens, a famous oilman, appears to think that pumping water will be as lucrative as pumping oil. His plan to sell 200,000 acre-feet a year to Dallas at $825/AF depends on a few things:
  • Getting the right of way to ship water across 250 miles, and 650 tracts of property. Interesting details of how Pickens manipulated the rules on special-district formation to get the rights to eminent domain.
  • Pumping faster than his neighbors: Texas has the worst ground water rights I've ever heard of ("If I can pump it, it's mine"), and Pickens will be competing with neighbors to draw down the local aquifer. (He claims to be ok with a 1.2% drawdown on a 0.1% recharge.)
  • Dallas being willing to buy some pretty expensive water. There may be competition from farmers who are closer to the city (prior post).
Bottom Line: Pickens is onto something, and he'll make a killing -- unless Dallas reforms its water pricing and/or ag-urban water markets are allowed to work. Watch this one.

5 comments:

  1. How do you respond to the credible comments in recent Senate hearings on the cost of oil that 33% to 50% of the price of oil has been created by speculators, and if this is so, then in the future how do you prevent water from being subject to this same free market speculator cost, i.e. the potential Boone Pickens example?

    ReplyDelete
  2. TS, I do not put much credibility in those comments. Speculation in the spot market would require inventories somewhere (hoarding), but inventories are not up.

    Speculation in the futures market
    would require producers to sell future production (or sellers to buy current production and store) to buyers willing to pay a lot for future oil. If $100/bbl futures come due in $140/bbl spot, the speculators make money BUT THEY force the price down. If spot is $110, they lose money.

    So -- either I don't believe that such a huge share is due to speculation or I don't understand oil spot/futures markets...

    [ANYONE HAVE A BETTER EXPLANATION?]

    The only scenario that makes sense wrt oil (or water) is a monopolistic scenario. For that, go see FLOW (recent post) and learn about the "world water cartel"

    ReplyDelete
  3. [ANYONE HAVE A BETTER EXPLANATION?]

    Where's the supply? The hoarding?

    DS

    ReplyDelete
  4. There's nothing to applaud here, as Pickens is fuelling a classic tragedy of commons rush to exploit an open-access resource.

    As no one will own the whole Ogallalla acquifer, in order to get any sustainable use of the acquifer ultimately we will need to exempt collaboration among those with pumping rights from the ambit of antimonopoly rules.

    ReplyDelete
  5. I think its a nice article.
    ________________________________
    thomas maximus
    texas drug rehab

    ReplyDelete

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