No Oil without Water: Water-Tech for the Future

As much as the world is thirsty for water, investors should also be increasingly thirsty to add water-tech to their portfolios.

Only 1% of the world’s water is usable - 99% is locked in glaciers or in salt-water oceans and seas. The US drought in 2012 gave us a taste of what is to come, and this year will see well over half of the US states experiencing water shortages.

Water supply dictates manufacturing, agriculture and – yes – oil and gas extraction, production and refining. As water supplies diminish, water prices will rise and so too will the cost of getting hydrocarbons out of the ground. 

All around water-tech is a solid investment and the water industry enjoys some $620 billion in revenues. It’s a resource that will never go out of style, so it’s a short-term and long-term investment that is only going to become more profitable over the years and decades.

Globally, there are some 400 water-related companies for investors to choose from. These companies are engaged in everything from technologies designed to make undrinkable water drinkable and to facilitate the more efficient delivery of water, to overseas water-tech exports.

Here are some top picks for water-tech investments for 2013:

Desalination Technology

This technology, which is growing exponentially in popularity, essentially involves turning salt water into drinking water and it is conducted by over 7,500 plants around the world. This is a key growth area of the sector and should see 9.5% growth year-on-year over the next decade. By 2020, analysts expect desalination to reach 54 billion cubic meters in water volume.

Companies to look out for:

•    General Electric: Desalination equipment
•    California-based Energy Recovery: Desalination equipment

Water Delivery Systems

The US alone is forecast to spend a minimum of $500 billion over the next 2 decades on new water pipes and related water infrastructure. Globally, there is a huge market in both emerging economies and developing countries for clean water delivery systems.
 
Companies to look out for:

•    Washington-based Northwest Pipe Co.: water pipe manufacturers
•    Atlanta-based Mueller Water Products: water pipe, hydrant and water valve

Manufacturers

•    Ohio-based Gorman-Rupp Co.: water pump manufacturers

Irrigation Systems Technology

Droughts and the diminishing availability of clean water for use in agriculture makes this a very high-growth area of the sector, with analysts forecasting 20% growth annually over the next decade.

Companies to look out for:

•    Nebraska-based Valmont Industries Inc.
•    Nebraska-based Lindsay Corp.

Water Rights Companies

This is a longer-term play but one that could have a sizable payoff for investors who recognize the value of private ownership of water rights at a time of diminishing availability.
Smart Water Meter Technology

Much like smart electricity meters, smart water meters are showing signs of market maturity and this will become increasingly popular when water prices begin to rise.

Companies to look out for:

•    Wisconsin-based Badger Meter Inc.
•    Washington-based Itron Inc.

So what about the oil and gas industry? It wouldn’t exist without water. The backbone of the US natural gas boom is hydraulic fracturing. Water is used both during the fracturing process and is a key element of the waste produced by the process.  To wit, an average of 50,000 gallons of water are needed to fracture one well in a coal bed formation; while as much as 5 million gallons of water are needed to fracture one horizontal well in a shale formation.

Shale gas will likely provide over 20% of the entire US gas supply by 2020, and to do so it will use a lot of water, and this use of water may have implications for available drinking water both in terms of volume and quantity. This makes water-tech a major growth industry, in terms of desalination and delivery systems - and also in terms of cleaning up fracking water. 
So this booming industry is using up water at a rapid rate, and also returning waste water that could possibly have an impact on drinking water supplies.

While this situation magnifies the importance of water-tech and the potential future payout for investors, here’s one more lead that looks smart: A new desalination technique being developed at the Massachusetts Institute of Technology (MIT). This new technology could clean up fracking water by mimicking what nature does in the rain cycle: seawater vaporizes, clouds are formed and then condense and come down as rain. The technology is similar to other desalination technologies in terms of modus operandi, but the goal is not to vaporize the salt out of water, but to vaporize the waste out of fracking water.  Its developers say it’s more energy efficient that other desalination processes and very low maintenance.

If you need more, consider this: Jim Rogers, the co-founder of the Quantum Fund with George Soros in the 1970s, is banking on water-tech investments for the future. He’s got his eye open for new water technologies globally and holds stocks in several water-tech companies, including the Singapore-based HyFlux Ltd, which manufactures and installs water purification, water treatment and water recycling systems.