Forget Oil. Fight for Water!

By Fabian

According to the International Energy Agency (IEA), the US is set to overtake Saudi Arabia and Russia to become the world’s biggest oil producer by 2017. It is forecasted by the World Energy Outlook 2012 to become a net oil exporter by 2030. Meanwhile its European ancestors drive a heavy political agenda to also reduce the old world’s dependence on oil, be it through renewables, gas or nuclear.

The time when wars and strategic interests were mostly driven by the addiction for black gold seems to be over. At least for the western hemisphere. The focus has shifted to a more pure liquid.

In the US Supreme Court, Kansas and Nebraska are battling each other over something that has been wasted for centuries: Water. Farmers in Kansas claim that Nebraska farmers irrigate too much and fail to leave adequate water in the Republican River for Kansas farmers to the south still make a living. That is in a highly developed nation that is generally well pleased with natural water supply.

In more drought-stricken areas of this world the right to access water might not be decided upon by a more or less well functioning legislative process. Instead, the probability is high there will be war. War over water.

The hot spots most discussed are the Middle East, Central Asia, China and India. Israel has argued for decades with its neighbors and the Palestinians for fresh water out of the Jordan Basin. Turkey plans the construction of 22 dams for irrigation and power generation in the country’s southeast area, nine of them already built. Further downstream, Iraq is anything but pleased about those efforts.

The Nile delta poses a similar situation. Chronically drought-stricken Ethiopia recently launched its first irrigation projects with Nile water. With 30 percent of Egyptians making a living from agriculture and directly dependent on Nile water downstream, Egypt’s former dictator Hosni Mubarak repeatedly threatened war in such situations.

Further east, Pakistan’s agriculture depends on a single river: the Indus. While the government in Islamabad has strongly but unsuccessfully opposed rival’s India building of hydroelectric dams upstream, Islamist terrorists reportedly have threatened to release a “river full of blood” if India should block the Indus.

China meanwhile is home to 20 percent of the world’s population, but it only owns eight percent of the world’s freshwater reserves. Under its current five-year plan, it will build the largest dams the country has ever constructed on the Mekong, Salween and Brahmaputra rivers. Vietnam has publicly announced concerns that the dams could restrict the flow of the Mekong River. Worse, though, India sees this possibly reduced water supply endangering its growing population. With India receiving the largest external proportion of flows from rivers originating in China, no country is likely to be a bigger loser than India. And one might expect that no country will be willing to more harshly stand up to its biggest competitor.

To date, many of the impacted countries have been busy with sorting out unsustainable growth, political instability or externally influenced war efforts. This attention will change – and then focus will quickly shift to that clear liquid that might become so valuable in the 21st century: Clean, pure gold.



About macomberjohnd

HBS Finance faculty interested in sustainability in the built environment including devices, structures, townships, and cities.

5 Responses to “Forget Oil. Fight for Water!”

  1. By John Macomber

    I guess one could address the issue with money (for capex and for for energy). And with access to the ocean. New York Times piece today (March 1) about desal plant in Carlsbad, CA promoted by Poseidon. The bond issue is rated BBB. The cost of the plant is over $1bn.

    Maybe this is (or will become) an investable resource?

    A few pertinent snips:

    “Large-scale ocean desalination, a technology that was part of President John F. Kennedy’s vision of the future half a century ago, has stubbornly remained futuristic in North America, even as sizable plants have been installed in water-poor regions like the Middle East and Singapore.

    “The industry’s hope is that the $1 billion Carlsbad plant, whose builders broke ground at the end of the year, will show that desalination is not an energy-sucking, environmentally damaging, expensive white elephant, as its critics contend, but a reliable, affordable technology, a basic item on the menu of water sources the country will need.

    “…The San Diego County Water Authority has agreed to buy at least 48,000 acre-feet of water from the plant each year for about $2,000 an acre-foot…The authority has made a long-term bet that those costs – now double those of the most readily available alternative – will eventually be competitive.

    “…In the Western United States, where the complexities of water law and heavily subsidized federal and state water projects have complicated the economics of water delivery and hamstrung any widespread development of water markets, the Carlsbad plant offers a peek into a future when water prices reflect the actual cost of procurement and delivery.

    “..The project’s costs are financed by two bond offerings totaling $734 million and a $189 million equity investment. In addition, the water authority is committing about $80 million to other capital needs. All of these arrangements have interlocking guarantees and risks, with the costs of constructing the plant borne by the project developers and the water authority…

    The 25 year BBB bonds sold in the 4-5% coupon range. 30-year US Treasury bonds are at 3.10% this morning so investors are getting less than 200 basis points more yield. There is substantial private equity behind the fixed income issue.

    According to San Diego Union Tribune:

    “A 33-year bond for the desalination plant came in at 4.78 percent interest, while several shorter term issues and a pipeline bond sold at rates ranging from 4 percent to 4.5 percent. Those rates were well below the 5.2 percent to 5.6 percent that the authority budgeted. “It’s pretty unusual to do 30-year financing at a BBB level and have interest rates in the 4s,” said David Moore, managing director of Clean Energy Capital, a consulting firm that advised the water authority on the financing. On Dec. 24, it sold $734 million in bonds, trimming more than $100 million from the bond issue because the favorable rates allowed it to cut costs. Money from those bonds, along with $188 million in private equity, will pay for the desalination plant and a related pipeline.

    Poseidon’s www site about Carlsbad:
    Bloomberg News comment about the offering

  2. When I lived in Laos for year before business school, the most controversial topic was always the Xayaburi dam, now under construction, crossing the great Mekong river. Although a very emotional subject, experts were not worried about Lao somehow reducing the overall flow of water downstream, instead focusing on:

    1/ Fisheries
    2/ displaced villages
    3/ effects of smoothing downstream flow rates, i.e. reducing seasonal variability

    One myth to debunk is that dams somehow reduce the flow of water downstream. To quote from the sourced website below, “The dam holds the water when it rains and the river flow goes beyond normal. It releases this excess water when the river is dryer. It acts as a buffer to moderate the natural extremeties observed in the river.”

    As rebuttal, international rivers contends that evaporation losses are very material, in addition to other loss effects. However, I can’t find any authoratative, non-biased study of evaporation and I believe this is still a negligible loss compared to total flow rate. There are also “liquid monolayer” technologies that aim to prevent unwanted evaporation.

    Hence, as long as the dam builders do not seriously change the direction of the flow, downstream states, including India etc. mentioned in the article, should still receive comparable water sources, albeit at a more steady rate.

    In summary, to protect each nation’s right to water, the focus needs to be on the current demand for water in each state, not the building of dams.


    • By John Macomber

      Here is an example of a company trying to commercialize liquid monolayer technology to reduce losses from evaporation. I wish the “technology” page was more robust 🙂 This is a group of of MIT trying to sell to the Texas municipal market.


  1. In the news: Urbanization, Resource Scarcity, Cities, and Political Stalemates | Sustainable Cities: Urbanization, Infrastructure, and Finance - March 2, 2013

    […] “A costly California desalination plant bets on future affordability” (Carlsbad, CA plant funded by private equity and a bond issue) New York Times March 1, 2013 here and related post in IBEE blog here. […]

  2. Most Commented through Sunday, March 10th | Innovation in Business, Energy, and Environment - March 12, 2013

    […] Forget Oil. Fight for Water! […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: