Blue Gold: The Ultimate Commodity

As I wrote this detailed analysis, I must confess to being relieved living in Oregon [USA] nearby the “Cascade Mountains” that hold one of the largest underground clean water supplies in North America. In good faith, I will also disclose as of this article's completion date; I did not hold any financial interests in the companies listed, rather it is an in-depth unbiased global report.

Currently, the world is struggling to cope with a very serious clean water shortage in more than 80 countries around the globe - this problem is approaching "crisis" level. Even today in America's own backyard we see 20% shortages; for example, The California Drought Impact Report (March 30, 2009). Therefore, many talk of investing in clean water – a whopping $460 billion global market, and an investment sector that analysts have dubbed "blue gold," because of the immense profit potential this resource holds.

As my research uncovered, people worldwide use vastly different amounts of water in their daily lives. On average, the U.S. citizen uses nearly 158 gallons (600 liters) each day (bathrooms, cooking, food, drinks, hot water-cleaning, laundry, car wash, heating etc.), whereas people in some of the world's poorest countries must make do with less than 10% of that amount. The single biggest reason for the discrepancy is the scale of a country's infrastructure.

When it comes to absolutely critical commodities, there's no question that clean water is at the top of the list. You need it. I need it. Every single person in the world needs it. It's without doubt the most precious commodity on the face of the planet. No matter what country you live in...or whether you're rich or poor...there is nothing more important to basic human survival. Whoever, controls water literally controls life on Earth.

The U.S. EPA estimates that over $3 billion is spent each year in the U.S. on repairing and upgrading the drinking water infrastructure alone, and costs are expected to increase significantly. The U.S. industrial demand alone for clean water is driving the growth of water technologies, currently a $6 billion market, and is expected to grow into a $20 billion market by 2012.

For all the talk about oil, natural gas, and even electricity, those resources pale in comparison to clean water, the essential commodity for life and whose global demand will continue to increase by at least 20% - 35% within the next 10-years. Regions affected by clean water shortages include, North America, Europe, South America, Africa, Middle East/India, and parts of Asia.

In fact, as recently as November 2008, the U.S. Director of National Intelligence Reports, “Global Trends 2025 – A World Transformed” estimates, forecasted that by 2025 over 1.4 billion people in 36 countries will be without sufficient water for drinking and agricultural needs. Further, many leading innovative R&D centers in the world - for example; “The Dr. James Martin Institute for Civilization, Science & Innovation, University of Oxford” calculates that unless aggressive steps are implemented within the next 20 years to treat clean water as a critical strategic global issue, significant portions upwards of 20% of the species found on Earth will not survive becoming extinct as a result.

The two major issues in the world pertaining to water are supply and cleanliness. As the world’s population increases to over 10-billion people by 2045, the supply of water is being stressed due to greater consumption, which drives the need to increase and improve water treatment. In addition, many developing countries lack the basic infrastructure to provide their growing populations access to clean water, even when the treatment facilities are in place. The research shows in particular industry sectors offering significant returns include; “water/waste-water treatment”, “water infrastructure”, and “clean water technologies”.

Case Study

Several developing countries such as Singapore have aggressively set out to find alternative ways to provide its 4.4 million people with 1.36 billion liters of necessary clean water a day. For example on March 19, 2009; GE Water-Energy and the National University of Singapore (Water Technology Center) announced a $100 million joint R&D investment to develop new solutions for low-energy seawater desalination, water reclamation and more efficient water reuse. GE's ZeeWeed^TM hollow fiber ultra-filtration membrane technology is used to produce high-quality reclaimed water from treated wastewater at the Bedok NEWater plant and the nation's first large-scale membrane bioreactor plant at Ulu Pandan. Additionally, two important portable drinking water plants, Chestnut Avenue Water Works and Choa Chu Kang Water Works also use GE ultra-filtration membranes to purify water for portable use. GE is a worldwide leader in water purification and conservation technologies and solutions.

In China, the country's population of over one billion is also causing major supply and demand problems: China faces an annual water shortage of 40 billion cubic meters. Today, 449 Chinese cities currently suffer water shortages - 110 of which have reached critical levels. Beijing, site of the 2008 Summer Olympics, is short one billion cubic meters of water every year.

According to research, "75% of China's drinking water is unsuitable for drinking and cooking, and 80% of China's seven major river systems no longer support fish." China uses 30 more cubic kilometers of water than is replaced by rain. China's water reserves per capita are about one-quarter of the global average.

China is so desperate to tackle the problems that it's planning to invest $125 billion over the next 2-3 years to beef up its crumbling water infrastructure. It's also considering building a network of canals from the Yangtze River in the south to the cities of the north. The project could take more than 60 years and cost over $60 billion dollars - but the government has little option.

