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Some would consider water the new oil. Even though 70% of Earth is covered with water, only 3% is fit for human consumption, of which two-thirds is frozen and largely uninhabited ice caps and glaciers, leaving 1% available for consumption. The remaining 97% is salt water, which cannot be used for drinking or agriculture. If all the earth's water fit in a gallon jug, available fresh water would equal just over a tablespoon.

There is no more fresh water on Earth today than there was a million years ago. Yet today, 6 billion people share it. Since 1950, the world population has doubled, but water use has tripled. As I write this story, I googled the word "Water Shortage" and lo and behold, a story from Arab News popped up reporting on the current water shortage in Jedda. Considering it is the Muslim Holy Month of Ramadan, this shortage in the Middle East could not come at a worse time.

According to the UN, 50% of all hospital beds worldwide are occupied by patients who are ill from contaminated water. In the developing world, water related diseases account for 80% of all sickness and claim around 5 million lives each year. In such areas, 60%-70% of the rural population neither has access to safe usable water, nor any satisfactory means of waste disposal. Presently, over 1.1 billion people lack access to improved water supply and this number is set to climb to 2.3 billion by 2025.

Air pollution, oil spills, waste and fertilizers have exaggerated the health impact caused by the lack of clean drinking water. Just last week, a chemical leakage in eastern China distrupted drinking water supply to over 4000 residents, but not before some people had already drank the contaminated water. The spread of global industrialization has been the root cause of shortages in densely populated countries like China, India, Africa, Mexico, Pakistan, Egypt and Israel. Did you know that a single gallon of gasoline can contaminate 750,000 gallons of water?

Agriculture accounts for more than 70% of water pollution in the United States. Pesticides used in agriculture pollute the freshwater supply buried within the soil. Industrial pollution also contributes to compromised water quality. At least 70,000 different chemicals are used regularly throughout the world, and there are between 200 and 400 toxic chemicals that contaminate the world's waterways. It is also estimated that at least 1,000 new chemicals are introduced every year! This industrial waste when coupled with agricultural runoff, further exacerbates the problem of freshwater pollution.

Wastewater treatment is big business today, processing millions of gallons of water while sending tons of the refuse taken from the water to landfills. However, in the third world, 90 to 95% of all domestic sewage and 75% of all industrial waste are discharged into surface waters without any treatment at all. Even in developed regions like Europe, over 90% of the rivers have nitrate levels that exceed established health thresholds, and one-half of the continent's lakes are low in oxygen.

So how can the supply of clean drinking water be increased?

One possible solution is desalination. This term refers to any of several processes that remove salt and other fine particulates from ocean water i.e. salt water - which is 97% of Earth's water. Desalination can be done through various methods, including:

*Reverse Osmosis - pumping water through permeable material at high pressures, causing impurities like salt to be blocked by the material and water to flow through.
*Distillation - This is the chemistry lab experiment that we all did back in junior high. Boiling water to produce steam and condense the steam to create a pure form of water.

As a result of either of the two desalination processes above, industrial waste is produced. Companies involved in desalination must dispose off this waste as per the safety standards established by government agencies. In both cases, 50% or less of the original water is recovered and the remainer is considered waste, requiring proper disposal.
And now for the stocks...

The safest and perhaps the easiest way to play water is through an ETF. The one I recommend is PHO - something I have recommended before. However, if you are more of a stock picker, I prefer Itron (NASDAQ:ITRI), ITT Corp (NYSE:ITT), Insituform (INSU) and Franklin Electronics (NASDAQ:FELE).

Outside of the stocks above, I welcome your picks in the business of irrigation, piping, desalination, filtration and waste management.

If you like water utilities, Veolia (NYSE:VE), Suez (NYSE:SZE) and California Water Services (NYSE:CWT) are good stocks. However, I would buy PHO before any individual water related stock. This one is for the long run.

PHO 1-yr chart:

Source: Water is the New Oil