While the prices of various commodities, such as oil and corn, have steadily risen over the last year, many people in the developed world tend to ignore water. After all, when you can get all the water you need from turning on the tap in their kitchen, the severity of the global water crunch doesn't even factor into your daily life. However, for much of the world, water represents a major problem. Supply shortages, insufficient distribution, pollution and the lack of treatment systems are all major causes for concern. Add these current woes to the rapidly expanding global population and the water problem takes an alarming twist.

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A Thirsty World
According to the World Bank, annual water usage has expanded twice as fast as the global population, averaging 2.5% to 3.0% per year, causing water demand to double approximately every 21 years. Over the coming decades, this demand will only increase, as more countries develop and mature. This voracious demand is already having some nasty side effects. The U.N. Food and Agricultural Organization (FAO) estimates that, by 2025, over 1.8 billion people will live in regions with absolute water scarcity, and two-thirds of the global population will be under what the agency calls "water stress conditions". The FAO predicts that water and food will be the driver for major conflicts going forward. Nations like Botswana, Bulgaria and Syria already receive the majority of their water from rivers that flow across the borders of hostile neighbors. China, which is estimated to have its own 53 trillion gallon shortfall by 2030, has been constructing dams on many of its tributaries which supply the supply the lion's share of water to India, Cambodia and Vietnam.

But the water crisis is not just affecting the emerging world. The U.S. Environmental Protection Agency (EPA) predicts the United States will need to spend $277 billion on water infrastructure by 2020 in order to just maintain present standards. In Australia, a decade-long drought has crippled the nation's wheat output and has intensified conflicts between farmers and miners. The mining industry in Australia is the largest user of water, accounting for 27% of the countries scarce supply. Modern London still operates using a water system that has various elements and pipes over 100 years old, causing billions of dollars worth of lost water due to blowouts and leaks.

Getting Liquid
This crisis level of supply and demand imbalance will have to be met with major public and private investment over the next few years. Some analyst estimates put total needed worldwide water investment at more than $800 billion over the next decade alone. For investors, this represents a portfolio opportunity. Funds like the PowerShares Water Resources (NYSE:PHO) and Guggenheim S&P Global Water Index (NYSE:CGW) make ideal portfolio additions as a general overview to the sector. However, there are plenty of other individual choices. Here are a few picks.

Moving all of that water from one location to another will require a vast array of pumps, valves and pipelines. Providing all of those pumps is Flowserve (NYSE:FLS). The company has managed to double operating earnings per share each year from 2004 to 2008. Flowserve should benefit from the increase in new water plant construction. Similarly, Northwest Pipe (NYSE:NWPX) specializes in large-diameter steel pipeline systems used in municipality drinking water plants, hydroelectric power plants and wastewater treatment facilities.

Much of the world's water supply is underpriced because it's unmetered. It's one of the only commodities that end users don't pay more for using more. Both Badger Meter (NYSE:BMI) and Itron (Nasdaq:ITRI) are plays on the growth of the smart-water grid and this increased metering.

Finally, desalination maybe one of the answers on how to close the supply-demand gap. Energy Recovery (Nasdaq:ERII) designs products that allow plants to reduce energy costs up to 60%, and Dow Chemical (NYSE:DOW) provides reverse osmosis elements to various desalination plants in the Caribbean, Spain and the Middle East.

The Bottom Line
While water is currently ignored, it won't be for long. The impending water crisis will result in major investments in the sector. Investors looking to add the sector to a long term portfolio do have some choice either in funds such as the First Trust ISE Water (NYSE:FIW) or individual stocks like Watts Water Technologies (NYSE:WTS). (For related reading, take a look at Water: The Ultimate Commodity.)

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Tickers in this Article: PHO, CGW, FLS, NWPX, BMI, ITRI, ERII, DOW, FIW, WTS

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