Why Water Will Never Be the Next Oil: A Guest Post by Charles Fishman

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Here now is the second in a series of guest posts from Charles Fishman, whose new book is called The Big Thirst: The Secret Life and Turbulent Future of Water. (Fishman’s last book is The Wal-Mart Effect.) In The Big Thirst, Fishman tackles the debate around water as an increasingly precious resource while reminding us that water can’t actually be “used up.” But he makes clear: the era of easy water is over, and that’s something to think about – hard.

In his first post, Fishman laid out the strange economics of the bottled water industry. Now, he looks at why the most abundant, liquid resource on the planet, makes for a very illiquid asset when it comes to markets.

Why Water Will Never Be the Next Oil

A Guest Post
By Charles Fishman

If you want to glimpse what the future of water will look like, start with a cruise ship — where it is a carefully measured commodity. Every drop of water used on a cruise ship is either purchased at a dock or manufactured using on-board desalination systems fired by expensive fuel. Ships are closed loops — any water used has to be run through an on-board treatment plant (also using fuel), or piped to a dockside sewer system, all at the expense of the ship. A cruise ship has to pay for every gallon of water it uses, and then pay to get rid of it. This gives water an economic transparency it typically lacks on land.

One of the most noticeable uses of water is for the ice to chill the all-day, all-you-can-eat buffet, a classic feature of U.S. cruise ships. In 2008, the executive chef for Celebrity Cruises (Royal Caribbean’s high-end line) had an idea: Why not substitute smooth, black river rocks for the ice on the all-day buffet?

He was thinking mostly in aesthetic terms: piles of sleek black river rock would look so much more chic than melting ice. A test of the idea on a single ship was a hit: not only did guests love it, but the rock turned out to hold cold longer than ice.

Today, all nine of Celebrity’s mega-ships use black river rocks in their buffets, saving each ship about 6,300 gallons of water a week, not to mention the energy costs of treating and disposing of the melted ice water. Celebrity says it hasn’t done a cost-savings analysis of the swap — unplugging an ice machine that had been running 24 hours a day was persuasive enough. But that water, from that one small change, is the equivalent of what three U.S. families use in a year.

This seemingly simple innovation is exactly the kind of “smart water” thinking that the coming decades will require as competition for water grows more intense. The world of water, and water providers, aren’t well-positioned for that competition. If you leave aside the somewhat silly world of bottled water, there has been almost no innovation in the industry of water for decades. A water facility today uses the exact same technology it did in 1973. In what other industry is that the case? The typical Wal-Mart long-haul truck has more intelligence in it than the typical water system.

The technological revolution has completely bypassed the world of water, mostly because of the strange nature of the market for it. Water has almost no pricing signals. You can’t trade it. And while in the developed world you don’t typically run out, if serious scarcity develops, you can’t just buy more, no matter how much you’re willing to pay. The most liquid and plentiful natural resource on the planet is almost completely illiquid as an asset.

Consider some of the most-traded commodities on Earth: corn, wheat, coffee, orange juice, timber. Now think about how much they all depend on water. In fact, their prices often move inversely to how much water is available. There’s even a market for weather futures— cooling, heating, snowfall, rainfall. And yet, you can’t trade the most important commodity in the world, and you probably never will beyond a very limited local arena. Water is different from soybeans or light sweet crude. It’s cheap, like soybeans, but it’s heavy, like oil.

For a commodity to be traded, you have to be able to move and store the physical asset with relative ease. But water is so cheap and so heavy that we’ve never developed the systems for moving it across geographic regions.

The result is, if Orlando is flush with water, and Atlanta is having a drought, there’s simply no way to transport city-sized quantities of water the 400 miles between the two cities — even if Atlanta were willing to pay a premium of 200 percent.

In reporting my book, I frequently came across the sentiment: “Water is the next oil.” (The phrase calls up half-a-million Google hits.) In many ways, it would be great if water were the next oil. For all its ugly imperfections, the oil market works well. It’s deep, efficient and one of the most liquid commodity markets on the planet.

For a water market to work, we’d have to develop a transparent pricing system, which means that at the lowest incomes, people would be in danger of being “priced out,” something we’d obviously have to prevent. We don’t want a world in which people can’t access clean water simply because they’re unable to pay for it. Which  of course, is exactly what we have today: one out of 6 people lack access to clean drinking water— even though it’s “free.”

It’s quite possible that water markets could develop in local watersheds — the Georgia-Florida-Alabama water war that has lasted 25 years would be much easier to sort out if there were a real operating water market along the Chattahoochee and Apalachicola Rivers. Just like there is in Australia’s vast Murray-Darling river basin. In that basic water market, farmers can decide to sell their water to drought-stricken cities.

One huge impediment to water trading in the U.S. is the murkiness over ownership. To sell something, you have to own it (or at least the right to it). Water rights in the U.S. are a mishmash of state and federal law, court rulings, and tradition. In some parts of the western U.S., you don’t even technically own the rain that falls on the roof of your home.

