Water, The Next Oil
By Thomas Rooney
Good morning! I'm Tom Rooney, and it's a real pleasure to here today. What I'm going to try to do here is help you understand why some people refer to water as the next oil. If you have any inclination to invest in favor of or against water, I think that probably the most important thing you need to understand is WHY it has become such an interesting commodity.
My background is as a civil engineer with a finance degree. I spent five years running one of the few pure-play water investments publicly traded. I was also the CEO of a company by the name of Insituform Technologies, traded on the NASDAQ. I'm a turn around guy, so I came in to turn that company around. I left that company a year ago. Interesting enough, by virtue of running a global company that is investing so heavily in water, I did travel the world meeting with presidents, kings, governors, mayors and bureaucrats on many, many levels on almost every continent.
Since leaving Insituform a year ago, I now actually serve on the board of directors of a Chinese water company based in Beijing with aspirations of going public on the NYSE somewhat near term.
I also sit on the International Center for Democratic Transition. I was asked to do so by individuals in the US State department simply because, as you think about Maslow's hierarchy of needs, food and water would be the first priority for meeting the needs of a population.
When you're thinking of a fledging democracy, for example, you may think about Russia and breadlines. If you think about Russia and why it has backtracked to a great degree in terms of its move towards a pure and better democracy, you would think about breadlines. There is very great concern around the world about fledging democracy and even some stable democracies as it relates to water. So that would tell you a lot, the fact that I sit on the board with some very interesting people from around the world dealing with the linkages between democracy and the stability of democracies and water. And finally I also sit on the board of a charity that is in the business of providing clean water for third world and impoverished countries. All of this gives me a very interesting perspective on water.
Some people refer to water as the next oil. So what I'll talk about is the sky rocketing demand for water, water supplies as they currently exist, failing distribution systems, political concerns surrounding water and other compounding factors. I also will be speaking about this afternoon in two break out sessions on the future of water, where I will speak to some degree about the companies that are in the business and segmentation of water.
So, why has water moved from effectively plentiful and cheap to something that people would compare to oil?
First I'll speak to skyrocketing demands. Most people first and foremost say, "Okay, that has to be because the population is outstripping the water supply." This is a good starting point, and that's very true if you think about places like Nevada, Southern California, even, Florida, Georgia, Texas, and Phoenix Arizona. You see a great number of people crowding into an arid location that really can't sustain it. If you think about the global population expansion, you would think about what the population was one hundred years ago versus today and that the water supply has not changed.
But really the most pronounced drivers are China, India and Eastern Europe. These places have experienced what we have called an economic awakening. We certainly know that. That's why mineral prices and oil prices are up as much as they are. But what happened when you have an economic awakening with population mass in the order of 2.6 billion people is that their buying pattern change. They tend to want to eat richer food, that is to say that they have moved from dried grain to wet grains, like rice and then from rice and chicken and then from chicken to beef. And if you looked at the water consumption per calorie from a dried grain to beef its on the order of a thousand to one.
So if I consumed dried grain in my local area I wouldn't have much of an impact on water, but if I'm wealthy enough to desire beef for my consumption, my water impact, my water footprint as an individual can go up to as much as 1000 to 1. When you then start to think about places like Beijing and China, which used to be bicycle cities that are now automobiles cities, and you think about the electrical consumption, you see a tremendous consumption pattern or footprint for water for each individual that goes way up.
What we have seen is water consumption per capita is skyrocketing...and there's a long way to go for developing countries. The US, for example, uses 158 gallons per person per day. Most developing countries use only around 13. So what we have is a massive population that is suddenly becoming dramatic users of water in unprecedented days. By the way, if I take a look at the united states, us water demand has moved per person 6 folds in the last 50 years. So our population grows, our water consumption moves up even more steeply.
So where does the water come from? Well, water supplies are limited. Now I say that, and we've all seen the picture of the earth vastly covered by water. The problem is that 97.5% of the volume of the water on the earth is salt water, not consumable for human beings. Then when we look at that other 2.5% we see where the fresh water is. Interestingly enough, almost 80% of it is frozen in the polar ice caps and in glaciers. But polar ice caps and glacier, generally speaking, are not where the population is. So, its in the wrong place and its frozen. I guess the good news is that the glaciers do melt and create rivers such as the Ganges and the Colorado and others and ultimately do supply human beings. But you can't actually tap a glacier very easily and I'm not sure if you would want to from the standpoint that it takes millennia to create glaciers.
What's left then? Most people when they think about fresh water and access to fresh water think about water from the Ganges River, from the Mississippi River and from Lake Michigan and places like that. The fact of the matter is that only about 1% of all fresh water in the world is on the surface. Twenty percent is underground. So our focal point has been off as to terms of where to access the water.
This is critically important as we think about the future of water and investing in water. Water supplies are diminishing rapidly. In China you see the Yangtze and Yellow River are down dramatically and effectively don't run continuously year round any more. In the US the Rio Grand doesn't make it to the end. The Colorado is being fought over and the Chattanooga that supplies Georgia and Florida is at a point of serious legal contention between the states of Florida, Mississippi and Georgia. The situation is so dire that the governor of Georgia, quite literally, holds prayer sessions praying simply for rain. I think when you see a major political person literally praying for rain, well, that would suggest to you that we have gotten to a certain dire situation. I guess next up would be water dances and everything else.
The fact of the matter is, that's only 1% of the rivers and lakes. The other 20% [see chart] would be aquifers and the water tables. So how do they look? In parts of Tuscan and Phoenix the water tables down as much as 500 feet. Houston is down 400 feet. There are areas in the Chicago land area that are down as much as 900 feet. The Ogallala aquifer, one of the largest aquifers in the world, which basically runs from Nebraska down to Texas, is dropping at 2 feet per year. Thirty percent of the agriculture in the US is dependent of the Ogallala aquifer. I'll talk about that later because T. Boone Pickens and others are actually gearing up to sell water out of the Ogallala by transporting it over long distances. By the way, an aquifer typically takes as much as about 1000 years to recharge. So .1% of an aquifer will typically recharge in a year, so if you deplete the Ogallala as an example, you would have to go through exuberant means to try to mechanically recharge it.
To be continued...
