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Is Water The New Gold?

By : Ziad K. Abdelnour| 6 July 2010
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It is a fact that water use is today rising at double the rate of global population growth owing to urbanization, more water-intensive agricultural products, growing industrialization of emerging markets and the impact of climate change. The supply of fresh water is relatively static; hence, the rapid rate of demand growth is, not surprisingly, causing some stress.

An estimated 1/3 of the world’s population currently lives in water-stressed or water-scarce countries. On the current trajectory, it is estimated based on most recent population projections (according to the Food and Agriculture Organization of the United Nations and the Geneva Conference) that by 2025 countries will have water demand in excess of supply and 64% of the world’s population will be under significant pressure.

The Middle East (and North Africa) has the greatest absolute and relative water supply problem, in fact classified as ‘high’ stress compared to the rest of the world which is classified as moderate (Asia) and low (all other regions). It is estimated that the Middle East’s population of 314 Million will rise by 34 Million within 30 years, with an annual water requirement of 470 Billion cubic meters annually – 132 Billion more than the total available supplies based on current level of consumption from both renewable and non renewable sources and on the assumption that there will be an improvement in conservation of about 2 percent annually. Arab Gulf states water needs jumped from 6 Billion cubic meters in 1980 to 22.5 Billion cubic meter in 1990 and estimated to reach 35.5 Billion by the end of this year.

Given these alarming statistics, we at Blackhawk strongly believe that water is in fact turning into the “New Gold” for this decade and beyond.

No wonder “smart money” is aggressively moving in this direction.

Take a close look for example at legendary investor Warren Buffet last year’s buyout of a water treatment provider, Nalco Holdings Company, adding to other water-related investments in his wildly successful portfolio.

The move sent ripples through the investing community: a clear signal that investing in water is an untapped opportunity. Once again, remember that water, like oil, is finite. There is only so much ocean saltwater, glacier freshwater and water in the air, while global consumption is growing twice as fast as the world’s population.

Climate change affects how and where this resource is delivered around the world, with more intense rainfalls and dry spells impacting everything from the food cycle to manufacturing to drinking supplies. Climate change is expected to account for about 20% of the global increase in water scarcity in coming years. The World Bank estimates water availability will change dramatically by the middle of this century, leading to what some have called “water wars.”

New water management technologies are the key to managing water scarcity. Buffet’s investment in Nalco, which had $3.7 billion in sales in 2009, is one example. The company helps its industrial customers reduce water and energy use. For example, it claims it 3D TRASAR® cooling water technology has saved more than 200 billion gallons of water. Nalco is also teaming up with organizations like the World Wildlife Fund to help develop ways to conserve water. The company’s stock price has doubled over the past year.

Water quality is indeed a concern in the U.S. and around the world as well. The New York Times recently ran a series called “Toxic Waters” that exposed the worsening pollution in U.S. water systems and lax regulatory responses – despite the Clean Water Act, which helps regulate 100 pollutants. The fact remains that most of the pipes in the U.S. are over 100 years old; the American Water Works Association (AWWA) estimates that domestic water utilities will need to invest $330 billion over the next 20 years to replace aging pipes and treatment plants.

The rest of the world faces even direr water problems. China has 21% of the world’s population but only 7% of the renewable water resources. The country’s spending on water infrastructure reached $250 billion in 2008. By some accounts, the lack of clean water and sanitation slows the world’s economic growth by $556 billion each year.

We believe companies that can fix broken water systems are set to benefit from President Obama’s stimulus dollars, which are finally expected to flow this year. The plan divides $21.4 billion to water and environmental infrastructure and $30 billion to building infrastructure, which should be allocated within the next four years.

Putting our money and brainpower where our mouth is, we are actually involved in the recapitalization of a major water bottling facility in Iraq as we strongly believe that the Middle East at large; as mentioned earlier, will need double the amount of water it used in the past. As it is, per capita water consumption in such comparatively Arab countries as Jordan is only about 80 liters and Israel is 300 liters, on a par with the European average. Meanwhile, unless other projects are implemented, water available in Israel would be half of what was available in the past. Some countries -like Oman- have already trimmed its development program to take account of high population growth, and other countries will soon be forced to follow suit.

No wonder that the bottled (packaged) water industry; worth roughly $85 Billion in annual revenues, has been growing at an average rate of 8% by volume per annum over the last decade.

