September 1, 2001
This backgrounder explores the idea of a water pipeline from the mouth of the Nelson River to the fast growing south-western United States. During the next few years the price of water in the United States is expected to rise substantially since the sharply higher price of new supplies will be shaped by the cost of desalination. This presents Manitoba with the opportunity of exporting a small portion of the renewable freshwater supplies now emptied into Hudson's Bay. A business case is presented which suggests that Manitoba has the potential to conservatively earn $4.0 billion annually from such an investment. Earnings of this magnitude would end the province's perennial "have-not" province status.
Water Exports - A Manitoba Bonanza?INTRODUCTION
An enormous volume of self-renewing fresh water flows through Manitoba each year. The system of rivers that drain into Hudson's Bay have played an important economic role for centuries. In 1670, King Charles II of England granted a royal charter to a group of fur moguls who were given control of all the lands draining into Hudson's Bay. The company that resulted became a key factor in the European settlement and development of what eventually turned into the Province of Manitoba. In modern times, hydroelectric dams have harnessed the rivers and provided Manitoba's population with a cheap, reliable source of electricity for their own use and for export. This domain of 3,846,000 square kilometres feeds about 20,700 cubic metres per second of fresh water into the Bay. The volume of this flow is so massive that in 1993 it led Professor M.J. Dunbar of the Centre for Climate and Global Change Research at McGill University to write an article entitled "Hudson Bay Has Too Much Fresh Water". His point was that the bay is the catch basin for so much fresh water that it is not salty enough to support commercial fish like those found in the Atlantic.
A great opportunity lies in these mind-boggling numbers: we could sell a relatively small amount of that fresh water to the United States and reap enormous economic benefits. Canadians tend to get rattled at just the thought of selling water to the U.S. It's an irrational fear that will take time to dissipate. If the situation were reversed, if we were bone dry while the U.S. had vast supplies of fresh water, wouldn't we consider it only right that our American cousins sell it to us?
DESALINATION DETERMINES THE PRICE OF U.S. FRESH WATER
What are the facts of this extremely emotional issue? First, the United States is not short of fresh water today, nor will it ever be. What the Americans are short of, at least in its southwest quarter, is cheap water. All their future sources, regardless of type, will be expensive. Today, the U.S. uses low-cost river and ground water whose price runs between about $50 and $100 per Acre Foot (AF). (An Acre Foot is the volume needed to flood one acre of land to a depth of one foot, or 325,851 U.S gallons.) In the future, however, the U.S. will have to rely on desalination and recycling. The most widely used method of desalination is reverse osmosis, which employs a mammoth version of the water machines commonly found in grocery stores. Although the world's 7000 desalination plants are found mainly in the Middle East, there are units in the Caribbean, Florida and California. Desalination is expensive, costing between $US1400 - $2200 per AF, or six-tenths of a cent to one cent per U.S gallon.1
This costs up to forty times as much as ground water. Most water utilities that use desalinated water blend the cost of "new" and "old" water to avoid sticker shock. The cost depends on what's in the seawater at any particular location and on the price of the power needed for reverse osmosis. For every 100 gallons of seawater taken in, 15 to 50 gallons of fresh water are extracted; the remainder is waste brine solution. Today, the processing plants pump the brine out to sea, an expedient that might not remain acceptable in future. One thing has become crystal clear: the cost of desalination determines the price of fresh water.
MANITOBA WATER PIPELINE
Given our location and cheap, abundant hydro-electricity, Manitoba is uniquely positioned to take advantage of the changing continental water situation. We could run a pipeline from the water's edge of Hudson Bay near York Factory to the American border. By taking the fresh water at the end of its inland journey through our great landmass, we would let it run its course without disturbing it. The insulated, underground-pressurized line would extend 600 miles down the eastern side of the province to the American border. On the American side, a pipeline of approximately 1,100 miles would be required to bring the water from the border to a mid-point in Texas, our largest potential market. The Manitoba portion of the pipeline could also serve the fresh water needs of Winnipeg and surrounding areas. If there were a break in the line, the spillage would only be water, not oil.
What would such a pipeline cost? A good comparison is the California Water Project2 , an aqueduct running 621 miles from the mountains of northern California to San Diego (400 miles completed to date). This project has not been rushed because the state's water needs have not --- until recently --- been perceived as urgent. When completed, it will deliver 4,230,000 AF, or about 1.3 trillion U.S. gallons, per year. That represents only three days worth of the fresh water inflow into Hudson's Bay. The price tag on the California Water Project stood at $US1.7 billion when the contract was bid in the 1960s, which makes the cost data almost as old as Jerry Lewis. Constructed today, a similar pipeline of the same capacity would cost approximately $CD30 million per mile. It would need to be 30 feet in diameter or its equivalent in smaller pipes, and eight cubic feet per second would have to flow through in order to supply 1.3 trillion gallons a year. In addition, a pumping station would be required every 50 miles.
