Global Water Crises & Solutions

A Liquid Investment Overview

By

I have a reputation around the office for keeping too many tabs open.

When I sat down at my desk Monday morning, I counted exactly 45 of them — everything from Drudge, CNN, Wired, and The New York Times to tiny Asian news outlets and niche technology websites...

Rather than bookmarking them and forgetting they ever existed, when I find something of interest and worthy of further exploration, I simply leave it open, open a new tab, and continue my day.

If I still find an article interesting after a few days or weeks, and it still holds merit as an investment idea, I'll incorporate it into a newsletter, blog, or stock recommendation.

So when I realized over a quarter of my open tabs were about water, I knew what I had to do...

What in the World's Water?

One of the oldest water-related pieces I had open came from a Guardian article back in March, and it argued the world has long passed the point of no return when it comes to being able to supply the entire population with water.

It explained the problem like this:

Nearly a billion people don't have good access to safe fresh water. In a single generation, that number could double as growing demands for water will exceed the available and sustainable supply by 40 percent, according a recent study. "Peak Water" has already come and gone. Humanity uses more water than can be sustained, drawing on non-renewable reserves of water accumulated over thousands of years in deep aquifers.

It's a humanitarian crisis, to say the least. But I don't want you to take shorter showers, install rain barrels, or donate to UNICEF — though none of that could hurt...

Instead, I want you to do what you should always do. And that's what's best for you.

In this case, that means investing in water solutions, which we'll get to in a minute.

First, though, let me pass on some of the insight from the several other water tabs I had open to give you more perspective on the problem, how much money will be thrown at it, and which solutions will be the most valuable.

1. China to Spend $617 billion on Water

China spent more than $55 billion on water projects over the past five years, the bulk of which (about 65%) went toward the South-North Water Transfer Project (if you don't think the world is desperate for water, read about that when you get a chance), reinforcing aging reservoirs, and diverting inland waterways.

Another 10% ($5.4 billion) went to building irrigation facilities and other agricultural projects.

In the next decade, China's Ministry of Finance said it will spend $617 billion on similar projects because “many cities face water shortages and irrigation facilities are badly in need of overhaul.”

2. World Leaders Call for Water Action

Twenty former heads of state, including Bill Clinton and Vincente Fox, came together in Quebec City to warn of an impending water crisis. The meeting and announcement came in May, as both China and Northern Europe endured one of the driest springs on record.

Fears were raised that a lack of water could lead to the closure of nuclear plants and increase food prices because of failed crops.

3. Philly Signs $2 Billion Clean Water Plan

It's not every day the fifth largest city in the U.S. commits a sum like that to improving water management...

The 25-year plan will reduce the amount of sewer and stormwater overflow entering the city's waterways by 5 billion to 8 billion gallons per year, or 80% to 90%. The bulk of the plan is about infrastructure modification: using things like porous asphalt and rooftop gardens to reduce the amount of runoff tainted with road oil, litter, and raw sewage.

4. Dow to Increase Water Unit Sales by 60%

In a very profitable breakthrough, Dow Chemical (NYSE: DOW) has said it will reduce the energy required to desalinate seawater by a third to as little as 2 kilowatt-hours per cubic meter by 2015.

According to Ian Barbour, who manages Dow's water and process solutions division, desalination membranes are a $1 billion per year market. And that will grow by at least 10% per year over the next decade into a $2.6 billion market.

Dow already owns 40% of that market, and only looks to expand its dominance as it continues to reduces costs.

5. India Spends $1 Billion on the Ganges

For the first time in more than 20 years, India has allocated major financing to clean up one of the world's dirtiest rivers.

Almost 400 million people live along the banks of the river and depend on it for drinking, cooking, and washing. For decades, raw sewage, agricultural runoff, and industrial waste have spewed untreated into the river and its tributaries.

Even with a $1 billion price tag, the World Bank concedes it “takes decades and costs hundreds of billions of dollars” to cleanse an entire river.

India better get ready to do some spending; even environment minister Jairam Ramesh admits, “Most of India's rivers have become sewers.”

6. The Return of the Dust Bowl

Our Breadbasket is made possible by an underground lake that stretches from the eastern slope of the Rockies over to South Dakota and down to the Texas Panhandle. Called the Ogallala Acquifer, it was formed between two million and six million years ago and is believed to be the world's largest body of freshwater.

It ranges from 300 feet deep under Nebraska and Kansas down to 50 feet near the Texas/Mexico border. And just like oil, it's a finite resource.

Since it was discovered in the 1940s (that's what turned the Dust Bowl into the Breadbasket), we've drained enough water from the Ogallala to half-fill Lake Erie. The aquifer has gone from an average depth of 240 feet to 80 feet.

The U.S. Department of Agriculture has said: “The Ogallala supply is going to run out and the plains will become uneconomical to farm.” They give it 60 years, best case. But towns in Texas, where it's much more shallow, are already running dry...

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7. Water Wars

Earlier this year, the Senate Foreign Relations Committee released a report called “Avoiding Water Wars: Water Scarcity and Central Asia's Growing Importance for Stability in Afghanistan and Pakistan”.

The report notes “water scarcity is fueling dangerous tensions that will have repercussions for regional stability and the U.S. foreign policy objectives.” Further, “The implications of this looming water shortage, caused or aggravated by agriculture demands, power generation and climate instability, will be felt all over the world,” as reported by Pakistani newspaper Dawn.

8. The Sales Begin

Remember the depleting Ogallala Aquifer from above? Well, in some states it's legal to sell that water if you own the land above it. And billionaire T. Boone Pickens has done just that.

Last week, he sold the water rights to 211,000 acres for $103 million to West Texas-Based Canadian River Municipal Water Authority. The 4 trillion gallon pact will be enough to serve the utility's 11 towns and the 500,000 people who live in them for 90 years.

You seeing the implications of global water shortages yet? If you have clean water (or the ability to clean water) you can make a killing.

9. The Forecast is In

I'll give it to you straight from Bloomberg and spare you the summary where I'd state the exact same thing:

Investors should focus on water-related companies that own high-end technologies, firms that treat water generated when fossil fuels are extracted and those that remove salt from sea water...

Those changes will help fuel growth of 4 percent to 6 percent over the next year for the $450 billion industry, despite the economy's sluggishness...

Companies to Watch

Bloomberg mentioned:

  • Heckmann Corp. (NASDAQ: HEK)
  • Hyflux (Pink Sheets: HYFXF)
  • ITT Corp. (NYSE: ITT)
  • Danaher Corp. (NYSE: DHR)
  • Pentair (NYSE: PNR)

I'd add Lindsay Corp. (NYSE: LNN) and Layne Christensen (NASDAQ: LAYN) to that list, the latter of which members of Alternative Energy Speculator are in right now for profit.

Call it like you see it,


Nick Hodge
Editor, Energy and Capital

P.S. This past weekend, I told you food and oil prices would have to increase because our growing population is putting a strain on resources. One reader wrote in calling me an idiot. And yet, the two funds I mentioned (ProShares Ultra Crude Oil (NYSE: UCO) and PowerShares Agriculture Double Long (NYSE: DAG)) are both up nicely. Maybe that reader — and others like him — will start listening to this idiot on other topics as well.


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