Water is the new oil

So what will be the next hot commodity?
Goldman Sachs, the investment bank that coined the term Bric (Brazil, Russia, India and China) and was talking about $100 oil when everyone else was stuck at $40, thinks it has found the answer: water.
It has called the commodity the “petroleum for the next century” and says it has been grossly undervalued for years. The story behind it is the same for every other commodity: demand is soaring while supply is tight.

In the United States, water demand has tripled in the past 30 years, while the population has grown just 50%. Globally, water consumption is doubling every 20 years, more than twice population growth.
Given current trends, it is estimated that by 2025 about a third of the world will not have access to adequate drinking water.

On the flip side, supply is fixed. Only 2.5% of all water is fit for human consumption and around two-thirds of that is locked away in icecaps and glaciers. That percentage is not about to change.

Even if there were enough to go round, piping it to those who need it is getting harder. America desperately needs to upgrade its water infrastructure, a job that will cost between $300 billion (£153 billion) and $1 trillion (two-thirds of which is for distribution pipes and pumps).

An estimated 60% of America’s water main pipes will be classified as substandard by 2020.

And the water supplied is deteriorating. American companies test for nearly 100 known contaminants, and a disturbing number of new compounds are being found - a glass of water could contain aspirin, caffeine, and even animal growth hormones from farm-water run-off.

One solution to the global problem is desalination, which is already popular in the Middle East. It is an expensive solution - 100m gallons of seawater produce just 50m gallons of desalinated water - though costs have fallen three to four times in the past 30 years.

The problem for investors is that the world leader in water and desalination, American giant GE, gets only 2% of its revenues from this area, so it hardly offers pure exposure.

Goldman tips smaller companies such as filtration specialists Clarcor and Pentair. They should benefit from the recent backlash against bottled water and are likely takeover targets as the $425 billion industry consolidates.

by Kathryn Cooper

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