However, the single largest expense each year would not be the carrying cost of the construction, but rather what we would pay for electrical power to pump the water uphill from sea level to about 750 feet in elevation at the American border --- about $CD 700 million based on an estimated consumption of 2500 megawatts at 3.5 cents per kilowatt hour. Manitoba Hydro would need to expand its capacity by about 50% and dedicate this power to the pumping stations along the pipeline. Wages, benefits and maintenance would round out the operating costs. Based on the California experience, approximately $CD 100 million per year would be required.
1. Total costs of the Manitoba pipeline would be as follows:
- A $18 billion construction cost carried at 6% over 30 years - $1.3 B
- Electrical power consumption each year - $ .7 B
- Wages, maintenance each year - $ .1 B
- Total annual cost for the Canadian portion of the pipeline - $2.1 B
On the American side a pipeline of approximately 1,100 miles would be required to bring the water to the Southern United States (i.e. from the U.S. border to a mid-point in Texas).
2. Total Costs of the American pipeline would be as follows:
- A $33.0 billion construction cost carried at 6% over 30 years - $2.4 B
- Electrical power consumption each year - $1.2 B
- Wages, maintenance each year - $ .2 B
- Total annual cost of the American portion of pipe line - $3.8 B
3. Total of Canadian and American annual costs (in CD funds) - $5.9 B
Now lets examine the revenue side of the equation. Based on the cost of desalination, our achievable sale price would be in the area of ½ to 3/4 cents per U.S. gallon. This would put our price clearly below the cost of desalination. Simply assuming the same 1.3 trillion U.S. gallons the California project produces, our revenue, based at the lower estimate of ½ cent per gallon, would be $US 6.5 billion, or $CD9.9 billion (exchange $1 Cdn = $.66 U.S.). Net annual revenue using Canadian dollars would be $CD9.9 billion - $5.9 billion cost = $4.0 billion at ½ cent per gallon. At ¾ cent per gallon the revenue would rise to $8.9 billion ($CD14.8 billion - $5.9 billion). To compare the size of the potential revenue from selling fresh water, the entire Province of Manitoba and City of Winnipeg budgets total around $CD7 billion per year.
The ultimate impact on the ocean would require sophisticated software to determine. Although fresh water would be diverted from entering Hudson Bay, we do know that ultimately, once the water is used, it will end up back in the ocean.
MANITOBA WATER REVENUES COULD END OUR HAVE-NOT STATUS
Selling water would change Manitoba's economic prospects dramatically. The province has become highly dependent on federal transfers and subsidies. These have had the unintended effect of creating a relatively moribund, high-tax policy environment with little population growth, out migration and an economy with a steadily declining proportion of national economic output. Water exports would create the opportunity to exit this circle of relative stagnation by providing a very substantial alternative source of revenue.
But why should we think about selling now? In reviewing projections of future water sources prepared by different American states, there is no mention of Canada. We are not even pencilled in. They are making 15- and 20-year plans based on desalination and recycling as the main sources of "new" water. They do not see us as open for business on this issue. We need to develop a plan that shows Manitoba's position, which may be different from that of other provinces. Approvals and the issuing of contracts --- not to mention construction -- will take years. Waiting longer to decide will make us mere spectators.
The challenge before us is not one of technology or financing. It is for all Manitobans to take a stand to resolve the issue ourselves. The Manitoba Legislature should choose an all-party task force to investigate this question. In the end, a referendum may be the only way to establish our policy. This issue will put Manitobans' common sense to the test.
1. Sea Water Desalination in California, pub. California Coastal Commission
2. California Department of Water Resources "State Water Project"
Daniel Klymchuk is a policy analyst at the Frontier Centre for Public Policy who is working on housing and water issues. He has held executive positions in strategic planning of corporate real estate requirements for 23 years with Canada Safeway Limited and CIBC. He is a member of the International Council of Shopping Centres, a worldwide organization devoted to promoting understanding of private and public real estate development on communities. He is past president of the Canada Safeway Credit Union. Currently, he is acting as a consultant to charitable organizations regarding their strategic, long-term real estate needs.