Clean Water Equities Performance vs. S&P 500

Over the past five years, the Dow Jones U.S. Water Index ($DJUSWU) has surged over 80%. Since the beginning of 2007, it's outperformed the S&P 500 by over 20% - not including the hefty dividends many water companies pay. And between 2000 and 2007, water utility stocks returned 134.5%, while S&P 500 returns crept to a measly 2.7%, according to Global Summit Management. Water Investors who parked money in water utilities for a 10-year period were even happier, scooping a massive 446% gain from 1995 to 2005, while the S&P 500 earned about 9% over the same period.

“BLUE GOLD” (H₂O) Growth Stocks to Watch:

Consolidated Water Co. Ltd (Nasdaq: CWCO), Artesian Resources Corp (Nasdaq: ARTNA), GE Water-Energy (NYSE: GE), VEOLIA (NYSE: VE), GEBERIT (VTX: GEBN.VX), United Utilities Group (Other OTC: UUGRY.PK) , Suez Environment . CPY (VTX: SEV.VX), ITT Corp (NYSE: ITT), Insituform Technologies Inc. (NasdaqGS: INSU), Bioshaft Water Technology Inc. (OTC BB: BSHF.OB), Southwest Water Company (NasdaqGS: SWWC), Tianjin Capital Environmental Group – China Water Investment Co. (Other OTC: TCEPY.PK), Pennichuck Corporation (NasdaqGM: PNNW), American Water Works (NYSE: AWK), Befesa Medio Ambiente – Spain (OTC MAD: BMA), Companhia Sandea ADS (NYSE: SBS), Gorman-Rupp Company (Amex: GRC), Ocean Power Technologies, Inc. (NasdaqGM: OPTT), Renewable Energy Holdings Plc (LON: REH), AECOM Technology Corp. (NYSE: ACM), URS Corp. (NYSE: URS), Ameron International Corp. (NYSE: AMN), Tetra Tech Inc.(NasdaqGS: TTEK), Danaher Corp. (NYSE: DHR), Badger Meter Inc. (NYSE: BMI), Flowserve Corp. (NYSE: FLS), Agilent Technologies, Inc (NYSE: A), (NYSE: ), Energy Recovery Inc. (NasdaqGM: ERII), Actaris - Itron Inc. (NasdaqGS: ITRI), Kurita Water Industries, Ltd. – Japanese (KTWIF.PK), Millipore Corp. (NYSE: MIL),Nalco Holdings Co. (NYSE: NLC), Northumbrian Water Group (LSE: NWG.L), Northwest Pipe Co.(NasdaqGS: NWPX), Pall Corp. (NYSE: PLL), Pentair Inc. (NYSE: PNR), Roper Industries, Inc. (NYSE: ROP), Sinomem Technology Ltd. – Singapore (Other OTC: SMMKF.PK), Watts Water Technologies, Inc. (NYSE: WTS), WAVIN NV ORD (LSE: WAVI.L), Siemens – Water Solutions (NYSE: SI), Keppel Corp. – Singapore (Other OTC: KPELF.PK), DOW Chemical Co - Water Solutions (NYSE: DOW), Sembcorp Industries (Singapore Exchange & Strait Times Index), Boustead Salcon Water Solutions (Singapore Exchange) ,and The Ayser-Technishe Corporation – affiliate of Meinhardt (Singapore) Pte Ltd (Singapore Exchange) .

“BLUE GOLD” (H₂O) Emerging Growth Companies to Watch:

NanoH₂O, Inc. (Khosla Ventures and Oak Investment Partners) , Dais Analytic Corporation (DLYT:OTC) , CH2M HILL (Edgar Form 10-K SEC Filing) , Doosan Hydro Heavy Industries & Construction Co., Ltd (South Korea – Doosan Financial Report) , ASAHI KASEI Corp. (Japan) , Black & Veatch Water Solutions Holding Co. (Singapore) , CDM (USA) , and Kemira – Tikkurila Group (ongoing M&A, Helsinki, Finland)

Conclusion- What’s the future hold for BLUE GOLD (H₂O) Investments?

Although, I spent time finely polishing my crystal-ball, one cannot be absolute in such matters, but it is a certainty we live in an increasingly more populated world - and there will be another 2.5 billion people on the planet by 2045 – it is likely to be a much thirstier world. Those extra people will need feeding. For example, agriculture accounts for about 70% of global water use, extra consumption for growing food is likely to reduce the amount available for those basic needs of drinking, cooking, sanitation and washing causing severe clean water stress worldwide.

Studies also show a correlation between lack of clean water availability resulting in a 5%-15% drop in the measured development of human populations IQ brain functions. Among scientists who study human development, it is a widely-held view that each person needs access to survive of at least 6-gallons (20 – 40 liters) of clean water each day for the basics - to drink, cook and wash sufficiently to avoid disease transmission.

Yet for example, at the height of the East African drought crisis, people were getting by on less than five liters a day - in some cases, less than one liter a day, enough for just three glasses of drinking water per day that cannot sustain healthy human life.

