Although seventy percent of the earth is covered with water, fresh water fit to drink is increasingly scarce in more and more places everywhere in the world. We have looked at water as an investment in a world of increasing scarcity of fresh water. The largest source of water by far is salt water from the oceans of the earth. Technology exists to turn water from the ocean into fresh, drinkable water. The process is called desalination. How viable is seawater desalination as an investment? If it is, what is the best way to proceed with this type of investment?
Seawater Desalination in San Diego
In San Diego, CA the Carlsbad Desalination Plant provides 50 million gallons of drinkable water a year. Seawater is pumped in from the ocean, filtered and refiltered and then the sea salt is removed by a process of reverse osmosis. The remaining salt and filtered materials are mixed with seawater and returned to the ocean. Plant operators say that the desalinated water adds $5 a month to the water bills of their customers. The plant supplied fresh water sufficient for the needs of 400,000 people and constitutes a third of all fresh water generated within San Diego County. It accounts for one-ninth of all water consumed in the county. This municipal facility cost $1 billion to build. It provides San Diego with a drought-proof supply of fresh water but is criticized for being expensive. According to Scientific American, it can cost from a dollar to more than two dollars a day to produce enough water for two people (one cubic meter or 264 gallons) when all costs are taken into account.
Desalination by Reverse Osmosis
Desalination by reverse osmosis offers coastal areas a way to avoid shortages of fresh water. According to a review of this technology by the OAS (Organization of American States) the capital costs of this technology are significant. This generally makes construction of such treatment plants the province of municipalities or regional governments. The operational costs for these operations are labor, electricity, and membrane replacement. Companies that make industrial grade reverse osmotic membranes that work in municipal desalination plants also make a range of water purification and membrane products.
US Companies Making Reverse Osmosis Membranes
US Manufacturers of reverse osmosis membranes and companies with ADRs available in the US include DuPont/Dow, 3M, Filmtec, Hydranautics, Lanxess, and Koch. On the one hand these companies stand to make money for years and years selling their reverse osmotic membranes as water desalination operations become increasingly common. On the other hand, companies like DuPont Dow and 3M are huge multinationals and reverse osmotic membranes will always be a small part of their business, at least in the USA.
Desalination of Water in the Middle East
While the Carlsbad Desalination Plant in San Diego provides 50 million gallons of drinkable water a year, in the Middle East there are about 16,000 desalination plants providing 35 trillion liters (8.5 trillion gallons) of fresh water every year. A Jordanian desalination planned for construction on the Red Sea will bring the country’s production of desalinated water to 350 billion liters a year (90 billion gallons a year). Companies doing business in this region of the world will have more business and potential profits than in regions where water is less scarce and where access to the ocean is minimal.
Investments in Water Desalination
The best investments in this niche will be those companies that focus on the niche and excel. They will get more business and their profits will not be diluted by other aspects of their business such as with 3M or DuPont/Dow. Here are a couple of suggestions to check out as potential investments in water desalination.
Veolia Environments S.A. manages fresh drinking water production and delivery for more than a hundred million people and provides wastewater services for sixty-one million. They work in more than a hundred countries on more than two thousand separate water treatment projects. Their ADR sells OTC in the USA. The stock sold for $5 ten years ago and $16 today. The company’s market cap is $23 billion.
Consolidated Water Co. Ltd. is a full service reverse osmosis desalination technology company that builds and runs plants for water treatment and supply as well as distribution systems. They operate in four branches, manufacturing, bulk, retail, and services. They operate in the Western Hemisphere with eleven water production facilities in the Bahamas, Cayman Islands, and British Virgin Islands with a total annual 25.5 million gallon treatment capacity. Their stock sold for $7 ten years ago and sells for $17 today on the Nasdaq.
The biggest player in Saudi Arabia is the ACWA Power Company which builds power plants and desalination plants across the Middle East. Direct investment is possible but only if you have an account with an affiliated bank.
Seawater Desalination as an Investment – SlideShare Version
Seawater Desalination as an Investment – DOC