Published:
October 20, 2008
Water, good old H2O.
It's something every one of the world's nearly seven billion people
needs every day. But did you know that water for drinking and
other residential uses represents just 10% of all consumption?
In fact, twice as much goes towards industrial applications, and
a whopping 70% is needed for agricultural uses -- it takes
hundreds of gallons to grow a single pound of corn or wheat.
And with roughly 98% of the world's water supply too salty to
drink, and most of the rest locked up in frozen polar icecaps,
this most precious of natural resources is growing increasingly
scarce.
It may sound like the apocalyptic plot of a far-fetched science
fiction movie, but there are already many regions where crops
are wilting, lakes are drying up, homeowners are facing
mandatory restrictions, and politicians are arguing over control
of dwindling supplies.
Fortunately, this dire situation also presents an incredible
investment opportunity, as a handful of ETFs have been built
with a single purpose: to assemble the planet's most promising
water-related stocks in one place. Emerging-market nations need
to deliver ever-increasing amounts of water to their developing
industrial centers. Developed nations need to rebuild old and
decaying water infrastructure to alleviate the strain on
reservoir systems. Much of the world is searching for new
technology to make water supplies safer. And as this all unfolds,
water-related ETFs are there to capture the profits.
A Drought for the Century
Though Hurricane Ike drenched everything in its path recently, a
good deal of the country remains dangerously dry and parched.
And depending on where you live, the situation may be going from
bad to worse.
In fact, a state of emergency has just been declared in nine
California counties. And several weeks ago, Governor
Schwarzenegger convened a drought summit to address the "most
significant water crisis" in the state's history. The California
Department of Water Resources has even established a water bank
to make sure that critical supplies get where they are needed
most.
Part of the problem is simple climate change. Mountain ranges
like the Sierra Nevada typically aren't getting the snow pack
they used to in the winter. In fact, California rivers saw just
55% of their normal runoff last spring. And lack of rainfall
hasn't helped; statewide precipitation over the past six months
was the fourth lowest since record keeping began 114 years ago.
Meanwhile, another huge threat for California and its neighbors
in the Southwest is an unrelenting drought in the Colorado River
Basin that has stretched well into its ninth year. Typically,
over 13 million acre-feet of water thunders down the mighty
Colorado in a given year -- more than enough to supply
California and other thirsty lower basin states with their
allotment under the Colorado River Compact. (One acre-foot is
equivalent to 325,000 gallons, enough for a family of four for
one year).
However, the amount of water flowing downstream has been cut in
half in recent years. In fact, flows have dropped below five
million acre-feet at times, below that of the 1930s dust bowl
era. Remarkably, tree ring analysis shows that the Colorado
River hasn't been this dry since 1594 -- making this the
region's worst drought in the past 400 years.
Stretched Resources Drying Up
To understand the gravity of the situation, look no further than
Las Vegas and its fast-growing suburbs. Currently, this area
uses about 565,000 acre-feet of water annually. But within the next 25 years, estimates show that
consumption could nearly double.
Clearly, this will create a heavy burden on Lake Mead, which
supplies most of the city's water. Created in 1936, the massive
reservoir is capable of holding 26 million acre-feet of water.
But today, it is at mere 46% of capacity and lake levels have
dipped to 1,104 feet. The
lake only has two intake pipes, neither of which is even
designed to operate at levels below 1,050 feet.
Even more alarming, the Scripps
Institution of Oceanography has recently put the chance of Lake Mead
completely drying up within the next 15 years at 50% -- a
frightening thought for a city that knows a thing or two about
50/50 odds.
The story is the same for Lake Powell, another key reservoir in
the region that has seen below average inflows for years and is
now at just 60% capacity.
With their two biggest reservoirs half-empty and no immediate
solution on the horizon, states from Colorado to California are
adopting strict conservation practices and making some difficult
choices. Unfortunately, this isn't the only region of the
country suffering from critical shortages.
For example, Florida's Lake Okeechobee, the nation's
second-largest freshwater lake, became so dry that 12,000 acres
of former lakebed caught fire last year. Further north,
drought-stricken portions of the Carolinas have been subject to
mandatory water restrictions amid sunny skies and searing heat.
Overall, the U.S. Drought Monitor estimates that as much as 40%
of the United States is being plagued by abnormally dry
conditions.
More People Tapping the Same Well
Of course, this problem is one that clearly crosses
international borders. Over the past century, the world's
population has quadrupled. Meanwhile, its water consumption has
ballooned roughly +700%. Unfortunately, there isn't one drop
more now than there was back in 1900.
Consider these facts from the Earth Policy Institute:
In Africa, lack of rainfall and heavy
irrigation have caused Lake Chad to lose 96% of
its water volume.
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The Tamil Nadu region of Southern
India has seen water tables fall so dramatically
that 95% of its wells have run dry. In nearby
Chennai, a fleet of 13,000 tanker trucks is
needed to haul water to thirsty residents.
|
The Aral Sea, once one of the planet's
largest bodies of fresh water, has shrunk to a
puddle. The current shoreline is over 150 miles
away from old port cities and fishing vessels
have been left to rust in the sand.
|
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In China's Hebei region near Beijing, aquifer
levels are dropping 10 feet per year and 969 of
the region's 1,052 lakes have completely
vanished. |
In
Saudi Arabia, farmers have to dig wells over 4,000 feet deep
just to find water. But they aren't the only ones having to go
to great lengths to meet their needs. By
some estimates, roughly two-thirds of the world's population in
2025 will live in countries where water tables are dropping and
supplies are considered scarce. And many of the nations where
they live use
less than 10% of the U.S. on a per-capita basis -- so water
shortages will only be more severe in the near future as these
countries industrialize and discover things like dishwashers.
In the meantime, UNICEF reports that a staggering 1.1 billion
around the world still lack access to safe drinking water.
Clearly, there is a lot of work to be done.
A Torrent of Profits
As the world's population grows, we are beginning to see an even
greater strain on existing water supplies. If for no other
reason, it takes 1,000 tons of water to produce just one ton of
grain - and there are millions more mouths to feed every year.
To keep their land arable, farmers have dug millions of
irrigation wells and are pumping at rates that are simply
unsustainable, which is why groundwater aquifers are being
quickly depleted. All of which leads to one inescapable
conclusion -- this water deficit is likely to get worse, not
better.
On the bright side, this situation will present incredible
opportunities for the companies trying to combat it,
particularly those involved with water distribution pipes,
treatment facilities, purification technologies and other
critical infrastructure. In fact, the Environmental Protection
Agency is projecting that the U.S. alone will be spending a
whopping $275 billion to replace aging facilities -- including
800,000 miles of corroded pipeline that hasn't been upgraded
since the 1800s.
In a recent issue of
The ETF Authority, editor Nathan Slaughter profiled two
of his favorite ETFs that invest in water-related companies. If
you'd like to see which funds Nathan thinks are best positioned
to take advantage of the world's growing water demand -- and
learn more about The ETF Authority,
please visit this link. |
