Water is the New Oil

A just-released CIBC report makes the argument that water is the new oil. I have made the same case in various presentations lately — the global water industry is larger and faster-growing than the global software biz — so people won’t be surprised to find that I think the CIBC report is good reading:

CIBC economist Benjamin Tal, author of the “Tapping into Water” report, estimates it will take “hundreds of billions of dollars” to fix dated water infrastructure in North America and Europe.

Federal governments are not rushing to fix the infrastructure and municipalities lack the means to do so. “As a result, governments are now much more open to the notion of privatizing their water infrastructure which, in turn, is providing a substantial boost to the private water industry,” Mr. Tal said.

… Mr. Tal sees parallels between today’s water industry and the oil industry in its golden era, before and after the Second World War. “The market is paying attention,” he said. “Capital investment, deregulation, consolidation, and privatization of global water assets and services are advancing at a pace not seen before.”

In the last three years, U.S.-based water companies — as measured by the Bloomberg U.S. water index — have surged 150 per cent, three times the rise seen by companies on the S&P 500, while paying twice as much in dividends. International water players are doing even better, Mr. Tal said, with their stock values rising twice as fast as their American counterparts in the past year alone.

[Update] A few people are asking via email how to invest around water, and while all applicable disclaimers apply, there are, of course, oodles of options. One that is worth a look, however, and that doesn’t involve quite as much stock-picking, is PowerShares water resources ETF, which has reasonable volume, a diversified set of holdings, and has delivered a low-teens return over the past twelve months, albeit with a 0.6% expense ratio.


  1. David Martin says:

    I wonder if the timing of the CIBC report had anything to do with the fact that they were looking for subscribers for their CIBC Water Growth Deposit Notes. The notes were on sale from November 10 to 24th.

  2. Terry Foecke says:

    A few reasons why water is not the new oil:
    Oil is consumed, irreversibly. Water is consumed, but only changes its state and is available again.
    Revenues derived new water infrastructure projects do not easily lead to profits. Enormous numbers of undifferentiated players participate in very competitive bidding. The same for all but the most exotic water equipment.
    Rehabilitation of existing water infrastructure is another hard way to make a buck. There is no way to know when you bid what you are getting into.
    Demand destruction in developed countries has hardly been tapped because prices have been held artificially low.
    In developing countries, there is a big gap between building infrastructure and being able to collect money to pay to run it.
    Most individuals consider access to water a right, and privatized systems that have altered standards (including prices) have often done poorly.