Water: Expectation of Demand Outstripping Supply and Increasing Volatility
Currently, the world uses 2.1 trillion cubic meters of water every year at 66,245 cubic meters each second. By comparison, the world uses 155 cubic meters of oil a second.
But this gargantuan usage may only be something like 50% of what the world will need.
According to Waterwise, in the UK each person uses approximately 150 litres of water a day in the UK alone. This figure has been growing 1% every year since 1930.
As the world’s population increases, there is less water available on a per capita basis. In the year 2000 there was around 7,800 cubic metres of fresh water available per person for human use (down from 9,000 cubic metres in 1989).
Unlike other commodities, no technological innovation can ever replace water. It is expected that by 2025, there will be only 5,100 cubic metres available per person, when global population is expected to reach 8 billion.
It is an accepted fact that around 25% of the world’s population lack adequate water for drinking and sanitation.
The world is using water at an unsustainable rate. Mexico City, for example, has sunk three meters due to settlement cause by the depletion of ground water stocks, and Asia’s second largest lake – The Aral Sea – is a tenth of the size it was 50 years ago. When you consider it takes 12.25 cubic meters of water to make one hamburger, it is not difficult to see the effect the Western lifestyle is having on water stocks.
It is not unreasonable to assume that with finite supply, increased demand for water could have a very significant, not to say, explosive effect on the water price.
Of course we can desalinate the copious supply of sea water, and though desalination costs have declined 60% in the last 15 years, it is still very costly and a highly energy intensive process.
Therein is one key driver of water’s future marginal cost.
There are around 11,000 desalination facilities in 120 countries worldwide, but these plants only meet 0.26% of world demand.
For all the averaged global statistics, water remains abundant in some parts of the world and non-existent in others. A 20% leak-loss is accepted and indeed planned in developed economies. The four largest utilities in England for example report losing a combined average of 26%, almost 200 litres, per customer, per day, and yet water is so scarce in other parts of the world it threatens life.
The economies of countries such as Kuwait, Malta, Netherlands, Bahrain and Belgium are 80% dependent on water imports. Water infrastructure, pipelines both physical and virtual, cannot begin to be planned and financed on a truly commercial scale without investors knowing the water price and the expectation of future value at both Point A and B.
In organised market terms this means water spot indices covering white, grey, desalinated and other water grades, and a forward curve for each grade in every appropriate country, city or region.
World Water Exchange is designed to facilitate precisely this.
World Water Exchange: the Beginning
Water is, without any doubt, life-essential; but it is a commodity too. It is a commodity which is abundant in certain parts of the world, and virtually non-existent in others. It is a commodity that is criminally wasted and undervalued in some areas and yet so precious and sought after in other regions it is a reason enough to go to war. It is industry’s bulk coolant of choice and itself a power station fuel, and a renewable one at that.
Our planet’s water imbalance and the massive differences in how the “right to water” is considered, will not begin to be corrected until the value of water around the world is transparent and accessible to those who would buy, sell, transport and facilitate both the commodity and the infrastructure that supports it.
Only then can governments, companies and people begin to commercially invest, trade and transport water, as well as invest in water infrastructure, and as a result spread this precious commodity more fairly.
World Water Exchange is the catalyst in the democratisation of water and the creation and modernisation of global water trade.
- Provider of the standardisation of water qualities
- Provider of the indices and benchmarks on which trade will be made and valued
- Provider of the commoditised derivative formats to be used
- Provider of the framework contract agreement governing and standardising physical water trade
- Provider of aggregated water markets news
- Introducer of trades and regional markets to OTC brokers and Futures & Physical Exchanges
Clive Murray founded London Commodity Brokers and played a pivotal role in developing the OTC physically traded coal markets in Europe, South Africa, China and India.
Clive, as CEO of London Dry Bulk, led the charge to move the Iron Ore industry away from an annual bench-marking system and to indexation of physical contracts and a derivative market. LDB brokered the world’s first Iron Ore derivative on SGX as well as the first deals on ICE, CME and LCH.
SGX has traded Iron Ore forwards to a contract value of $400 billion since 2009.
Additionally Clive established London Commodity News, was Head of Weather and Emissions for ICAP, Chief Dealer for De Beers SA & Centenary Luxembourg and CEO of Astley & Pearce South Africa.
World Water Exchange: the Indices
Critical to the democratisation of water and the modernisation of the global market, are the indices and benchmarks used to measure trades, stocks and costs. Using indexation methodologies drawn from the energy, commodities and real estate sectors, WWX owns beta-tested water indices in more than 90 countries.
The methodology used to construct each index is individual to the country but in concept the indices are based on three main approaches:
- Reported physical water trade
- Topped, tailed, and volume weighted, supply/demand balanced Survey
- Derivation and Relative Value
- A combination of the above
In all cases our methodology will be published, and once an iteration of an index is published or otherwise used as a benchmark, no changes to the methodology are permitted.
WWX will produce water indices covering up to 90 countries and regions and cities within.
Licensing the use of WWX Indices
Use of our indices in any physical or derivative trade is open to ANY company, government, entity and person subject to a licence fee that is a modest percentage of the contract value. Our indices are protected by copyright and trademark and misuse is protected by law.
World Water Exchange: Physical, Swap and Option Trading
Ad-hoc, bi-lateral trade in physical water exists already, although its volume is a fraction of the overall market, and what is needed to spread this resource fairly.
Whether it is one UK water company reducing its up-river abstraction so another company can increase its abstraction down-river, or one nation using another’s treatment works to exchange its grey or black water for drinking quality, a traded market in water —such as it is— already exists.
The lack of transparency around such deals makes these transactions interesting and innovative such as they are, but an irrelevance as regards encouraging competition and investment.
Standardised Water Trading
World Water Exchange has conceptualised a standardised suite of physical water trading contract frameworks called SH2OTA, which makes both straightforward and structured physical water trades accessible to all potential counterparties.
Water Trades Registry
Our counterparty-confidential Water Trade Register is a central registry where trades are confidentially recorded and whose price can feed into our indices facilitating price discovery and therefore more entrepreneurial trading and sharing of this precious resource.
Where it is not possible or desirable to trade physical water, it is still possible to increase or decrease risk exposure to water thru the buying and selling of “forward trades”. A water “forward” is simply the on-paper representation of a specific water risk, which itself will facilitate options (the right though not the obligation to own exposure to water risk) in physical water and options on water swaps.