The penetration rate of bottled water is quite mixed, for instance, in China the consumption per capita is 10% that of Italy. US consumption is nearly 30% lower than Europe. The industry outlook for growth continues to be very strong for water worldwide, mainly due to health benefits of drinking water for developed market consumers, and to avoid ill-health for the emerging market consumers.

The market drivers are different according to each region, with growth in the developed markets driven by health benefits, by contrast emerging or developing markets increasingly seeking water to avoid health issues as local municipal suppliers have fallen short of the quality required. Consumption levels within each market varies markedly from region to region with the more affluent groups within each market willing to pay a premium for water based on the source.

The main growth is understandably coming from those countries where per capita consumption is very low and pollution high, notably the emerging markets.

According to the price/earnings vs. earnings per share growth chart, the outlook for the industry for 2009 was conservative, as real growth in the water industry is expected to continue to beat global averages. There appears to be plenty of scope for continued outperformance in this sector. If the water sector P/E moved up to 20x and earnings growth were 15%, the sector would be up 27% on an absolute basis.

Bottom Line:

Annual water use is up six-fold over the last century, more than double the rate of population growth. Growth in water usage has significantly outstripped population growth for 3 broad reasons:

(a) Rising real incomes have increased the demand for more expensive (and water-intensive) food groups,

(b) Advances in technology have brought water and sanitation into the home, making it more convenient to use in greater quantity, and

(c) Growth in industrial processes and agriculture has added to greater demand for water.

We believe packaged water has been and is expected to continue to be, one of the most attractive long-term growth industries in the consumer market. P/E ratios remain compelling, with industry leaders such as Nestle and Danone showing P/E ratios of 14.6x and 19x, respectively.

What do you say?

Your feedback as always is greatly appreciated.

Thanks much for your consideration.

Comments

  1. vijay singhvijay singh

    World Freshwater Resources Map shows a world map where the countries have been shown using different colors according to their Fresh Water Resources per Capita in cubic metres. According to the map, the fresh water resources per capita world are the maximum i.e. 10,000 cubic metres or more in South America, Russia, Australia and some parts of Africa. Algeria, Libya, Saudi Arabia, Yemen, Oman, Jordan are places where fresh water resources per capita are less than 1000 cubic metres. Of the total water available on earth’s surface only 2.5% is freshwater. 97.5% is salt water. Less than 1% of this amount is frozen in ice caps or exists as soil moisture. Water scarcity has emerged as a major problem these days. Infact, the world is facing a global freshwater crisis. It is estimated that 110,000 cubic km of precipitation falls on the world’s continents each year. Major portion of the precipitation flows through rivers, some is absorbed by plants or evaporated back into the atmosphere. Around 9,000 cubic km of freshwater is readily accessible for human use. Freshwater sources are dwindling over the years. The main factor behind this is fast growing populations. From the World Freshwater Resources Map, it can be seen that freshwater distribution around the world is quite uneven. Middle-East and some countries of Africa face acute water shortage. Freshwater resource is a finite resource and should be used properly to avoid its shortage in the future.

  2. GanesanGanesan

    1. Unlike what most people presume, shortage of potable water is a smaller problem (undoubtedly a major problem, though) than the availability of water for other uses, domestic and industrial. Because, an average person requires much less potable water than for other purposes. We may run out of water for other purposes sooner. 2. Water for both potable and other purposes CAN be managed easily if only we quickly switch over from centralized to decentralized sewage treatment, making it fit for re-use, and actually re-use. Singapore’s NEW water, treated from sewage, is used even for potable purposes. Simple solutions exist to at least postpone the water problem by 50 to 100 years, but we need to start acting NOW. It’s a HUGE business opportunity, too, by the way!

