Interview of Ron Whitfield on global water industry headwinds.

Interview Transcript

What are the key issues in global sustainable water usage?

There are six key issues in sustainable water use, as I see it. The first is population growth worldwide. We're going to soon be 9 billion people worldwide, and more people require more water.

The second key issue is urbanization. We're moving from agricultural occupations in many parts of the world to city dwellers, particularly in the Asian region, and more city dwellers require more water delivered to their homes.

The third key issue is industrialization. We have more and more industries developing, particularly in Asia. Industry requires water. Energy industries, chemical industries, electronics industries-all have major needs for water.

The fourth key issue is infrastructure. Infrastructure is pipes, tubes, ways to convey water from reservoirs and rivers to the people who need the water.

The fifth key issue is contamination. The more water we use that's fresh, particularly in industry, it sometimes gets contaminated with unwanted either pathogens or chemicals that require cleaning up.

And the last issue is capital availability. Water is a very cheap commodity, but it's a very expensive commodity when you need to clean it up and deliver it as a fresh water supply to the customers.

Those are the six major issues, as I see it, in the water industry worldwide.

What are the water issues for industrial users?

Industrial users are having some real challenges and opportunities going forward. In the Texas region, for example, they've had a drought for about four years. Now that's recently been abated somewhat by rainfall, but still they're very stressed.

So, industrial users have been particularly challenged, because, one, population growth in Texas has grown at one of the fastest rates in the country, largely driven by the energy boom with cheap natural gas from the shale gale revolution. The shale gale revolution has spawned many other investments and ancillary industries like chemicals, electronics, and aluminum manufacture.

The other reason that Texas is challenged is that the aquifers are particularly saline. They have salt, and there's a need to either remove the salt so it's usable by industry and domestic users-as well as agriculture is stressed because they have a lot of cattle and cotton and other crops. So, those are the competing sectors in Texas for wanting the water, and there's been a price disparity between the price of water in the aquifer, the scarcity of water and, of course, the willingness of customers to pay for water.

The other challenges in Texas have been regulatory and legal. Water in Texas is considered a private good if you pump it above ground from your aquifer under your property. That has created some issues about who owns it, how do you get it, how do you allocate it and, of course, the price.

How can companies ensure water resources are sustainable in the long term?

One of the biggest ways to make water more sustainable in the long term is to set what I call "the true cost of water" to equal to the price. Now that's never been done and it, of course, causes either social challenges as well as political and economic challenges. There are 52,000 water districts in the United States, a very fragmented industry. They're usually publicly owned, publicly maintained. And, of course, there's a capital requirement when you put in new pipes or upgrade old pipes, as we might have in New England or some of the Northern states.

So the real challenge, I think, going forward is a public policy question, which is: how do we set the price of water to be more equal to its true value?

Ron Whitfield is vice president, applied economics, IHS Economics & Country Risk