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Investment Mega Trends, A Dangerous Mix of Water and Oil

Commodities / Investing 2010 Mar 20, 2010 - 04:17 PM GMT

By: Uncommon_Wisdom

Commodities

Best Financial Markets Analysis ArticleOil and water aren’t supposed to mix, but these two resources could brew up plenty of trouble in the near future. In recent issues, I’ve told you how I think oil prices are going to be squeezed higher. As for water, both the CIA and the World Bank have identified water as one of the key flashpoints of the 21st Century. And it turns out you can’t get oil without water. There are some moves you should be making in your portfolio to protect against this, and potentially profit as well.


A decade ago, it was predicted that a third of the world’s population would face water scarcity by 2025. But that grim day has already arrived. Two billion people live in countries that are water-stressed and by 2025, unless current trends change, two-thirds of the world population may suffer water stress.

Peak oil prophet Matt Simmons recently put out a paper called “Twin Threats to Resource Scarcity: Oil & Water.” In it, he makes the case that “without water, we cannot create modern energy.”

That’s bad news, because the battles over water are just starting to heat up, particularly in the oil-rich Middle East. Do you think the Middle East is just an empty desert? Think again. The combined population of Middle Eastern countries grew three-fold from 1970 to 2010. There are now more people in the Middle East than in the U.S. and Canada combined. If the population keeps along current trends, the Middle East will have 500 million thirsty inhabitants by 2020.

  • It takes a lot of water to pump oil in the Middle East. The Saudis pump 2 million barrels per day into their Khurais oil field, and that’s just one oil field, and not their biggest one. Water injection increases the flow of oil, so as oil fields deplete, they need more water to keep production steady.
  • Turkey has built dams to collect water from the Tigris and Euphrates rivers. In all, Turkey has added 15 dams, 14 hydroelectric stations and 19 irrigation projects. This vastly affects the amount of water available downriver in Syria and oil-rich Iraq.
It takes a lot of water to pump oil in the Middle East.
It takes a lot of water to pump oil in the Middle East.
  • The capital city of Sana’a in Yemen, one of the Middle East’s terrorist hotspots, is expected to run out of water in 2017. The water situation is so serious the government has considered moving the capital.
  • Israel is feuding with neighbors Palestine, Jordan and Syria over the waters from the river Jordan.

Indeed, water is essential to all types of industries, not just oil. Whenever I go into a mine, the complaint is always too much water or not enough, and usually it’s not enough. Water — lots of water — is used to lubricate drills and keep them from overheating. Chile, a treasure trove of natural resources that I visited recently, is also home to the driest desert in the world, the Atacama. There are towns in the Atacama where it never rains — NEVER rains. Do mining companies in that part of Chile have water issues? Hoo boy, they sure do!

The water problem isn’t limited to the Middle East and Chile, of course. Many of world’s megacities (those exceeding 10 million people) are now experiencing water shortages:

  • Mexico City — last year, one of the principal reservoirs that feeds Mexico City dropped dangerously low due to drought. Water shut-offs became routine in the city’s poor neighborhoods. Mexico is the United States’ #2 supplier of imported oil.
  • Lagos — more than 70 million people in Nigeria do not have access to clean water. Furthermore, nearly 100 million people do not have access to latrines or toilets, which results in waterborne diseases like typhoid, guinea worm, cholera, malaria, and diarrhea. Nigeria is America’s #3 supplier of imported oil.
  • Kolkatta (Calcutta) — India’s commercial hub was squeezed by water shortages thanks to a sub-par monsoon season.
  • Cairo — Tensions are rising between Egypt and other Nile basin countries including Sudan, Uganda, Rwanda, Burundi, Tanzania, Kenya, Congo, Eritrea, and Ethiopia. The cause: Who controls the water from the Nile.

Other megacities experiencing water shortages include Jakarta (capital of Indonesia, another oil exporter) Manila and Beijing. In Beijing, the aquifer is dropping at a whopping 40 feet per year! This pits farmers against factories, and people against each other.

Globally, over the last decade, more children were killed by diarrhea than all the people who died in World War II. Every eight seconds, another child dies from drinking dirty water.

Here in the U.S., 40% of our power generation uses water in one form or another. The average U.S. citizen uses nearly 160 gallons of water per day, according to Simmons.

And while Americans may not believe a water shortage could seriously affect them, here are some of the hard facts for the U.S. …

  • It takes 14 gallons of water to grow a pound of grain, 435 gallons to grow a pound of beef, 2,000 gallons of water to make one gallon of milk, nearly 20,000 gallons of water is needed to make one ton of steel. So, if water gets more expensive, all these things will get more expensive.
  • Some of America’s municipal water systems are so old they were built during the Civil War. Result: A significant water line bursts on average every two minutes somewhere in the country. In some places, like Washington D.C., a major pipe breaks every day.
  • A study by the Environmental Protection Agency estimates that $335 billion will be needed simply to maintain the nation’s tap water systems in coming decades.
  • The country’s municipal wastewater systems will need another $36 billion in maintenance.
Some of America's water systems are so old that a significant line  bursts every two minutes.
Some of America’s water systems are so old that a significant line bursts every two minutes.

Bottom line: Americans are going to have to pay more for water, and that’s going to drive up the cost of other necessities as well. Meanwhile, the scarcity of water in the world is only going to increase the scarcity of oil and any other product that requires water in its production.

So, you can see these are multiple emergencies on a collision course with life as you know it.

Two Ways to Play This

There are a number of stocks and funds that are set to ride the water boom. One that’s already doing well is Insituform (INSU). The company has an amazing technology that creates a pipe inside a pipe when a leak appears. That way, repair crews don’t have to remove the pipe to replace it with a new one. Insituform recently won two big contracts worth $6.5 million through the American Recovery and Reinvestment Act. I’d wait for this hot stock to pull back before buying — it could retrace to 25.70 before taking off again. I’d be a buyer on a pullback.

As for the energy boom, you probably want to be in the oil drillers and explorers rather than the big names. Why? Because the big energy companies will throw buckets of money at drillers and explorers as the price of oil goes higher. One fund I like is the iShares Dow Jones U.S. Oil & Gas Explorers Index (IEO). It holds excellent stocks including Anadarko Petroleum (APC), Apache Corporation (APA) and EOG Resources (EOG).

I think the energy emergency is on its way. I hope a water emergency doesn’t arrive at the same time. But if it does, I want my subscribers to be prepared in their portfolios. Whatever you do, do your own due diligence and make sure any investment is right for you.

Yours for trading profits,

Sean

P.S. In the next issue of my new Crisis Profit Hunter, I’ll be focused squarely on the coming emergency in energy. I’ll have more energy picks that can shift your portfolio into higher gear. PLUS, with your subscription, you get FOUR bonus reports.

Two of those reports focus on energy, and they have a total of 5 red-hot energy picks that give you a jump on higher fuel prices! And now, for a very short time, I’m offering a special subscription price — just $89 for one year.

If you haven’t already signed up already, don’t waste another minute — get your subscription to Crisis Profit Hunter TODAY!

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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