I know I’m not going to do a good job explaining the intricacies of the world-wide water supply and demand issues. But I hope I manage to get a few points across:
1. Water is not scarce.
2. Water is cheap to process but not FREE.
3. Access to water is an economic issue.
Water is a hot topic nowadays. Shortages are predicted, conservation is discussed, and water quality is called into question. The Wall Street Journal and the Financial Times are doing full-page pieces on the perils of the coming water shortage. The recent algae bloom in Lake Erie caused green water to pour from the taps in Toledo. As Paris would say, “Water is so hot right now.”
Water is not scarce. It is a grand misconception. Cheap high quality water is becoming less available but there are literally oceans of available water. The issue at hand is that people are used to free water. And while water is not scarce, the price of water is going to rise. Drinking water prices are going to rise, potable water prices are going to rise and industrial water prices are going to rise.
Much like fossil fuel consumption, we took the easy path to get the high quality stuff first, and now we have to work a little harder to get quality water. Unlike fossil fuels there is an abundance of water and we are not going to run out. Water costs money to procure (wells, transport, etc.) money to process (filtration, desalination etc.), and money to distribute to the end users. Water procurement and processing technologies continue to improve and have become much more economical.
So while water is not vanishing, it will cost more money. And while water will be affordable, the massive quantities being consumed will mean that the money spent within the “water” industry is going to rise exponentially.
As savvy investors how do we benefit from the rising tide of water? Many industrial companies service the water industry (repair pipes, provide technology, build infrastructure, provide chemicals, etc.) but not many are 100% focused on water. Water utilities provide water and waste treatment – an area likely to see both technology and price increases. Additionally some chemical companies are focused on purification and water treatment. So while I don’t think there’s a water crisis, I do think there’s a water gold rush coming, and I’m looking for the guys selling the pick axes and overalls. We’ll report back once we’ve determined how exactly to execute an investment strategy around this thesis.