From this morning's Agora Financial.
Pipe Nightmares
By Chris Mayer
Pipe Nightmares
By Chris Mayer
Two days before Christmas, a 66-inch water main burst on River Road, not far from where I live, during the morning rush hour. Water spewed out at a rate of 150,000 gallons per minute, turning River Road into an actual river for a time. People at the scene described the burst as a bomb going off. The force of the water - going at 12-15 miles per hour - pushed cars around like so much debris.
Firefighters had to rescue people from their cars as freezing cold water swirled around them. They had to use a helicopter to pull some out of the more sticky situations.
This was a big deal where I live. My kids came home early, as the county closed schools over concerns about water supply. It hit home, too, because I've been writing about the dangers of this exact thing for almost three years. So this latest incident near my home gives me a handy excuse to revisit one of my favorite investment themes: water. When water pipes get old, they break.
(Click here to examine a few of the Rude Awakening's previous observations about water-focused investments: "Blue Gold " by Chris Mayer, "Water Goes Boom " by Chris Mayer, "The Most Dangerous Religion " by Chris Mayer, "The Oracle of Gin Flat " by Chris Mayer, "Water, the New Oil " by Thomas Rooney, "Parched " by Eric J. Fry)
The pipe that broke was 44 years old. The Washington Suburban Sanitary Commission, the local water utility, has nearly 5,500 miles of pipeline. Of these, 1,380 miles of water mains are more than 50 years old.
Another 2,000 miles are between 30-50 years old. Many of these pipes are near the end of their engineered life spans. The WSSC replaces 27 miles of pipe per year. At that pace, the WSSC will replace a pipe, on average, no sooner than once every 200 years.
It's a simple matter of math to realize that the situation is untenable. This was the third major water main break in the last six months. In June, one break led to the widest disruption of service in more than 20 years. Restaurants closed and residents were under a boil-water advisory. From Jan. 1 through November of 2008, the WSSC repaired 1,357 breaks and leaks - or about four per day.
The previous general manager at the WSSC, a former Navy engineer, raised the alarms in February 2008.
"In my view, the public will no longer be able to trust the system that delivers water to residents," he said.
Unfortunately, this is a problem that is widespread in our country. Water pipes are aging and need replacement. It's why Northwest Pipe (NWPX:nasdaq ) continues to prosper. It makes large diameter pipes just like the kind that broke near my home.
Globally, too, the demand for new water infrastructure is also strong. There is, for example, a huge urbanization movement happening on this planet of ours. Think about this: The average population of the world's top 100 cities in 1900 was 700,000. Today, the average city has 6 million people living in it. In just the last 30 years, the world's urban population went from 1.6 billion to 3.3 billion. This puts huge stresses on water systems.
Industrialization also eats up a lot of water. It takes large amounts of water to make food - some 630 gallons of water to make a hamburger. Even basic consumer goods take a lot of water to make - it takes 2,900 gallons of water to make a pair of jeans.
Semiconductor plants are huge consumers of water. Power generators also use water for cooling. Manufacturers use it for cutting, cleaning and more. We ask a lot of water. The water services industry alone is a $385 billion business - and growing. "There is a boom in the construction of new assets," says Antoine Frerot, CEO of Veolia Water. "The assets are also more complex and more technical than before." Water-related equipment is another $64 billion industry. That too is a growing field.
Energy and water are also linked in ways people don't appreciate. It takes a lot of water to make energy.
As the easy oil is gone and we go deeper into the earth, our water needs rise. "Enhanced oil recovery," reports the FT, "is particularly water intensive." Alternative energy is no better off. Biofuels, obviously, consume water, but so do solar and wind power. It's just not as obvious. (There are enormous amounts of water used in making the equipment.)
But this is only half of the greater water crisis. The other half is an issue of supply. I don't have space to get into that aspect of it again here. But suffice it to say that in the American West, China, India and many other parts of the world, getting water where people live is an ongoing problem. According to the U.N., there are over 1 billion people without access to clean water. This has appalling health effects.
"Water has never been more under threat in modern history," reports the FT without exaggeration. A new special report in the salmon-colored pages of the Financial Times is entirely about water. I give the paper credit for reporting on this topic more than any other mainstream outlet I follow.