The Other Grid Below Our Feet

The World Bank estimates that 25-30% of all the water flowing through our complex water infrastructure is lost due to leaking pipes, values and joints. This represents a $20 billion annual loss for water utilities, consumers and municipalities. While climate shift and global droughts are a macro problem, the micro problem exists with the aging of our water grid. More than 50% of the water infrastructure in London, for example, is more than 100 years old. The United States alone loses 6 billion gallons of water each day according to the Environmental Protection Agency. And the American Water Works Association estimates that each year the U.S. averages a hundred pipe bursts per thousand miles of pipeline. IN PICTURES: 9 Ways To Use A Tax Refund

Highlighting a Global Problem
These are just a few of the examples of the growing global problem with respect to the lack of investment in our planets water infrastructure. More stress is being placed on the 1% of the world's water that is available for human use. The planets population continues to grow by an estimated 80 million people a year. This roughly translates into an increased demand of about 64 billion cubic meters a year worth of clean fresh water. By the time 2030 rolls around, 47% of the world's population will be living in areas considered under high water stress.

While majority of the current shortages fall within the Middle East, Australia and the Southern Hemisphere, the problems are moving into more developed nations. California's Sierra Nevada snow pack is 57% below normal and its Shasta Lake reservoir is only at 42% of capacity. Residents in the state have been asked to reduce their water usage by nearly 20%. Water managers across 36 states anticipate severe water shortages by 2013.

Tapping the Spigot for Portfolio Plays
While, over the short term, we can ignore the problems, over the longer term, improvements must be made. An investment in the PowerShares Water Resources ETF (NYSE:PHO), which holds companies such as Veolia (NYSE:VE) and pump maker Flowserve (NYSE:FLS), make sense for as broad overarching play on the theme. However, there are plenty of other individual stocks that could find homes in portfolios as a way to tap into blue gold.

Currently, agriculture accounts for about 69% of global water consumption. In emerging nations like China, about 13% of total farmland experiences some form of drought-like conditions, and water conservation is becoming increasing important. Lindsay Corporation (NYSE:LNN) manufactures sophisticated irrigation systems that allow for water conservation, energy savings and labor reductions. While the company has stumbled in the recent quarter, the long-term demands for its products are almost assured.

Water authorities are almost blind to their grids, until there is a major problem or leak. Infrastructure software giant Telvent's (Nasdaq:TLVT) products control more than 60% of all the gas and oil moving through pipelines in the Western Hemisphere. This includes leak detection applications. Applying, its expertise to the water grid is almost a no brainer and could help create the "Smart-Water Grid".

Replacing aging and cracked pipes in urban settings is a major challenge for city planners and developers. Everyone has experienced the headache of sitting in traffic. Insituform Technologies (Nasdaq:INSU) has developed proprietary trenchless pipe laying techniques that reduce damage to the surface roads and ground. The company has been raking in the stimulus cash, and 2009 earnings came in well ahead of previous years.

The Bottom Line
As populations continue to increase, the global demand for clean fresh water will also skyrocket. Our aging outdated water infrastructure is hitting the point where it will need to be replaced. Investors with long-term timelines can take advantage of this with investments in a broad based fund such as Claymore S&P Global Water (NYSE:CGW) or any of the previously mentioned stocks. (For related reading, take a look at Water: The Ultimate Commodity.)

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