  3. Simon BrindleSimon Brindle

    Providing one cubic meter per person per year of drinking water is rarely an insurmountable challenge, even in the most arid areas of the world. Accessing the 1000 times multiple to produce the annual staple food needs of a single individual is a far greater challenge. There is compelling evidence that the value and sustainability of water used in food production can be substantively increased through the development of integrated and ecologically sustainable farming systems involving the multiple use of water for both aquaculture and irrigated farming. One system developed in Egypt has proven highly successful. Initiated in 1996 the project won international recognition in March 2003 when it was selected as one of the leading 100 projects in the world for its optimum use of water by the World Water Council at its World Water Forum held in Kyoto, Japan. In 2005 the project was presented at the annual conference of the World Aquaculture Society on the island of Bali in Indonesia What is being proposed for Egypt (and for other countries and regions in a similar situation) is a complete departure from a ‘business as usual’ approach to embark on a comprehensive assault on some of the most important challenges – food security, productive employment, affordable housing, and sustainable rural communities. It involves a radical departure from the standard approach where poverty reduction is equated with handouts to the adoption of a pro-poor growth formula as the key to realizing economic potential. While every group involved is an essential player for the formula to work, it is the lower end of the scale in living standards that is the power base for economic growth Our vision for the development of dynamic integrated farming industries and rural communities goes beyond food production. It broadens the approach by increasing the level of importance placed on the economic social and environmental benefits Foremost among these benefits is job creation. The proposed developments are expected to ensure productive and profitable employment for thousands of rural workers and security for their families. The numbers will be substantially larger if multiplier effects are added. The overall industry economic multiplier effect of aquaculture is generally estimated at 1:3. Development will largely take place in rural and new desert communities, providing jobs, economic stability and growth where economic development options are often limited.Affordable housing and alternative energy solutions will be key components of the projects

  4. Dave AshmanDave Ashman

    A GLOBAL PROBLEM, ZIAD, WITHOUT A SO-FAR PRESENTED SUSTAINABLE SOLUTION OR THE RECENT CAUSE OF OUR WATER SCARCITY. Plastic Water Bottles The momentum for a better Global drinking Water Environment is increasing. http://www.ecademy.com/node.php?id=150855 Blog One way to achieve this Mission is to reduce the global High energy wasteful costs in producing Plastic Bottles, then transporting these products (so-called mineral,spring, volcanic Water) daily to Supermarkets, Newsagents & Corner stores. The FACTS:- * 17 million barrels of oil used each year to produced plastic bottles. * 1000 plastics bottles purchased every second in the USA, every day, every month, every year. * 90% of empty plastic bottle are eventually sent to landfills; polluting groundwater for thousands of years. * It took 3 liters of water to produce 1 liter of bottled water therefore for tourist travelling worldwide uses more of the local supply to have their plastic bottled water. * Energy Wasting to fill Oil manufactured plastic bottles with water at the factory, move it by trucks, trains, ships and air freight to the user; then keep cool in the supermarket or home refrigerators. * To then recover, recycle, or throw away the empty plastic bottles; wastes more energy & man-power. * Waste Water…. clean-up costs * Toxins leaching from these Plastic bottles can cause cancer such as: Bisphenol & other. A number of towns have already banned plastic bottles from being sold. opposition is voiced by numerous environmental groups and organic health retailers have banned plastic bottles from their stockrooms. Leading Water Professor Peter Gleick has a new book, called; ‘Bottled and Sold’ The Story Behind Our Obsession with Bottled Water can be purchased here. http://www.pacinst.org/bottledandsold The recommendations by Peter Gleick to reduce bottled water use; are lacking in vision; definitely not his fault as he has gathered historic and current facts about drinking water & the beverage companies Plastic bottles damaging effects upon our environment. Future Solutions: by Dave Ashman @ H2OTrust Twitter, LinkedIn & Ecademy We have had a vision since 1989 to provide globally on all Streets a new Vending machine dispensing Clean chilled Drinking Water. Each SVD will enable all people desiring a drink of water @ a minimal charge; with our pre-issued stainless steel bar-coded Flask, the ability to refill their flask 24/7 with the highest monitored drinking water. A prototype is still requiring PRODUCTION however with your open-minds or focused minds upon a solution; the perfect investor, partner or company will be found shortly. Namely addressing our unsustainable wasted energy required in providing plastic bottles, landfills, transportation costs. Everything made or grown requires clean water. These industries then pollute giving us wastewater. There is a new more environmental solution. Our SVDs do not use plastic oil-based bottles or incur transportation costs. A New sustainable guaranteed safe Global sidewalk Clean Drinking Water Solar powered project. Three liters of water are required to produce one litre of plastic bottled water especially in Arid regions of the World: because of the global Tourist trade; leaving the locals in drought and famine conditions. http://www.chakraworld.net/H2OTrust.swf Thank You

  5. Jeffrey L. NelsonJeffrey L. Nelson

    Shortage of water concerns are popping up in some parts of the United States, and elsewhere in the world. A short time ago, I read an article about the growth of desalination facilities, and some of the companies involved in further developing the process. The Western New York area where I live has been steadily losing population over many years. A population shift could occur and repopulate areas with greater water supply. Improving current water technologies, and developing new technologies will need significant investment to prepare for future needs.

