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 turnaround 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 fledgling 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 fledgling 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 breakout 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 it’s 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, it’s in the wrong place and it’s 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.
The population is consuming a dramatic amount of water in an unprecedented fashion, and the water supply is limited and going down fast. The other critical element is that the distribution systems that we use are in abject failure mode.
Booze Allen Hamilton published a study on infrastructure about a year ago. I think it was called, “Lights, Water, Motion.” Basically it was a study in the spring of 2007, in the wake of intensive collapse of infrastructure around the world.
“So,” you might ask, “what’s the price tag going to be in the next 25-30 years to repair infrastructure around the world? Their study came up with a staggering number… I think it was around $40 trillion over a 30-year period. The scale of the number is interesting and I encourage you to read the study.
Now, what if I told you that water-related infrastructure represents 60% of the entire bill. The amount of money required to refurbish water infrastructure combined, in other words, is a staggering number. How do you get to that point? There are 700,000 miles of water lines in the United States alone, for starters. Add to that sewage line and you’ll be more than double that. Currently, water systems, if they’ve maintained the way they are right now, will take somewhere in the order of 900 years to totally replace.
Water systems and water pipes and so on have a useful life of anywhere from 50-100 years. One would suggest therefore that you have to replace 1/75th of your water infrastructure every year. The very best places around the world are replacing about 1/200th of it, or operating on 200-year cycles.
Why do politicians do that? Well, because they can…and they’ve subsequently gone to horrific levels of failures.
Most of our world’s infrastructure was built between the years of 1945-1965, the economic boom years after World War II. Whether if it was reconstruction in Europe or GI Joe coming home to suburbia in the United States, a tremendous percentage of this infrastructure was built in the two decades immediately after World War II. In the earliest years after the War, you couldn’t get steel and some of the most common building materials. So new fangled building materials came about – reinforced concrete pipes and so forth.
You’ll actually see certain cities where the water infrastructure is in horrible shape because some of it was built at the turn of the century…that’s the 1900’s, mind you. So we’re seeing a jump in failure of water infrastructure. In fact, 15-45% of all drinking water is lost to leaks. That’s a pretty wide spectrum, and it may actually be wider than that.
You take a look at places around the world, like New Deli in India, which loses between 60-80% of its water through its pipes. I’ll actually argue with you that if you went to Wikipedia and punched in something that lost 80% of what goes through, you wouldn’t actually call it a pipe, you would call it a sprinkler’s system or something like that. The rational as to why it’s so high is actually that the government in effect allows people to tap – they don’t crack down on people that break into the pipes and take the water for humanitarian needs and reasons. But you’d still actually argue that the amount of water leaking out of pipes in India would be in the order of about 50-60%. Part of that is because there is a tremendous amount of infrastructure that dates back to its years as a British colony, some 50 years ago, that has been under-maintained since then.
Hong Kong loses roughly a third of the water that passes through its pipes… Sydney 35%… Philadelphia 30-35%. Places throughout the state of California lose 10-25%. You can go around the world and look at these locations. You go to London, England and see 35% water leakage. This is pretty interesting when you talk about something that is as precious as water. It’s going through infrastructure that loses more than 1/3 of it and yet we don’t take care of it.
Interestingly enough, the water cycle – when we take water out of a river or aquifers, put it through pipes, process it at a water treatment facility, put it through more pipes, send it to this hotel, or to your home, or to a business – typically gets used one time. It is then piped to sewage treatment facilities, then the sewage treatment facility treats it and it is typically routed back to the same river. It’s rarely put back to an aquifer, by the way. That is not a closed loop, and its very hard to recharge an aquifer, or shall I say its expensive.
But has it reached the point where politicians even care? The fact is the matter is yes. If you take a look at global warming, it brought a lot of attention to these environmental issues. Interestingly enough, in Beijing, one of the most significant concerns the Chinese government has is with regard to the water supply. I think most people have heard about the Three Gorges Dam.
How many people know that they have spent $60 billion to dig a canal from the south to the north in time for the water for the Beijing Olympics. That’s twice as much money as the famous Three Gorges Damn. Why? Because a very large portion of the Chinese population lives in the north, where there is no water.
Then the news agency out of Beijing came out about a year ago and said, “Don’t worry if you’re an athlete and you come to the Olympics. We will have clean water in the Olympic village.” Well, that is a very small area and they refer to bottled water for most of the other areas. Then recently it was disclosed that more than 50% of the bottled water in Beijing is counterfeit. Its just tap water! In fact, they showed an example of it and it’s actually colored!
Certain ministers were executed in china over the issue. It was such a devastating problem. Monks from Tibet may be a great concern, but if a large number of people are sickened or cannot drink water come games time, that could be a more devastating issue in regards to the coming out party that China is trying to throw.
At a larger level, take a look at Turkey, Syria, and Iraq over the Euphrates Rivers. Most of the leadership and the United Nations are referring to the fact that in the 21st century the most dramatic wars are likely to be fought would be over water. You don’t have to go very far to talk to people about that. Palestine has to get it from Israel. It’s a fascinating element. Your likely to see very serious conflict in the middle east over water rights.
Compounding these factors is the fact that you can’t import water. Water is basically one one-thousandths of the value of oil. Arguably, therefore, it is a thousand times more expensive to move per unit of value. So you can’t transport it. Competing population will fight for water. It’s a zero-sum game. It’s my water in a river or your water.
