Steve Maxwell The Future of Water

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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.

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Steve Maxwell The Future of Water

  1. 1. The Future of Water RecreationFood Steve Maxwell U.S. Water Alliance Cincinnati, Ohio October 16, 2012 Energy Survival Luxury Life Transportation
  2. 2. 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 CenturyIT’S ABOUT THAT SIMPLE
  3. 3. The Future – Four Key Themes 3 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) 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)
  4. 4. 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?
  5. 5. A More Holistic View of Water 5 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
  6. 6. 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 transformationalClean Water scale now necessary WastewaterRain Water WATER Storm Water Seawater “Wasted” WaterGroundwater Recycled Water
  7. 7. Rising Water Prices 7 The average family pays less than $20/mo. for Average Per Capita Country Water Price Domestic Use water – far less than monthly electricity, cable TV, (Gallons per Head (Cents/Gallon) per Day) internet, or phone service bills Denmark 2.96 30.0 Yet there is strong political resistance to 5% or France 1.34 61.1 10% rate increases – probably less than what Germany 1.04 39.7 Australia 0.82 159.2 many spend monthly on bottled water! U.K. 0.69 36.6 Canada 0.64 204.7 Recent surveys indicate about a 5% annual Czech Rep. 0.53 56.1 Turkey 0.53 62.6 increase in water and sewer rates on average Japan 0.48 98.2 Portugal 0.47 81.1 Cost per 1000 gals. in the US – $0.80 to $5.50 Spain 0.46 90.0 U.S.A. 0.43 162.1 High variability in water prices across the Poland 0.39 39.2 country, and around the world – Denmark pays Italy 0.31 127.1 South Korea 0.19 145.3 almost 3 cents per gallon, while the U.S. pays Mexico 0.19 52.6 Russia 0.16 96.8 about 4/10 of a cent per gallon China 0.11 25.0 Unfortunately, the U.S. ranks near the bottom in India 0.05 36.6 terms of efficient water usage
  8. 8. The Price of Water 8 Price of Water vs. Price of Other Consumer Liquids ($U.S./gallon) Annual Spending in the U.S. Product Average PriceTAP WATER $0.0043 $2 billion a year on Viagra $13 billion a year on cosmetic surgeryCoca-Cola $3.00 $22 billion a year on mood-altering drugsGasoline $4.00Tide Liquid Detergent $8.50Imported Beer $12.00 $45 BILLION A YEAR ON CLEAN DRINKING WATEREvian Bottled Water $25.00Starbucks Latte $22.00Pepto-Bismol $65.00 $52 billion on pet careVicks 44D Cough Syrup $100.00 $90 billion a year on tobacco products $93 billion a year on legalized gamblingAmerican Whisky $150.00 $160 billion a year on alcoholic beveragesVisine Eye Drops $750.00 $720 billion a year on military defenseRevlon Nail Enamel $1000.00Good French Wine $1000.00Chanel No. 5 Perfume $45,000.00
  9. 9. Water Prices: Background 9 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. 10. Raw Water Markets 10 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. 11. Delivered Water Markets 11 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. 12. Raw Water Prices 12  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 1990through 2007,16% annualgrowthFrom: Brown, “Surface WaterOpportunities in New Mexico” November,2008 NMWRRI WestWater Research LLC, 2008
  13. 13. Delivered Water Prices 13 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. 14. Delivered Water Prices 14 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. 15. Conclusions – Future Water Prices 15 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. 16. Water as a New Investment Class? 16 900 800 700 600 500 The data and the evidence is clear and growing …. in its 400 300 various forms, water will increasingly be thought of 200 100 0 as a separate investment class19 219 319 320 320 320 419 919 019 019 119 119 2 94 94 9519 519 619 619 719 719 819 819 920 920 020 020 120 120 220 2 04 0520 520 620 620 720 720 820 8 09 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0191919192020 GOLD SPOT $/OZ CRB COMMODITIES INDEX S&P 500 INDEX S&P Developed REIT Index TR 1990 - 2010ValueAppreciation Water ~10-12%Rate Real Estate ~9% Precious Metals - ~7% Equities ~6% Commodities 1–2% Time
  17. 17. Future Trends 17  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 We must promote a broader and deeper public understanding of  The key future challenge will be starting to water issues manage water as an economic commodity, In terms of water issues, we must while simultaneously think globally, but act locally insuring that it We must develop smarter laws is available to all and policies

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