  6. AmosAmos

    I’d like to add the Israeli angle – Israel is a leader in water-tech and has been such for the last 40 years. There is a technological solution in large desalination projects – in fact, Israel’s shortage of water is about to be overcome in 2013 with the opening of the Soreq desalination plant, a joing IDE-Hutchison project designed to supply 300m cu.m. of fresh water annualy. This will be the world’s largest plant. The downside is double – obviously there is an environmental cost and with water becoming a non-issue, the motivation to save water diminshes. From what I learned about this issue there are 3 major problems: – Like with food, there is no shortage of water in the world, only an uneven distribution problem. This is both geographically (places with abundant water supply and others with non-whatsoever) and seasonally (you can’t count on winter and summer anymore). So storage (reservoires) and long-range piping are possible solutions. – Leakage – up to 30% of municipal water supply is lost due to old pipes. There are at least 2 Israeli start-ups that are developing solutions for this problem. – Really dry places – it seems that certain areas in the world will become unihabitable. There is nothing that can be done about that and instead of fighting a losing battle the world population should re-trench where this problem can be solved rather than try to supply potable water in the Sahara. One last remark – bottling may be a good investment but it is a lousy solution. It is only available to the rich, it creates enormous environmental issues (the bottles and transportation) and there are health concerns (bacteria colonies in bottles). Not ot mention the fact that it packs a valuable resource and transports it to places where it is less needed.

  7. MAYNARD SMITHMAYNARD SMITH

    Hello Ziad As usual you are right on the money with this one. Having had a great deal of experience in the reverse osmosis field I have been working and investiagting this critical area for years. As you probably know , reverse osmosis is a water refining process where salt water or even polluted fersh and brackish water can be used to produce potable/drinkable fresh water supplies that have removed salt and any other chemicals, metals and pollutants down to 5 microns . Just look at the space program for an example . These Astronauts recycle their own urine and other waste water back to 100% safe and purified drinkable water and so the same water is used over and over again . I truly think that reverse osmosis processing seawater into potable fresh water is going to be an absolute huge market world wide and will be increasing in the number of large plants over the next 50 to 100 years in order to begin to meet the increasing demand for potable fresh water . Even Tampa Florida made the investment back in 2000 to 2001 to build a 25,000,000 gallon per day unit that draws it’s feed water from Tampa bay. Because these units can be designed with oil separators as part of the intakes systems , these untis can be used in areas where even the sea water used as feed water can be drawn from semi polluted ports , bays or harbors or even very polluted rivers , lakes and other now undrinkable fresh water or brackish water sources if needed . Over all sir , I know that you are on the right track with the water bottling plant in IRAQ Ziad and I am convinced that reverse osmosis will be the way to save this planet as far as required water consumption is concerned . thanks again for you “ALWAYS ON THE MARK” updates and articles sir. Maynard Smith

  8. Charles BettertownCharles Bettertown

    Having conducted extensive research on water, I totally agree with your predictions. I recently began working with Clayton Nolte, inventor of structured water devices that produce a 500% to 1,200% increase in the nutritional value of food grown with it. Given the fact that over a billion people on our planet don’t have access to clean water and many millions are dying every year due to the lack of food, I helped establish a new non-profit Ultimate Water for Humanity. I also published a free 141 page E-book, Introduction to the Health Benefits, Cost Savings and Environmental Advantages of Structured Water. Copies and more details are available at http://www.ultimatestructuredwater.info including an invitation to participate in our affiliate marketing program.

  9. Georges RGeorges R

    I worked on specific projects in Canada from Esker sources (glacier melting). This water is 33 ppl meaning that it is FDA approved from the source for use in medicin and high quality creams. The source and the plant was bought by Morgan Stanley at a pittance and the source is under-exploited and under-marketed. In a nutshell, many that manage these sources are not business minded and some see the future value and put a hook into it. A good time for aggressive investing and watch-out for government regulation…

  10. Jean Julius VernalJean Julius Vernal

    It is a right prediction. Though fictional – The theme of Quantum of Solace was based on controlling this particular natural resource. Seriously, within a decade or two , water would be branded white gold

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