Water Investments
A Background and Primer for Water Investments
There is no more water on the earth today than there was hundreds of millions of years ago. There is no less either. We can't make it or destroy it.
And while our planet may be over 70% covered with water, less than 2% of it is freshwater – the stuff we need to survive.
Of that tiny 2%, some water is perpetually tied up as atmospheric moisture or as frozen saturated soil (permafrost) that we can never use. Put another way, if all the world's water were in a one-gallon jug, fresh water wouldn't account for even a teaspoon of it!
So if the amount of water has remained the same since the beginning of time, what's the problem?
The simple answer: us.
Or, more specifically, the amount of us – and what we've done to our water supply over the last few hundred years.
You see, water was first formed about 4.5 billion years ago. We've been around for only 60,000 years. But in that time, our population has exploded.
And we've done it rather quickly. It took us all of history to break the 1 billion population barrier at the beginning of the 19th century. Since then, the world's population has grown exponentially to over 6.5 billion. We now add about 75 people every 30 seconds.
That amount of people, coupled with expanding industry, pollution, and the associated problems have led to a Malthusian scenario – to say the least.
If nothing is done, by 2025 nearly two-thirds of the world's population will be water stressed due to greater demands on freshwater resources by burgeoning human populations... the diminishing quality of existing water resources because of pollution... and the additional requirements of servicing our industrial and agricultural growth.
That's less than 20 years away... But lucrative investments in water are already being created today.
The Grim Details: How Demand is Already Severely Outpacing Supply
The world uses 2.1 trillion cubic meters of water every year – the equivalent of draining Lake Superior, the largest lake in the world, twice!
That's 17.5 million gallons of water every second. To put that in perspective, we use 41,000 gallons of oil every second.
But this is only half of what we should be using.
You see, it's generally accepted that 100 liters of water per day, or 36.5 cubic meters per year, is the minimum per person requirement for good health. An additional 730 cubic meters per year is need for agriculture, industry, and energy production for each person.
That brings the minimum accepted per capita water requirement to 766.5 cubic meters.
So with about 7 billion people on the planet, we should be using nearly 5.3 trillion cubic meters of water per year – minimum.
Yet this is simply not the case. Here's why.
North Americans use 1,280 cubic meters
Europeans and Australians use 694 cubic meters
Asians use 535 cubic meters
South Americans use 311 cubic meters
Africans use 186 cubic meters
These numbers paint a pretty grim picture. North America is exceeding the minimum per person requirement by over two thirds. Europe, Australia, and Asia are at least in the ballpark, while South America and Africa aren't even close.
Boiled down to its simplest implications, this scenario shows 1) that we only have enough fresh water capacity to support about half of world demand and 2) nearly 25% of the world's population (1.5 billion) lack adequate water for drinking and sanitation.
Demand is simply already severely outpacing supply, which will drive up prices and foster good returns from water investments.
And if that weren't bad enough, 20 percent more water than is now available will be needed to feed the additional three billion people who will be alive by 2025.
So what are we going to do about it?
onserve, Recycle, and Profit
Unlike with oil, no technological innovation can ever replace water. So, the way I see it, there are two ways to capitalize on the water-supply market.
The first – and most obvious – is to invest in water through utilities. And this might not be a bad way to go.
In fact, in any random five-year period during the last 25 years, water utilities outperformed all other leading industry groups on a total return basis.
But it gets even better. You see, only about 10% of water utilities are publicly traded, with 90% still owned by state and local governments. And that 90% is currently facing vast expenditures to expand their crumbling infrastructure so they can keep up with rising demand.
In the U.S. alone there are serious problems with collapsed storm sewers, storm and wastewater runoff, and an estimated 20% loss from leakage in drinking water systems.
We have 800,000 miles of water pipes and 500,000 miles of sewer pipes. Generally, these pipes are supposed to last fifty years. The most comprehensive research to date suggests the average age of water infrastructure pipes in the U.S. is 43 years.
Just this single piece of data implies that nearly the entire water pipeline system in the US will soon have to be replaced.
To overcome these obstacles, an investment upwards of $1 trillion will need to be made in the next twenty years. That breaks down to a 150% annual increase over current spending amounts of $60 billion annually.
This money would go to overhauling the water and wastewater infrastructure, as well as to increased operations and maintenance costs, and would result in increased efficiency due to due non-leaking pipes, upgraded facilities, and the installation of new technology.
To date, water and sewer bills, taxes, and private business foot the cost for most of the funds needed to build, operate, and maintain water and wastewater systems.
But those sources alone are not meeting the total current amount needed, let alone the increase that will be needed in coming years.
To meet future funding requirements, private firms in the industry will have to play a key role. The pressure of a competitive market, coupled with the introduction of new technology, will help ease the pain of an emerging funding gap.
Because right now the majority of water utilities are owned by states and municipalities, to help generate more funding, many of these utilities are going public. So much so that major investment banks think the number of people served globally by investor-owned water companies is expected to rise 500% over the next 10 years.
With the amount of money that has to come to this sector, water investment opportunities will surely abound.
And with demand for water constantly rising, you can bet those now publicly-traded companies will be charging a premium for their services.
I'd be looking at all major water utilities as an investment vehicle. Not only will their services be appreciating, but most of them pay handsome dividends as well.
And if the demand for water continues to rise at its current pace, utilities aren't the only ones that stand to make some money. So will companies that have come to be known as the "water works" – companies that design and manufacture specialized parts, monitoring devices, and wastewater recycling technology.
You see, if water utilities are going to continue to provide fresh water, they will need more than a little help from these specialized companies.
Without those solutions – and the companies that provide them – water utilities would be hung out to dry. The two are inextricably connected.
These companies are going to make money because no matter how much it costs, there's no substitute for water – period. The laws of supply and demand don't apply here. Only demand rises.
Worth It's Weight in Salt
Desalination technology, among others, will play a huge role in helping to avoid the coming water crisis. But, as of yet, desalination is not cost-competitive with other tactics such as water importation – though the price has declined 60% in the last 15 years, and continues to do so.
Desalinating one acre-foot (326,000 gallons) costs about $800, while importing that same amount costs about $500. In the near future these price points will intersect, making it more economically viable to use this desalination. When that happens, we'll see investment in desalination grow much faster than it already is.
To date, there are already 11,000 desalination facilities in 120 countries worldwide, with a capacity of 4 billion gallons daily, or about 1.5 trillion gallons annually.
And while that may sound impressive, 1.5 trillion gallons is only .26% of world demand!
Plus, most of these facilities are in the Middle East, with only 1,200 in the US – making this truly a young industry with plenty of investment opportunity. There will be plenty more sites being built and coming online, especially in water-scarce coastal regions like California and Florida.
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