Are Investors Mixing Oil and Water?

By David L. Brown

There has been a paradigm floating around for a long time that goes something like this: “Water will be the oil of the 21st century.” I don’t necessarily agree entirely with that; my bet is on food to be the new supreme commodity. But water and food are inextricably connected to the extent that it has been observed that countries that import foreign grain are essentially importing water (see my article “Water Shortages Threaten World with Famine,” posted here on October 3, 2006).

Nonetheless, there is something going on with water that is exemplified by this brief news item from a recent issue of The Economist (October 21, page 9):

The management of RWE, a German utility group, agreed to sell Thames Water, Britain’s biggest water company which it boughtin 2000, to a consortium led by Macquarie Bank for £8 billion ($15 billion) including debt. It is the third announced takeover of a British water company this month. The investment group trying to buy Anglian Water’s parent company raised its stake in the company to fend off potential counterbids.

Fifteen billion dollars is not a sack of chicken feed, and with three deals on water companies in a single month and another acting to fend off buyers in Britain alone, there are apparently some investors who know something about the future value of water. There appears to be a boom in the once little-noted and, yes, boring business of providing ordinary H2O to consumers. Macquarie Bank is an Australian investment bank.

According to, water is a hot investment topic. Writing about the RWE sale of Thames Water, that web site noted today (read it here):

The Bloomberg World Water Index of 12 utilities has gained 39 percent in the past year, outpacing a 19 percent gain for the Morgan Stanley Capital International World Index and a 6.2 percent decline in oil futures in New York. European utility takeovers this year have jumped 22 percent in value to about $185 billion.

In other words, water is doing better than oil in the financial markets, at least. The Bloomberg article included this observation:

“Water is clearly becoming a more obviously crucial area,” said Neil Berlant, managing director of the water group at Los Angeles-based investment-banking firm Seidler Cos., which doesn’t own shares of RWE or Macquarie. “The perceived value is climbing and that offers the prospects for these buyers to have substantial growth in profit.”

We will not even attempt to analyze the thinking behind these investment trends, other than to note that the world’s water resources are rapidly being depleted by the demands of irrigated agriculture, industrial uses, and consumer needs. Perhaps water will indeed play a role in this century similar to that of oil in the last.

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