Thursday, February 2, 2012

Is Water the New Gold? Part 2

The next hot commodity for investors could be one you think is everywhere, but which in reality is increasingly hard to find: Clean, fresh water.

Water wars

To be sure, it's easy to suffer from crisis overload these days. Climate change. Crop failures. Tornadoes. Oil spills. The list goes on. But of all the issues, water is probably the most troubling yet underappreciated.

According to the United Nations, 50% of the global population will be living in water-stressed regions by 2030. Citigroup estimates that about one-third of the global population will not have access to adequate drinking water by 2025. Right now, 35% of the world's population, or 2.4 billion people, do not have access to safe drinking water and sanitation, the U.N. says.

These issues are poised to result in political turmoil, because more than 20 countries today get more than half their drinking water from rivers flowing out of neighboring countries, and more than 240 water basins around the world cross political borders. Major rivers like the Colorado and the Rio Grande, sucked dry by thirsty municipalities and farmers, now reach the ocean only during very wet years. Imagine the issues to be faced in the years to come along rivers like the Mekong, which flows through China, Burma, Laos, Thailand, Cambodia and Vietnam.

The problem is that the world is using too much. Water demand in the United States has tripled in the past 30 years while population has grown just 50%. Every 20 years, world water consumption doubles -- a growth rate twice that of population.

Water also plays a central role in the major investment themes set to play out in the decades to come: the rise of the emerging-market economies, increased demands on the world's arable land (a result of the spread of high-protein diets), and increased urbanization.

People, as they become wealthier, tend to use more water. Studies by the Environmental Protection Agency put average American household water consumption at about 100 to 150 gallons per day per person, by far the highest in the world. Compare that to an average of 74 gallons in Europe, just 35 gallons by the Swiss and 23 gallons by the Chinese. Africans use just 17 gallons. Now, think of all the double-head showers being installed in tony condos throughout China and India.

Next up is agriculture, by far the largest user of water at 70% of demand globally. Because of rising population and the need to raise and feed the cattle and poultry bound for the plates of increasingly carnivorous Asian gastronomes, the U.N. estimates that an additional 10% of farmland will be put into use by 2030. That will increase total water demand by 14%.

And finally, the great human migration into cites will further strain antiquated infrastructure in the developed world and force the construction of new facilities in the emerging world. In 1950, 29% of the world lived in cities. The U.N. estimates that number will be 60% by 2030.

How bad is the problem? The EPA estimates that the cost of upgrading and replacing America's dilapidated water infrastructure will be more than $1 trillion. At current spending rates, it would take us 700 years to replace aging water assets.

It gets worse. Aqua America, a utility that operates between Texas and Maine, reports that it operates with some 75-year-old pipes. York Water still uses some cast iron pipes from 1840. In Boston, they've recently found wooden pipes still connecting water mains to historic residences. And in New York City, many water mains are nearly 100 years old.

It's not just an American problem. London reportedly loses 50% of treated drinking water to leaks in old pipes.

Author:  Anthony Mirhaydari of MSN Money