As global clean water resources continue to be stressed driving-up the costs and it is already known that human population numbers will steadily rise. As a result the “growth stocks” listed in this report, all now developing the critical clean water technologies and services necessary to sustain life will benefit in comparison to other investment sectors by superior profits and growth with increased clean water demands of at least 20% - 35% for the next 20-years. One future investor concern might be the intervention of government regulators capping “Blue Gold” (clean water) profits but that is unlikely for the next decade.

Comments

[Repsonsible...:]

Water is NOT the immediate problem today , Its banks like Bank Of America , Ripping off there Good customers by doubling there interest rates , I ve been a excellent customer for over 20 years Never late usaully carry a 2K to 3K bal its $2200 right now always been around 6.5 to 7.5 % interest , I have a 24K credit line I get a letter yesterday lowering my credit line to 10K fine , but then they raised my rate to 13.7% siting the bad economy . I'll Pay off my entire Balance in 3 monthy payments and NEVER Deal with Them again .. They got 45 Billion of OUR Tax money and this is HOW they repay the American People !! These Bankers are NOTHING but Cheats and Liars and ungrateful thugs!

Apr 15 09:28 PM

[AndrewJ:]

Rickman is part of a "commodity" culture that is truly sick. "Blue Gold" just happens to be a book by Maude Barlow that shows just how sick Rickman and his ilk are like. I mean, this cowboy has no idea of the suffering created by lack of clean water, by the commodification of a resource that no human can do without? See the documentaries "Flow" and "Blue Gold" to begin to understand the heartlessness of these f--ks.

Apr 16 01:43 AM

[granger:]

Great article. Loved it. Has been a huge focus of mine, dedicated almost 15% of my portfolio to it.

Must take issue (slefish reasons, you missed 3 of my 4 holdings) for water exposure.
I own: DHR, HOO, LNN, FELE.

Everyone please provide other ideas as well. Lets build a huge list of opportunity.

Thank you for the article, great info. Keep it coming.

Apr 16 06:39 AM

[granger:]

what is a slefish? lol


On Apr 16 06:39 AM granger wrote:

> Great article. Loved it. Has been a huge focus of mine, dedicated
> almost 15% of my portfolio to it.
>
> Must take issue (slefish reasons, you missed 3 of my 4 holdings)
> for water exposure.
> I own: DHR, HOO, LNN, FELE.
>
> Everyone please provide other ideas as well. Lets build a huge list
> of opportunity.
>
> Thank you for the article, great info. Keep it coming.
>

Apr 16 06:41 AM

[Gedankonomist:]

The problem is not too little water.

The problem is too much government.

Apr 16 10:57 AM

[dtblount:]

ERII...doing very well today so far.

Apr 16 01:00 PM

[Nanacat:]

Wow! A whole new watch list! Thanks a lot for your thoughtful article, James.

Apr 16 06:01 PM

[risingmorni...:]

nice article. The U.S. opportunity is certainly true. However, that cannot be said to be true all over the world as the spending power is far lower globally. Another factor to consider is the readiness to pay as water is available freely at a lot of places in the form of rivers or wells. Pilferage is another major issue. Profits to be made out of water globally (and specifically in the developing nations), therefore, pale in comparison to profits in the US where the regulators guarantee good returns for companies and water theft if low. Thanks for a long-list of stocks.

Apr 16 07:11 PM

[Sober Realist:]

Lots of interesting factoids, numbers, and stats in this article. I especially like the following:
"Studies also show a correlation between lack of clean water availability resulting in a 5%-15% drop in the measured development of human populations IQ brain functions."
How perverse is this to be talking about "Profits to be made" and the "readiness to pay" on the most basic necessity for life? Please forgive me, fellow profiteers, but the commercialization and incorporation of the Earth has gone too far.

Apr 16 10:41 PM

[Sober Realist:]

Our common sense dictates that access to water, like access to clean air, is a human right. Water must remain a public trust and a public right; no private company should be allowed to commodify water or decide who gets that water. As long as control of water resources remain in the control of public hands, then private sector involvement in delivering that water is not a problem.

Apr 17 10:17 PM

[granger:]

Just a devil's advocate though here.

Let talk risks here, for example lets take nationalization risk here.

We are talking about a necessity asset, a requirement for life. We have seen what happens to oil assets being seized , food riots, etc.

What happens when water runs dry? When push comes to shove and lives are at stake over water.

There may be risk of seized and lost assets by governments far greater than we could ever imagine.

Just throwing out thoughts here

Apr 18 03:23 AM

[wllstrtguru:]

Mr Rickman,
What companies do you see as the leaders in the desalization field? You provided a huge list can you narrow it down to the most promising?

Apr 24 07:59 PM

[Danny Furman:]

This article opened my eyes to what I now consider the best and safest growth industry. Regarding individual companies, HOO looks like a great bargain with huge growth potential, being international (thank you poster for the recommendation). Growth and dividends are my priorities and I've bought SBS, VE, HOO & LNN. No intention of selling soon and not done buying.....

Apr 25 01:19 PM