Last but not least, I’ll just leave this in your mind. One of the most critical elements that people are starting to understand is that water and energy are linked. The reference is to the water-energy nexus. It takes a tremendous amount of water to create energy and it takes a tremendous amount of energy to create water. So as we see energy fly out of control, water is flying with it and constraining it. If you talk to anyone in the power generation industry they will tell you that they need three things: One is a fuel source, two is a transmission line and three is a water source. Roughly 40% of the water extracted from rivers in the United States goes to cooling power generation. Effectively, you can’t put a power generation facility somewhere if you don’t have a water supply.
We’re basically are at the tipping point.
- The Consequences of a Blistering Summer
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- Water, The New Oil
Oil Tycoons: Now Drilling for Water! Including states such as; Texas, Nevada, California, Arizona, New Mexico. Pipelines are now being built by these Tycoons to various cities as private water companies
Water Rights go for up to $45,000 per acre-foot. An acre-foot is the amount of water it would take to flood an area of 1 acre, at a depth of 1 foot. One acre-foot is enough to support four adults in a year.
February 2009, Warren Buffett’s Berkshire Hathaway revealed a new position in one of the world’s largest water-treatment companies.
The largest Blue Gold opportunities will be in the private sector providing shovel ready opportunities at the local level. These jobs could go to various suppliers and contractors, such as; Roofing, Gutter, and Landscape professionals when installing Rainwater Harvesting systems.
As an experienced follow-up:
The author personally remembers flying in to San Antonio in about 1974 to have his photogrammetric Leica RMK 15/23 mapping camera calibrated. Associated engineers at that time were talking about water shortages in southern portions of San Antonio because of the new developments in the northern portion of the city. They were drilling deeper wells and sucking up the aquifer before the southern neighborhoods, leaving those wells dry. That was considered a CRISIS even then!
The author also remembers obtaining that position as Aerial photo navigator with an engineering firm after losing his plumbing job in the Clearwater/St Petersburg, FL area in 1972 due to a building moratorium caused by a water shortage. One of his first mapping flights was to map the construction of the 15’ diameter concrete water pipeline from Pasco County to St Petersburg. That was considered a CRISIS then also.
Fresh water values:
Government Subsidies to corporations:
For reference only; following is just a couple of companies working as Water Rights Appraisors:
McCarty Land & Water Valuation, Inc. specializes in the valuation of land and water rights throughout the High Plains and Rocky Mountains.
WestWater Research, LLC. WestWater specializes in transaction advisory services, water right valuations and appraisals, marketing services, water resource economics, and investment services.
Water rights definitions for California:
Groundwater rights are enjoyed by owners of land overlying the groundwater basin. There are a few adjudicated groundwater basins in the state where a court has determined the entities that are authorized to withdraw water from the underlying aquifer and the quantity to which each party is entitled. In non-adjudicated basins, the overlying landowners can
withdraw as much as they can beneficially use on their lands. Just because an overlying landowner is using surface water does not mean that the groundwater rights have been forfeited. The surface water rights can be sold and transferred, and the owner can then replace them with groundwater, provided the groundwater and surface water are not interconnected. Groundwater can be appropriated for use on non-overlying land on the condition that such appropriation does not cause an overdraft situation in the aquifer and the appropriative right is junior to any future overlying landowner’s rights. Groundwater can also be transferred for use elsewhere if the equivalent amount of consumptive use on the overlying lands is terminated.
Riparian water rights are part of the bundle of rights associated with land that is adjacent to a body of water. These rights run with the land and cannot be transferred. If the water use on the riparian lands is terminated, the water simply stays in the stream and can be extracted by any downstream water right holder. Riparian rights cannot be expanded to new lands by merging of parcels, but they can be lost through subdivision that severs land from the water body.
Appropriative water rights are present where water is extracted from a body of water and used on land that is not adjacent to the water source. Appropriative rights take two forms, pre-1914 and post-1914. Pre-1914 rights are based on established use that predates the California law that gave the state the authority to regulate water use. Therefore, pre-1914 water rights are technically outside of the Board’s jurisdiction. The Board’s approval is not needed for the sale and transfer of pre-1914 rights. If another water right holder thinks their rights are harmed by a transfer of pre-1914 rights, they must seek relief in the courts, not from the Board. Post-1914 rights are under the Board’s jurisdiction and are established by the Board issuing a “License to Divert,” which specifies the amount of water, point of diversion, place of use, season of diversion, and purpose of use. These rights can be transferred or modified only with the Board’s approval, which could involve a public hearing. The transfer cannot harm another water right holder.
Contractual entitlements to water are not water rights. A water right allows the owner of that right to divert water from its source. Contractual entitlements exist because a water right holder has entered into a contract to deliver water to another party after it is extracted from its source. Examples of this arrangement exist in the State Water Project and Central Valley Project, were the DWR and the Bureau of Reclamation own the water rights to allow diversion from the South Delta and have delivery contracts with irrigation districts south of the Delta.
Disclaimer: The author is developing innovations and methods to handle all rain water cleaning requirements. I have designed and am building my prototype to assist in the capture of the cleanest purest and softest water on this planet. All concepts pertain to Clean Water or Rain Water Harvesting, and will be marketed on a global scale. Domestically, marketing will be directed to the universal appeal of the DYI customer base, as well as professional contractors, and wholesalers.