The moon's orbital radius is fixed as a function of its velocity (I know it is actually drifting..). Since there is nothing in space to resist this velocity, it will continue orbiting "forever". Now the earth has water. As the moon orbits the earth (forever) its gravity pulls on the water causing work to be done moving the water around the earth's surface. Moving this water doesn't cause the moon's orbital velocity to reduce. Nor does the moon's mass change. Nor does the moon appear to lose any energy as a result. If the moon orbits the earth for eternity does it do work for eternity for free? Where does the energy come from to continuously move water around the earth's surface?
You are wrong, the orbit of the moon is changing, it is receding from the earth so its potential and kinetic energy is changing :
The notional tidal bulges are carried ahead of the Earth–Moon axis by the continents as a result of Earth's rotation. The eccentric mass of each bulge exerts a small amount of gravitational attraction on the Moon, with the bulge on the side of Earth closest to the Moon pulling in a direction slightly forward along the Moon's orbit (because Earth's rotation has carried the bulge forward). The bulge on the side furthest from the Moon has the opposite effect, but because the gravitational attraction varies inversely with the square of distance, the effect is stronger for the near-side bulge. As a result, some of Earth's angular (or rotational) momentum is gradually being transferred to the rotation of the Earth–Moon pair around their mutual centre of mass, called the barycentre. This slightly faster rotation causes the Earth–Moon distance to increase at approximately 38 millimetres per year. Conservation of angular momentum means that Earth's axial rotation is gradually slowing, and because of this its day lengthens by approximately 23 microseconds every year (excluding glacial rebound). Both figures are valid only for the current configuration of the continents. Tidal rhythmites from 620 million years ago show that, over hundreds of millions of years, the Moon receded at an average rate of 22 millimetres per year and the day lengthened at an average rate of 12 microseconds per year, both about half of their current values. See tidal acceleration for a more detailed description and references.
The Moon is gradually receding from Earth into a higher orbit, and calculations suggest that this would continue for about 50 billion years. By that time, Earth and the Moon would be in a mutual spin–orbit resonance or tidal locking, in which the Moon will orbit Earth in about 47 days (currently 27 days), and both the Moon and Earth would rotate around their axes in the same time, always facing each other with the same side. This has already happened to the Moon—the same side always faces Earth and is also slowly happening to Earth. However, the slowdown of Earth's rotation is not occurring fast enough for the rotation to lengthen to a month before other effects change the situation: approximately 2.3 billion years from now, the increase of the Sun's radiation will have caused Earth's oceans to evaporate, removing the bulk of the tidal friction and acceleration.
All gravitational energies, kinetic and potential, in the current cosmological model come from the initial Big Bang and the subsequent interactions of gravitational masses.