Water will be a more valuable commodity than oil

Demand issues mean that only big business can finance the improvements needed in water management and infrastructure to meet the world’s future supply needs

Water will become a traded commodity, like oil, gold and silver, it’s just a matter of time.

70% of earth may be covered by it, but less than 1% of it is readily available freshwater. This makes it a scarce resource.

It’s value to human life is unquestioned – oil, gold and silver we can live without – we die without it.

But to become a traded commodity it also needs to fulfil three criteria: standardised/interchangeable, tradeable and deliverable.

Water is more expensive than oil to transport

It is always made up of H₂O. But the levels of minerals and metals it contains depends on the location it is drawn. So it is difficult to standardise.

Its tradability is dependent on location. There are parts of the world have so much of it their biggest problem is flooding. In others it’s a scarcity and they suffer droughts.

It is also costly to transport – it costs more to pipe water than it does to pipe oil.

So how can it be said with any certainty that it will become a tradable commodity?

Jean-Louis Chaussade, the chief executive of French utility Suez, recently told the Financial Times that he believed it will become more valuable than oil because of the increased demand from people, industry and agriculture.

Demand for water is increasing beyond supply capabilities

The United Nations has projected that by 2035, 40% of the world’s population will live with water scarcity. This puts companies in competition with people and farming for supplies.

Local governments around the world are refusing to allow industries to source underground, which is forcing them to turn to desalination plants or waste recycling to meet needs.

Instinct tells us that it’s correct to give priority to people and agriculture to the supply of water over industry. But it clouds the issue of government’s inability to manage its provision efficiently, and how lack of investment in state-run infrastructure has led to the supply problem and why local government now create barriers for its use by industry.

Converting it into a tradable commodity will result in it being managed more efficiently as a resource. The misuse and over exploitation of the past would be prevented by assigning it a value.

This thinking prompted Fortune magazine to describe it as the commodity that will determine the wealth of nations in the 21st century, in the same way that oil did in the 20th century.

The counter-argument to treating water as a commodity is that it’s a basic human right, and the fear that the world’s poor stand to become worse off as social equality will traded in for economic efficiency.

Trading water rights is already happening in Australia, and to a lesser extent in the western US. The more this happens, the more it becomes accepted and eventually becomes part of the mainstream.

Governments will struggle to meet future demand

The need for fresh, clean water will only increase. By 2050 we will need 55% more of it than supplied today. Governments are unlikely to be able to meet that demand because of the massive investment needed to improve supply management.

Markets can play an important role in providing future water security by helping to fund improvement to infrastructure. A futures market to trade water would help to create a baseline pricing mechanism to help set regional tariffs.

There is another fear that water scarcity could eventually see water-rich countries (Brazil, Russia, the US and Canada) form into a group similar to the Organisation of Petroleum Exporting Countries (Opec) despite the current transportation issues inherent in moving water.  But if serious investment isn’t made into infrastructure – $22 trillion over the next 20 years to maintain current supply levels according to some estimates – then the problem of water shortage will become even more acute.

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