Liquid Gold

In coming years, the global population is going to increase drastically. By 2030 the global food demand will double as humans add another billion people to the world. With agriculture accounting for roughly 70% of the global water consumption, one can expect the demand for water will also drastically increase. Currently, 10% of the world population lacks access to clean drinking water and millions of people die every year from water-related diseases. The UN expects that by 2030 the water demand will exceed water supplies by 40%. In short, there is a global water shortage and it will take a massive paradigm shift to mitigate the harm that is to come from water scarcity. Yet where there is shortage, there is opportunity.

As with any shortage, a decrease in the overall supply is going to lead to an increase in the price. Water is no different. As the water supply decreases, remaining water reserves are going to become extremely profitable commodities. In principle, water will behave according to economic trends of shortages and its scarcity will have a predictable outcome. However, the essentiality of water—its condition being absolutely necessary to life—is what separates this transparent gold from other commodities. The demand for water is inelastic (demand unaffected by price) and will only continue to increase... it's an investors dream come true! In order to satisfy the world's water demands, new technologies for desalinization and purification will emerge. Transportation and storage for moving the water globally will be required. Water as a commodity includes countless categories from production to transportation to preservation and as the world runs out of water, it is going to become one of the most profitable commodities on the market. Even companies adjacently involved will benefit from water's market success.

Water (i.e. companies that specialize in water-related business) has always had market success and investing in water in not a new theme. However, the limited supply of water as the global population increases, compounded by its essentiality to life, is pushing water to the foreground for investors. Compared to oil, water has a 4% larger investment return over the past 10 years. In the past 3 years, where the S&P Global Water Index has seen a 4.45% increase in annual returns, the Global Oil Index has seen a -3.75% annual return. The price of oil has been declining for decades while its price volatility has fluctuated drastically since the 07' housing market crash. Right now oil companies own a larger share of the economy and operate at much higher profit margins, but these results are unsustainable. When the world begins to experience the ramifications of a water crisis, people will no longer be able to ignore the necessity to come up with new ways to produce and preserve our precious water. Water will soon replace oil as the world's liquid gold.

Report this Content

More on Odyssey

Facebook Comments