Climate Change and Opportunities in the Water Industry

Increasingly, water shortages present significant economic, geopolitical and investment implications.

by Neil D. Berlant

Increasingly, water shortages present significant economic, geopolitical and investment implications. A third of the world’s population today lives in regions severely short of water. Further, according to the United Nations, some two-thirds of Earth’s population will be living with water stress by 2025, made worse by changing climate conditions. Wet areas of the globe will get wetter, and dry areas will get dryer. This could mean a 50% drop in crop yields by 2020, with food shortages affecting another 130 million people across Asia by 2050. Looking beyond to 2080, the UN is forecasting 30% of the world’s coastlines could be lost and 266 million more people - over today’s level - may suffer food shortages.

Other UN predictions include extreme floods and droughts may occur more frequently, destroying significant infrastructure around the world. While the Dust Bowl era of the 1930s was devastating, farmers were able to pump water from underground aquifers; but much of that water is now gone. Another multi-year drought in the West already has severely affected drinking water supplies, hydropower and related tourism (due to impacts on skiing, fishing and water sports, etc.), forcing states to make major investment in water infrastructure to provide sufficient water to meet ever-growing needs as population continues its westward drift.

Today, there are several billions of dollars of water projects planned or in progress, the largest expansion in decades, and likely to increase in years ahead. Las Vegas is planning a 280-mile pipeline to send water from northern Nevada to Las Vegas, similar to water diversions in California. Yuma, AZ, has restarted an old desalination plant with the goal of purifying brackish groundwater. Utah has proposed another $500 million, 120-mile pipeline from Lake Powell. And in California, Gov. Arnold Schwarzenegger is pushing for a ballot measure to raise $4.5 billion in bonds for new water storage. In April, the California Assembly Committee on Natural Resources voted to approve legislation to incorporate climate change in state and local water planning. The bill requires the California Department of Water Resources to consider the anticipated effects of climate change in all state water plans.

Regardless of appropriations for recently passed federal water infrastructure funding legislation, this is likely to be the beginning of an acceleration of infrastructure investment, including piping systems, desalination plants, treatment systems and improved efficiency. As pristine sources of water become scarcer, we’re forced to utilize less pure sources of water. This applies not just for manufacturing, but also for human consumption. This in turn is shifting our attention to improved processes for purifying water.

As we focus on availability of water, desalination processes will see increasing demand and implementation as a way to meeting the world’s growing thirst for water. Despite a general perception that desalination is a process for the future, it presently represents a significant and growing source of water. Desalination today accounts for only about 1% of drinking water worldwide, produced in over 12,500 plants in more than 120 countries; but given the fact that nearly 25% of the globe’s population lives within a short distance of coastlines, the potential is enormous. Industry data indicates desalination plant and equipment market volumes have risen from $2.5 billion in 2002 to $5 billion in 2006, and could reach $30 billion by 2015. China is planning to use desalinated seawater to provide a third of its water supply for coastal provinces by 2020.

An often overlooked source of water, recycling wastewater is certain to see growing use with improving technology continuing to reduce the cost to purify it for reuse. It’s estimated that with the incorporation of heat and energy recovery equipment, advances in membrane technology, more efficient pumps and filters, the cost of desalination and water reuse will see significant declines in price and an accompanying growth in demand and use.

Even if there’s yet another change in climate back to more rainfall and higher stream and river flow, population growth and choice of where to live will continue to support growth in demand for water. And perhaps more importantly, the quality of water required for generation of power, desalination, electronics manufacturing, steel processing, medical applications, and food processing, and many others, is continuing to rise. We often require ultra-pure water for many applications we consider to be routine. This growing demand offers the probability of an explosion of demand for pumps, filters, membranes, pipes and numerous other parts that make up water treatment systems.

While the crisis is real, the economic opportunity is extraordinary and offers the prospect of significant prosperity for suppliers of equipment and investors in the companies that provide the equipment.

About the Author: Neil D. Berlant is senior vice president and Water Group managing director at Crowell, Weedon & Co. Contact: 800-227-0319 or nberlant@crowellweedon.com

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