Smart Investing Daily has been banging the drum on global food inflation issues and shortages. The skyrocketing prices of foodstuffs driven by consumption and a weak U.S. dollar are wreaking havoc on the living expenses of the average consumer around the world; you can read our commentary here.
Energy prices, namely crude oil, are also at record levels, further exacerbating global cost-of-living expenses in both the goods and services that we buy -- as well as food. Interesting enough, one of the "solutions" to our energy problem may in fact seriously endanger our most precious commodity of all, WATER.
Water, Water Everywhere, but Only a Small Amount to Drink...
I find it fascinating that we can trade just about anything these days. You can bet on the rise and fall of the prices of everything from corn to oil, electricity, soybeans, natural gas, timber and even pork bellies. Heck, if you wanted to you can even make investments in the weather and the amount of rainfall in a certain period of time. (Farmers may use these sorts of investment vehicles to protect their crop prices and yields.)
But you can't trade water on an exchange...
The human body is composed of over 70% water. Water is even more essential than food for our basic survival. In fact, you can only live about three to five days without water; however, there is evidence to prove that a healthy adult can last 30 to 40 days without food!
Water is so necessary, but potable water is NOT a tradable commodity like oil nor is its scarcity the topic of many headlines. All life on Earth needs water to survive and grow; we don't "need" oil.
Maybe we take it for granted because nature gives us a "free" supply in the form of rain, glacial runoff and underground aquifers that don't require much to tap into. But what if that supply becomes tainted?
Water covers about 70% of the Earth's surface, most of it being salt. Freshwater is available, but very limited in comparison, especially in certain areas... and not all of it is drinkable. Fresh water is found in a few places on Earth:
- Ground sources such as groundwater, hyporheic zones and aquifers make up about 1.6% of the total water found on Earth.
- Precipitation, which includes rain, hail, snow, fog, etc., equals about .001% of total water on Earth.
- Surface water such as rivers, streams, glaciers is about 3%.
Less than 5% of our total water supply is fresh water. Now there are some new technologies that are changing that. We can also get clean fresh water through desalinization. A Jan. 17, 2008, article in The Wall Street Journal stated that "Worldwide, 13,080 desalination plants produce more than 12 billion gallons of water a day."
While that may seem like there is a large amount of drinking water available, consider the facts:
- The average human needs about two quarts per day of drinking water to survive.
- The World Bank estimates the global population to be about 6,775,235,741.(As of the end of 2009.)
- This means that we need to consume at least 13.5 billion quarts of water daily, which is the equivalent of 81 million barrels a day. (Oil barrels, fluid barrels would be even more.)
According to the CIA, the world consumes over 96 million barrels of oil per day -- just a bit higher than the bare minimum drinking water humans on Earth need to survive. The reality is that it takes about3,000 liters of water, converted from liquid to vapor, to produce enough food to satisfy one person's daily dietary needs, not including all the other things we use water for (showers, toilets, etc).
Using those figures, our daily demand is more like 121 BILLION BARRELS per day, which dwarfs the amount of daily oil usage. That is a serious commodity.
Energy Meets the Ecosystem
I hope these numbers have your head spinning, because they should. Our dietary and health dependency on water is of major importance and it's no minor resource. I imagine that desalinization and water treatment companies will be excellent long-term investments.
But that is not the only story here. Our problem is expensive oil! Alternative energy and exploration for oil and natural gas is front and center. Politicians are looking for anything to get the cost of energy down and/or to reduce our dependence on fossil fuels.
With the U.S. consumer under pressure and our government scrambling to cut costs and boost the economy, I am worried that some methods used to extract crude oil and natural gas that are potentially unsafe may get rubber-stamp approval with cutbacks and unaffordable energy prices.
One method is even using water (though not potable water) to extract more oil and natural gas from hard-to-reach places like rock and shale, deep underground.
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Hydraulic Fracturing (aka "Fracking")
I'm talking about Hydraulic Fracturing. Essentially, it's like setting off a huge explosion of water, sand and chemicals deep underground, which creates fractures in the rock and allows the oil and natural gas to be collected. The sand (or other particulate) fills in the fractures and prevents them from closing when the injection process stops. The oil and natural gas can pass through and be collected from the wellhead.
The method has been around since 1903, and first used for oil and gas wells in the U.S. in 1947. It was first used commercially by Halliburton (HAL:NYSE) in 1949.
The problem lies with the chemicals used in the process and their potential effects both underground, on the surface and even in gases escaping into the air. Combustible and carcinogenic contaminants can infiltrate ground water reserves, soil, foods and even lead to seismic events and cause surface subsidence.
There have been several major incidents recently in both Pennsylvania and Texas where chemicals escaped into groundwater supplies and into the atmosphere and forest areas. In Pennsylvania, all drilling by Cabot Oil and Gas was halted in the state after several contamination incidents caused by fracking. In 2009, in Cleburne, Texas (not to far from where I live), there were earthquakes that were believed to be caused by this process. They were the first earthquakes reported in the town's 140-year history.
The EPA is currently conducting a study to examine the effects of fracking, the results of which will not be released until 2014.
The biggest issue I see is the lack of publicity this topic has garnished. Even worse would be big oil companies getting to contaminate our most important natural resource without recourse. There are arguments on both sides of course; the oil companies claim that there are no documented proven cases where hydraulic fracturing contaminated ground water. They are also citing the amount of revenue, jobs and reduced energy costs that come from drilling and the fracking process.
As much as I want cheap energy sources and jobs in the U.S. and around the world, sacrificing our limited and diminishing water supply and creating potential instability in the ground's surface is just not worth it. Budget cuts and greed may be our worst enemy right now as we await the results of the EPA study. Even after that, I am unsure what, if anything, the government will do to restrict the fracking process if it is indeed proved to be dangerous.
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