According to a recent report from Bank of America Merrill Lynch Global Research titled "A Blue Revolution – Global Water," some companies in the water services industry are in the strongest position to benefit from the global dynamics of water supply and demand. The global water services industry is set to double to $1 trillion dollars in annual revenues by 2020 responding to water scarcity problems.
According to the report and as commonly outlined in other recent water stress studies, water is on course to be scarcer than oil by 2030, with demand outstripping water supply by 40 percent. Close to half of the world's population will be living in water-stressed areas. The report opines that unless more sustainable water management practices are adopted, 45 percent of projected 2050 global GDP at 2000 prices could be at risk or about $63 trillion dollars.
The report highlights three themes in addressing water scarcity: 1) water treatment; 2) water management; and 3) water infrastructure and supply, addressing each as follows:
Water treatment – emerging market growth driving demand
Rising water scarcity and growing demand from agriculture, housing and industry will increase demand for water treatment. The report details how agriculture accounts for 70 percent of water use and demand is rising as diets change. As industries across emerging markets expand, their demand for water rises. Municipal and residential water use is also growing on the back of urbanization. Wastewater reuse stands at only 2.41 percent of all water withdrawals globally.
The report outlines opportunities in areas such as producing drinking water, irrigation, or returning water to the natural environment. It focuses on sectors with heavy volumes and environmental constraints (such as utilities, oil and gas, and mining), those with strict water constraints (food and beverage, cosmetics) and variable effluents (petrochemicals, energy, and breweries). The report highlights how desalination could emerge as a $25 billion industry by 2025.
Water management – smarter irrigation is key
Against the backdrop of growing water scarcity, fragmented water management and conflicting interests of stakeholders are too expensive and unsustainable in the long term. There is growing recognition that the water crisis is as much a consequence of weak policies and poor management as natural scarcity. Effective water management enables users to cut their use of water. It also mitigates the risks associated with water shortage and reduces the need for capex-intensive solutions.
With up to 60 percent of water used in agriculture wasted, smarter irrigation is essential. Household water management has huge potential – if all U.S. households installed water-saving features, the dollar-volume savings would be more than $4 billion per year. Companies involved in areas such as drought-resistant seeds and crops and smart metering are poised to benefit from appetite for water management.
Water infrastructure and supply – growing role of private finance
The report highlights the global need for water infrastructure. Developed markets need to replace crumbling and incomplete infrastructure while emerging markets need to build infrastructure for the first time. Annual water investment needs are estimated to rise to more than $770 billion for the OECD and BRICs by 2015. With public funding increasingly under financial pressure, we believe the private sector will need to play an increasingly important role.
Water infrastructure is currently a $360 billion-plus market and is registering growth of up to 6 percent in some segments. Scope for growth is especially strong in Latin America and Asia. Companies involved in engineering, construction and consulting, pipes, pumps and valves and sewage treatment will benefit.
Citing the World Resources Institute – Aqueduct Project, the report details supply-side water pressures noting these concerns are further exacerbated by a lack of freshwater, its uneven distribution, widely varying quality and emerging climate change risks. "Every region of the world…" is impacted by water scarcity.
The report provides significant data including companies at risk because of water reliance, companies with opportunities as well as countries suffering the most significant water stress, water scarcity and absolute water scarcity.
While an economic market analysis report for investors, this report provides good insight into the business, regulatory, political, social and legal issues at play related to water scarcity now and into the future. To view the report, go to http://www.merrilledge.com/Publish/Content/application/pdf/GWMOL/ABlueRevolution-globalwater.pdf.