Markets and pricing notwithstanding, one of the encouraging things I found as I traveled the world to write about the future of water is that there is a blossoming of innovation taking place around water, from Perth to Delhi to Las Vegas. And it’s being driven by exactly the same forces that led to river rocks in the buffets of Celebrity Cruise ships: scarcity and cost.

Nothing inspires efficiency like scarcity. And while water itself is typically free (we pay only for the cost to deliver it, whether in the bathtub or an irrigation canal), the costs to move it, heat it, clean it, and dispose of it are all rising. So even without a market, that’s the kind of pressure that will inspire a burst of innovation in water in the next decade— in how we think about it, how we use it, and even how we price it.

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  1. Bethany says:

    It very obviously might not be the next oil, but it’s the next something.

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  2. Justin says:

    Very interesting article; I’ll be looking to pick up the book.

    @Bethany: I don’t actually think that it’s the “next something”, but a new commodity altogether. As Mr. Fishman points out, it’s difficult or impossible to sell, has strong social ties (a collective sense of entitlement: not many people feel that they deserve oil) and the same unequal distribution that plagues petroleum.

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  3. James says:

    ” But water is so cheap and so heavy that we’ve never developed the systems for moving it across geographic regions.”

    Never been to California, have you?

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  4. Eric says:

    Good article — but, I think you’re naive about the control corporations are trying to exert over the world’s water supply. You imply that “we” are in control of the water. I think this idea is wrong. Corporations are trying to privatize the world’s water. Water needs to be managed locally, not by multinational companies.

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    • Scott says:

      Exactly… all one has to do is look up what happened in the “Water War” in Cochabama, Bolivia to see what corporate control of water leads to and looks like.

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  5. Claire - Matching Pegs says:

    Here in Melbourne, Australia we have just come out of an 11 year drought. We live on a very dry continent and have grown used to quite restrictive water restrictions.

    If you watered your garden, you were only allowed to do so by hand (no sprinklers) between the hours of 6am and 8 am, two days a week (your days were determined by your house number – even, or odd). There was no watering of lawn. You were not allowed to wash your car with a hose – only a bucket, unless you were at a car wash that recycled the water.

    Most people just stopped watering their gardens with hoses, and put in more native plants – our natives are well used to tolerating dry conditions. Many people put in water tanks to collect rainwater from their roof, to water the garden – as this water was unrestricted.

    Over the summer months, most people showered with a bucket by their feet, to collect water, that was then carried out to the garden. The water from the tap that was usually wasted as you waited for it to heat up was always collected in a jug.

    Many people switched to special washing detergent, so that the grey water (used water) from their washing machines could be sent via hose straight out onto the garden.

    Interestingly enough one of the biggest impacts was with personal water use that was not through restrictions at all.
    The state government launched a campaign called “Target 155″ which encouraged each person to limit their daily water use to 155 litres or less. All water bills came with information about the daily household use, and how that related to various numbers of residents, from 1 to 5. We were always proud that even though we were a household of 5, we generally hit the 155 target for a household of 2. We were not alone – Water suppliers released a report that indicated that 53 billion Litres of drinking water were saved during the campaign (Dec 2008 – August 2010) – almost 8 weeks of water supply for Melbourne.
    As part of this scheme, the state government sent every household a tiny sand timer on a suction cup. It measured 4 minutes, and was for your shower. People generally tried to improve themselves, and this gave them a concrete targeted way to do it.

    Sadly, the new State Government have scrapped target 155, but I suspect we, as a population, have experienced a real shift in the way we think about water – a decade of living with the consequences of drought will do that.

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    • Shane says:

      Fascinating stuff Claire. I lived for a while in Sydney (coming from Ireland where fresh water was never a major problem) and I remember reading signs in hostels asking guests to keep showers short.

      I like the idea of replacing lawns with native Australian plants. I wondered if you have any thoughts about agriculture, a heavy user of water in many countries. I’ve heard that kangaroos cause less erosion to Australian soil than sheep and cattle, might they also require less water? Could Australian farmers cut demand for water by shifting to farming native plants and animals?

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  6. MeanOnSunday says:

    It’s hard to find anything positive to say . Seems ignorant of the massive systems to transport water in the Western United States. And describing the oil market as deep and efficient, well, I can’t think of a market driven less by true economic factors. After all we have record prices at a time when the accessible supply is greater than it has ever been.

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  7. scott says:

    Did you ever wonder where the water to make living in the SouthWest US came from? The Great Lakes… no water…no population. No population growth leads to a shrinking economy…

    Ask the people of Bolivia in South America if water is a valuable resource. When it was privatized the local towns lost access to clean water… the reason the ‘developed’ world doesn’t see water as a precious commodity is because it is usually regulated at a gov’t level…making access to it universal.

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  8. Michael says:

    If you recall; bandwidth was never a commodity until it was… It may not have been thought of as such, but now it is one of the most argued over assets available.

    Water has been a commodity since the times of the Romans. The aqueducts that still stand to this day can tell us how much time and effort was required to transport it to the bath houses and sewers of Rome. That empire would have had a much more difficult time growing its’ city centers without a constant supply of water flowing down from the surrounding mountains.

    It is only a mater ot time before pipeline technology is applied to our most liquid of assetts.

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