- Water scarcity is emerging as a major constraint for resource industries.
- Satellite data reveals long-term declines in global water storage capacity, especially in dry regions like the U.S. Southwest.
- Water is becoming an investable commodity, with increasing demand from agriculture, industry, and even data centers.
A while ago, in a article about investment opportunities, we concluded that water was the new oil, the commodity that would provide one of the the best returns in the future. A bit hyperbolic, maybe? But there is another aspect of water relevant to resource industries, namely that its scarcity will inhibit or raise costs of resource development, including that of oil and gas.
Take fracking, which made America's petroleum industry great again. It requires large quantities of water. And after the fracking, the drillers have to do something with the frack-produced water, which now contains chemicals and other pollutants. They can reuse some of it for more fracking, but what about the rest? How much treatment will it require to spray on fields, to drink, or to return to the aquifer? How much will treatment cost? The debate on that may, to some, read like something out of Ibsen's "Enemy of the People," a play we suspect is not often produced in the Oil Patch. There is, however, still another issue, beyond polluted water. Many frackers operate in dry regions with diminishing underground water supplies, and that, we suspect, will become a growing issue in the oil business.
But you knew all that. What attracted our attention were two journal articles. One (by Islam, et. al., Science, 14 March 2025) examined the water requirements for the production of 38 minerals. It predicted that water needs for the production of key minerals would exceed sustainable water supplies. In the case of copper, 37% of production is in places where it already "exceeds available water capacity." There is some good news, though. Coal demand will taper off, making its water supplies available. But the bad news is that saving water here is not the same as making water available there, because we can't economically move surplus water from a closed coal mine in Germany to a copper mine in Chile. The article, being focused on resource use, though, does not even consider the voracious water consumption of data centers. You may remember the old song about how the farmer and the cowman should be friends. Nowadays, the farmer and the data center owner won't be friends once they get started arguing about water.
The second article (by Seo, et.al.,Science, 28 March 2025) provides evidence from satellite surveys that, global warming and long droughts have reduced terrestrial water storage and may have irreversibly reduced water storage capacity in the soil. The big decline seems to have begun in 2000. Both articles show most stress or damage in the American Southwest, and over parts of the Ogallala Aquifer. In other words, the Oil Patch. If these studies are even half correct, water will become increasingly scarce in those regions for purposes other agriculture and human consumption.
This brings us back to our original bullish investment thesis on water. A rising population needs more of the product. The industry, to maintain operations or grow, needs more products. Supply of product remains steady, globally, but pollution and changing climate make the available supply less dependable on a regional basis. On the plus side, nobody claims that the product is destroying the world, shadowy foreign cartels do not control its price, and nobody, so far, has cried "hoax" when shortages require action. The American Society of Civil Engineers said that water-related spending in the USA was way below what was required, and they made their estimate several years before this new information came along. Our conclusion: if you need water to operate, don't take it for granted that you can get it, and if you have the money and the assets (expertise in hydrology, geology, construction, pipelines, operation of large installations, and capital for long term investment) move in before the action. Drill, baby, drill. But for what?
By Leonard Hyman and William Tilles for Oilprice.com