Investing in Water

According to Lester Snow, director of the California Department of Water Resources, “We’re potentially headed to one of the worst droughts we’ve ever had in California because of the conditions of storage, the fact that we’re expecting very erratic weather patterns, and we have much more demand than the last drought in 1993.”

Of course, you’ve heard about the dire water problems in the arid Southwest by now.

California’s population is rising (and has been) while freshwater supplied have dwindled, mostly from the Colorado River, which has seen decreased flow from disappearing polar ice caps.

The same holds true for other bone dry Southwestern states and cities. Las Vegas is one of the driest places in the nation, yet boasts some of the most lush fairways and greens in the nation.

What gives?

Essentially, we built massive cities where there should be lonely desert. We did this because once upon a time, water was plentiful, energy was cheap, and, frankly, there were hundreds of millions less of us.

Now, populations have boomed, energy prices have skyrocketed, and water is disappearing. So we’re in trouble.

Trillions of dollars worth of trouble.

Outbidding a Water Crisis

California saw the crisis coming, though their preparations may not be enough to avert disaster.

For the last five years, construction crews have been digging massive tunnels under California, with the goal of tripling the amount of water in Southern California’s rapidly depleting reservoirs.

The three-tunnel system is 44 miles long, cost $1.2 billion, and will bring an additional 650 million gallons a day to 19 million parched Southern Californians.

The project has been in the works for two decades and will be up and running in 2010.

“We’re not just breaking through a mountain, we are breaking through to the future,” said Tim Brick, chairman of the Metropolitan Water District of Southern California board.

Indeed, many cities, states, and countries will have to break through to a new water future if we want to continue our current comfortable lifestyles.

But that’s just here in the U.S. Abroad, billions of dollars need to be invested just to continue providing minimal access to freshwater in the third world and developing countries. Developed countries abroad, including Australia and in Europe, will require similar investment.

Now, I don’t want to harp too much on the doom and gloom side of this story. There is plenty of information to be had on the various water crises the world currently faces.

What I’m interested in is turning a personal profit as governments and private industry race to solve this massive societal issue.

Water Crisis, Water Stock Profits

For example, a quick Google search provided the following contracts that were associated with the massive Californian water project mentioned earlier:

* $88.4 million to Shank/Balfour Beatty for tunneling

* $46.8 million to L.H. Woods $ Sons, Inc. to install pipelines

* $242.2 million to J.F. Shea Construction for tunneling

* $3.29 million to Kenko Inc. for for to install pipelines

That’s a slew of massive contracts totaling $380.69 million. And that’s not even half the cost of the entire project.

In coming years, we’ll literally see hundreds of water-related projects of this caliber. From heavy construction, to desalination, to pipe manufacturers. . . everything’s on the table.

Water is going to be one of the biggest bull markets of the next few decades.

And while there are numerous nuanced ways to play this market, let me just give you a few to get started. We’ll undoubtedly cover many more water plays and companies going forward.

For my money, desalination is a sure bet. It’s one of the only ways we as a people can get a leg up on the water crisis. Instead of merely moving water around, desalination actually allows us to create new supplies. Incidentally, this is something we can’t do with oil.

Now, there are issues with desalination, as it is still a very young industry. For starters, it’s very expensive due to its high energy inputs.

Energy Recovery, Inc. (NASDAQ: ERII) is working to change that. And they’re one of the only publicly traded companies in the desalination space. I’d be buying this one and holding, especially under $10.

For massive projects, like the one in California, check out stalwarts like Flowserve Corp. (NYSE: FLS), Itron Inc. (NASDAQ: ITRI), and Northwestern Pipe (NASDAQ: NWPX), as they’ll undoubtedly receive huge contracts relating to water issues.

Keep an eye out for more information on investing in water as the crisis continues to unfold.

To green energy and green profits,

Chris
www.CleanEnergySector.com