steve maxwell the future of water
DESCRIPTION
Author of “The Future of Water” and a long-time strategic consultant and transactional advisor to the water industry, Maxwell will review current challenges and opportunities in the world water market, and will highlight four critical trends which will increasingly categorize the water business and water decision-making over the longer-term future.TRANSCRIPT
The Future of Water
Steve Maxwell
U.S. Water AllianceCincinnati, Ohio
October 16, 2012
Food
Survival
Luxury Life
Recreation
Energy
Transportation
The Future – What’s the Problem?2
- The Supply of Fresh Water on Earth is Essentially Fixed
- The Earth’s Population and Its Demand for Freshwater is Rapidly Growing
- Water Use Has Been Growing At More Than Twice the Rate of Population Increase Over the past Century
IT’S ABOUT THAT SIMPLE
The Future – Four Key Themes
1) Water will increasingly be viewed as
a true “factor of production”
2) Water consumption will increasingly
be viewed in a more holistic manner
3
3) Boundaries between different
types of waters will fade
4) The price of water will inexorably
rise – reflecting its true cost and
value (and reinforcing all three key
trends above)
Water as a “Factor of Production”4
Water will increasingly be viewed
as a true “factor of production” –
much like energy, labor or capital
– in economic, business, policy
and individual decision making
As water becomes more
expensive, it will increasingly
drive economic, and individual,
decisions
Availability of abundant clean water will drive the
location of industry in the future
Will cities like Cleveland and Buffalo again be our
centers of manufacturing and population growth in the
future?
A More Holistic View of Water5
We only directly utilize some 50
to 300 gallons per day of water
But we consume far more water
contained in the products and
services that we consume, and
the various activities we engage
in
We must also begin to consider
our total water footprint – the
virtual water that we consume
as well
In the UK, 40
gallons/person/day vs. virtual
use of 1220 gallons
Managing “One Water”6
The silo thinking of the past has
kept water use and water reuse
interests segregated
We must encourage comprehensive
thinking, planning, and
management of our waters – on the
transformational scale now
necessary
Clean Water Wastewater
Storm WaterRain Water WATER
Groundwater Recycled Water
Seawater “Wasted” Water
Rising Water Prices7
The average family pays less than $20/mo. for water – far less
than monthly electricity, cable TV, internet, or phone service
bills
Yet there is strong political resistance to 5% or 10% rate
increases – probably less than what many spend monthly on
bottled water!
Recent surveys indicate about a 5% annual increase in water
and sewer rates on average
Cost per 1000 gals. in the US – $0.80 to $5.50
High variability in water prices across the country, and around
the world – Denmark pays almost 3 cents per gallon, while the
U.S. pays about 4/10 of a cent per gallon
Unfortunately, the U.S. ranks near the bottom in terms of
efficient water usage
CountryAverage
Water PricePer Capita
Domestic Use(Cents/Gallon)
(Gallons per Head per Day)
Denmark 2.96 30.0France 1.34 61.1Germany 1.04 39.7Australia 0.82 159.2U.K. 0.69 36.6Canada 0.64 204.7Czech Rep. 0.53 56.1Turkey 0.53 62.6Japan 0.48 98.2Portugal 0.47 81.1Spain 0.46 90.0U.S.A. 0.43 162.1Poland 0.39 39.2Italy 0.31 127.1South Korea 0.19 145.3Mexico 0.19 52.6Russia 0.16 96.8China 0.11 25.0India 0.05 36.6
The Price of Water8
Price of Water vs. Price ofOther Consumer Liquids
($U.S./gallon)
Product Average Price
TAP WATER $0.0043
Coca-Cola $3.00
Gasoline $4.00
Tide Liquid Detergent $8.50
Imported Beer $12.00
Evian Bottled Water $25.00
Starbucks Latte $22.00
Pepto-Bismol $65.00
Vicks 44D Cough Syrup $100.00
American Whisky $150.00
Visine Eye Drops $750.00
Revlon Nail Enamel $1000.00
Good French Wine $1000.00
Chanel No. 5 Perfume $45,000.00
Annual Spending in the U.S.
$2 billion a year on Viagra$13 billion a year on cosmetic surgery
$22 billion a year on mood-altering drugs
$45 BILLION A YEAR ON CLEANDRINKING WATER
$52 billion on pet care$90 billion a year on tobacco products
$93 billion a year on legalized gambling $160 billion a year on alcoholic beverages
$720 billion a year on military defense
9
Water Prices: Background
Demand for water has begun to outstrip new supply
sources in many parts of the country – and the world
Prices – both for “raw” and delivered water – have begun
to increase, and are likely to accelerate in the future
The population continues to concentrate in urban centers
Major migration trends are towards more arid regions
Industrial production and economic output continues to grow
Per capita consumption grows as standards of living improve
There are increasing concerns about protecting “environmental flows”
in the country’s rivers and streams, to protect wildlife and recreation
New and alternative water supplies are often available only at high costs
– desalination, long-distance transfers, new dams/reservoirs
10
Raw Water Markets
In efficient markets, price information reflects
the value of the commodity – competition and
price signals promote efficient trading and allocation
Water markets, however, are very inefficient and are
typically subject to highly imperfect information and
competition; data are recent and anecdotal at best
Water markets are also very local in nature – often only meaningful at the
regional level of an individual watershed or river basin; few real
functioning markets.
