Is water the new oil for investors?

Ensuring the future of our water supply

A drought was officially declared in several UK counties this week and a stark warning issued by the Environment Agency that the water shortage may last until Christmas. Hosepipe bans are already in effect in many parts of the South East and consumers are urged to use water more wisely. But how can a plentiful country such as the UK be faced with such a crisis, and how can we avoid it in future?

The concern is not unique to the UK. As reported by Worldwise Investor, the world population is set to increase by 2 billion to 9 billion over the next 40 years. Demand for water can be expected to rise by more than 50%, mainly due to agricultural needs – to feed 9 billion people, farmers will have to increase food production by 70%. By 2050, it’s estimated that two in five people will be living in areas under “water stress”, according to a recent UN and OECD study.

Our water footprint

Here in the UK, a report by the WWF in 2008 brought the scale of our water usage to light, and its impacts – what the WWF calls our ‘water footprint.’ According to the report, the average consumer uses 150 litres of water directly (for washing, cooking, and drinking) every day. But 30 times this amount is used daily, in ‘virtual water’ - the water used in the production of the imported food, drink and textiles we consume. Taking virtual water into account, each UK resident uses a staggering 4645 litres of the world’s water every day, while people in poorer countries use about a quarter of this amount.

In addition, only 38% of our water needs (real and virtual) are met by UK sources. The remaining 62% is met by water from other countries, due to our consumption of meat, coffee, tea, cotton and many other products, all of which involve vast amounts of water in their farming, production and processing. The WWF report also highlighted that many of these countries face water shortages themselves. So our dependence on and over-use of ‘imported water’ can mean far-reaching environmental, economic and social impacts on other countries.

Beyond bans

To tackle the global water scarcity problem will require action from governments, businesses and households. Everyday actions by consumers to use water more efficiently and reduce consumption and waste will play a part. Water utilities have also been urged to fix leaky infrastructure – some are estimated to lose 15-40% of their usable water through leaky pipes.
Environmental campaigners and resource analysts urge the UK government to look at ways to become more water self-sufficient. Investments in technology and projects that help us store, gather and produce more usable water represent an opportunity to make a significant difference.

Big ideas, big costs

One of the ways to tackle water shortages is by increasing storage capacity, which means building more reservoirs. Recent proposals to build a new £1bn reservoir in Oxfordshire were rejected by the Environment Agency, though changes to the planning system could make it easier for new reservoir projects to get off the ground in future. However, reservoirs are time-consuming and costly to build, and can have significant environmental impact.

Desalination, or the process of converting salt water to drinking water, could be another answer. Thames Water opened the first large-scale desalination plant in London in 2010. The £270m facility was constructed as a safeguard against water shortages, and can supply 400,000 homes or 1m people with water. But the plant only runs during times of drought, due to how expensive it is to operate and to distribute the water. Desalination also brings with it its own environmental impacts - for example, disposing of the salt removed from the water, and possible impacts on marine life. 

Another often-debated idea is to build a pipeline to transport water from northern, water-rich areas such as Scotland, to the more drought-prone areas in the South. The Environment Agency considered this idea in 2006 but concluded it was too expensive, and that the alternative, a combination of improving infrastructure and better managing demand on a local level, was far more economical. However, the idea of transporting or linking water resources still continues to be a popular one among some water companies.

Water recycling is a growing technology area where private sector investment has already made significant progress. Water companies in Chile and Australia have led the market in this area, treating and recycling 90 to 100% of its urban waste water.

Investment opportunities – the ‘new oil’

Clearly, huge amounts of investment will be needed in the coming decades to help safeguard the world’s water resources and prevent a global water crisis. Deemed by some commentators as ‘the new oil’, water also represents significant opportunities, particularly in technology such as recycling and desalination, as well as potential capital projects. The water services sector is expected to continue its strong rate of growth, currently at 6%, so this area is a promising one for investors for many years to come.