Water is essential to human life and has a long history of shortages and strife. Water rights in the American West have always been controversial, giving rise to a quote attributed to Mark Twain, “whiskey’s for drinking, water’s for fighting.”
One of the most common and successful solutions to water shortages is desalination.
On January 28, 2016, Sigma posted a blog, “Water, Water Everywhere….But Not a Drop to Drink”, in conjunction with the dedication of the San Diego County Water Authority’s new desalination plant. Now, some 10 years later, San Diego has plenty of water and is seeking to sell some to nearby areas with continuing water shortages. Actually, doing this is likely to be complicated, but it does speak to the efficacy of desalination.
The value of desalination on a large scale is evident in the Middle East, which accounts for approximately 40% of global desalinated water production. In specific areas, the importance of desalination is much higher. According to the latest data, 70% of Saudi Arabia’s drinking water comes from desalination. In Oman, the figure is 86%, in the UAE it’s 42%, and for Kuwait it’s 90%.
Investors may want to consider that the growing demand for data centers presents an interesting dilemma. Data centers are projected to require large quantities of water and energy. The dilemma comes from the expected large energy requirements for data centers and that approximately 75% of the cost of producing desalinated water is energy.
As of this writing, the Middle East is embroiled in a nasty conflict which, among other adverse consequences, could result in a mutual attack on some desalination facilities. Given the region’s dependence on desalination, this could be catastrophic.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