Individual water supplies are subject to great variability and uncertainty –
in terms of hydrology, legal status, chemical quality, dependence upon
infrastructure, and potentially, variable quantity over time
These market imperfections result in poor or non-existent price patterns
and signals; hence water is often not allocated very efficiently
11
Delivered Water Markets
Price data for delivered water are also spotty and difficult to obtain – and
are exceedingly difficult to compare on an apples-to-apples basis
Delivered water prices to the end consumer, however, are generally subject
to regulatory review and oversight, and hence maintain more consistency
Delivered prices have tended to show a consistent
increase, albeit at slightly lower annual rates –
and they rarely decline
Over the long-term , the price of delivered water in an
area must reflect the price and availability of raw water
However, over the shorter-term, various factors –
primarily various types of subsidies – may distort this
inevitable correlation
12
Raw Water Prices
Many regions in the West have seen recent and dramatic price increases –the Santa
Fe-Albuquerque corridor, Colorado’s Front Range, or eastern Washington. These are
some of the fastest growing urban areas and most arid regions in the country.
Collapse of the housing market caused short-term down trend in 2009 – 2011.
Middle Rio Grande Water Right Prices (dollars per acre foot)
From: Brown, “Surface Water Opportunities in New Mexico” November, 2008 NMWRRI
From 1990 through 2007, 16% annual growth
Colorado Water Right Prices, 1990 - 2006
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Pri
ce ($
/Acr
e-Fo
ot)
Washington Water Right Prices, 1994-2006
$0$200$400$600$800
$1,000$1,200$1,400$1,600
Pri
ce (
$/A
cre-
Fo
ot)
WestWater Research LLC, 2008
13
Delivered Water Prices
Delivered water prices show a similar trend – with steady and consistent growth albeit at a slightly lower rate, and certainly with less volatility than seen in raw water prices –
this is due to the more regulated nature of delivered water
Evidence provided by recent studies suggest that delivered prices in the U.S. – on average – have been increasing over the last decade of between 5% to 10% per year, and that
this annual growth rate is increasing over time
GWI estimates that average prices globally have recently grown at about 7%
However, growth rates are highly variable; this same study showed examples of annual increases as high as 90% per year, and listed a number of areas of the water where
water remains a truly free service of the government
As in the case of raw water prices, although conditions are highly variable, the underlying drivers and general trends are similar in all areas – and they portend a future of
more rapidly increasing delivered water prices
14
Delivered Water Prices
Data provided by the U.S. Bureau of Labor Statistics, also shows that the price of residential water (here
combined with sewerage) services have grown at a rate well above the general Consumer Price Index
15
Conclusions – Future Water Prices
As the planet’s population increases, as global industrial output continues to grow, and as standards of living around the world continue to creep upwards, water scarcity and
water stress will be experienced in more and more regions
The type of anecdotal price data shown here, from currently water-scarce regions, are likely to be reflective of what will eventually be experienced in other regions of the
world. We should learn from these lessons.
It seems clear that delivered water prices must – over the longer-term – eventually rise, to better reflect prevailing and self-evident trends in the availability and hence the
cost of raw water supplies
As water prices begin to more closely reflect a full-cost and
sustainable model, water management, water re-use and
conservation, and water allocation patterns will all improve
16
Water as a New Investment Class?
Time
ValueAppreciationRate
Commodities 1–2%
Precious Metals - ~7%
Equities ~6%
Real Estate ~9%
Water ~10-12%
The data and the evidence is clear and growing …. in its various forms, water will increasingly be thought of as a separate investment class
0
100
200
300
400
500
600
700
800
900
1989199
0199
0199
1199
1199
2199
2199
3199
3199
4199
4199
5199
5199
6199
6199
7199
7199
8199
8199
9199
9200
0200
0200
1200
1200
2200
2200
3200
3200
4200
4200
5200
5200
6200
6200
7200
7200
8200
8200
9
GOLD SPOT $/OZ CRB COMMODITIES INDEX S&P 500 INDEX S&P Developed REIT Index TR
1990 - 2010
Future Trends17
We must promote a broader
and deeper public
understanding of water issues
In terms of water issues, we
must think globally, but act
locally
We must develop smarter laws
and policies
The commercial water industry will
continue to experience strong and
predictable – if not spectacular – growth
Water prices will continue to inexorably
rise – sharply in many areas
More efficient pricing and allocation
systems will emerge, by necessity
The key future challenge will be starting
to manage water as an economic
commodity,
while simultaneously
insuring that it
is available to all