Posts Tagged ‘water’

Five potential emergencies- water

Thursday, April 15th, 2010

Continuing from our previous article, we will focus on the issue of water security today. Please note that while this series of articles are on the theme of self-sufficiency (or rather, using our reader David?s words, ?community-sufficiency?), they are also great investment themes. As the Chinese word for ?crisis? has two components- danger and opportunity, each of these five potential emergencies is a source of both danger (societal collapse) and opportunity (lucrative investments).

With 70% of the earth?s surface covered by water, it is ironic that water can be a problem. But consider this diagram:

With potable water, scarcity leads to profits

As you can see from this diagram, less than 1% of the earth?s freshwater are readily available for human consumption.

That reminds us very much of what?s happening to China?s water supply. We first mentioned China?s water crisis at What is the key risk faced by China (according to Jimmy Rogers)?. With a fifth of the world population, China has only 7% of the world?s fresh water. Of these 7%, we wonder how much are polluted and abused? We saw documentaries and reports of China?s rivers being so polluted that they cannot even support aquatic life, much less human life. As at 2006, half of China’s population consumes drinking water contaminated with animal and human waste that exceeds permissible levels, which is why China has the highest liver and stomach cancer death rates in the world.

Globally, the situation is not good. With global warming, dry areas are becoming drier (e.g. droughts) and wet areas wetter (e.g. floods). As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

In 2002, 8% of the world suffered chronic shortages. More than 80 countries, with 40% of the world?s population, are already facing water shortages? The UN forecasts that by 2050, 4 billion people will lack adequate water as entire regions turn dry.

In Australia, we have severe droughts for many years already.

Water scarcity and climate change is one issue. Water infrastructure that delivers the water to the taps in your home is another issue. Booz Allen Hamilton released a report in 2007 titled, Lights! Water! Motion!. estimated that over the next 25 years, modernizing and expanding the water, electricity, and transportation systems of the world?s cities will require approximately $40 trillion. Of that, 60% of that bill is water infrastructure.

Water pipes and systems have a useful lifespan of between 50 to 100 years. Therefore, we can suggest that say, 1/75th of water infrastructure have to be replaced every year. The best places in the world are replacing 1/200th of it every year. Water leaks from ageing pipes. Here are some rough figures for water loss through pipes:

  1. Hong Kong- 33%
  2. Sydney 35%
  3. Philadelphia 30-35%.
  4. Places throughout the state of California: 10-25%.
  5. London: 35%

As you can see by now, climate change, pollution, abuse and ageing water infrastructure are reducing the margins with regards to our water supply. We are not saying that there will be a water disaster soon. But water emergencies may manifest itself in the form of disruptions (e.g. burst pipes), contamination to evacuations, and in the worst case, war (the UN said that the next war in the Middle-East may be over water).

Bottom line: bad for localities, but potentially good for water companies.

What is the key risk faced by China (according to Jimmy Rogers)?

Friday, February 5th, 2010

Jimmy Rogers is a well-known long-term bull on China. He saw the potential of China long before the mainstream investment community even had China on its radar. Therefore, we can presume that he had already invested in China since very long time ago (say, 20 years ago perhaps??).

If you have already invested in China that long ago, the value of your investments would already have grown gigantically by today. In addition, if you hold a really long-term view on China, it does not make sense to sell your long-term investments on China (that you’ve made, say 20 years ago) unless your long-term view on China turns negative. Thus, from this perspective, any talk about impending major economic correction (see Is the Chinese economy a house of cards?) in China should not perturb you too much. On the other hand, if your investments in China are made just a few years ago, you would have missed out a lot on the way up. Consequently, you will be more concerned about any looming down-draft in the Chinese economy.

Jimmy Rogers, in a recent interview, said that he is not worried about any potential “economic hardships, civil wars and even wars” in China. He then told his listeners to look at America in the 19th century, when there were “15 Deflation, a civil war, lots of economic problems, no human rights, riots in the streets and massacres.” Yet “America emerged and became the most successful country in the 20th century.” In his opinion, all these are ‘temporary’ problems that countries can recover from.

But let’s play the devil’s advocate here. These problems are ‘temporary’ in the bigger picture that can span many decades. They can easily last beyond an investor’s lifetime. You will only adopt Roger’s view if your investment horizon is so long that you’re investing no just for yourself, but for the next generation too.

But there’s one potential problem in China that Jimmy Rogers believes will alter his long-term views on that country.


Cities, societies, nations disappear because the “water disappears.” Indeed, China has a serious water problem, especially in the north. To date, China had spent “hundred of billions of dollars” trying to solve their water problem. In other words, if the Chinese does not solve their water, then the “China story is over.” From this, we can tell that Jimmy Rogers is probably influenced by this book, Collapse: How Societies Choose to Fail or Succeed. As that book argues, throughout history, environmental crisis are often the catalysts for the collapse of complex societies all over the world.

So, in future, we will look at water problems from an investor’s perspective.

Can ethanol replace oil?

Wednesday, November 15th, 2006

Recently, due to worries over the prospect of sustained high prices of oil, there had been renewed interest in alternative energies (see our article: Is oil going to be more expensive?) One of the considerations for an alternative to petrol for powering motor vehicles is ethanol.

Indeed, Brazil is a working example on the successful use of ethanol as an alternative fuel. For years, cars in Brazil had been running on ethanol, which are derived from their vast sugarcane crop. In view of this, will there be a day when ethanol supplants petrol as choice of fuel for cars in a mass scale, thus reducing a big source of demand for oil? Before we can answer this question, let us examine what it takes for this to happen.

Ethanol is produced from the conversion of carbon based agricultural feedstock (e.g. sugar cane, corn, sugar beet). Currently, the world does not have a sufficient surplus of agricultural feedstock to produce enough ethanol to supplant petrol. Diverting vast amount of agricultural produce from food consumption to ethanol production is unacceptable?the result will be mass starvation.

In that case, how feasible is it to significantly increase the supply of agricultural feedstock for use in ethanol production? We believe it is not likely to be so. There are too many issues involved. We would not be able to examine every issue, but we will look at two of the most important ones. A commercially viable mass production of agricultural feedstock will require vast amount of land and water. Clearing vast tracts of fertile land (assuming that such land are available in the first place) to grow the same type of plants for extended period of time for this purpose will bring about its own environmental and agricultural issues. The next significant challenge will be the procurement of vast amount of potable and agriculturally-suitable water, which is a major issue in many parts of the world. In Australia, the naturally dry continent made worse by the drought is a case in point.

With these factors in mind, although ethanol will have its limited role to play in the world?s energy problems, we are not confident of it supplanting petrol in a mass-scale in the foreseeable future.