Water is the most essential product of nature, as well as of course, oxygen! Its economic value transcends economics. It is worth more than the most expensive piece of art but its abundance means it can be valued at less than the smallest piece of currency. While many focus right now on the impact of carbon dioxide and how to value this natural element in order to reduce its abundance, we are at risk of taking water for granted.
In all the commentary last week on the problems at Thames Water, London's water supplier, the comments of the company's chairman, the non-salty seadog Sir Adrian Montague, were overlooked.
In the company's annual report he said: "Thames Water, our regulators and the government all bear some responsibility for our current position, with a lack of alignment in goals as well as a regulatory approach that’s prioritised low bills over investment in infrastructure, and is not offering fair returns to attract capital into the sector."
Yes, water has a value. One could easily argue it is widely underpriced in a developed economy such as the UK, say, compared with annual electricity bills. Ofwat, the UK water regulator, has issued its latest five-year regulatory price review for Thames and the rest of the sector. Despite the increases in bills Ofwat is proposing, given the scale of the challenges in the sector, it could be said not to have done enough to fund the required infrastructure.
The picture is clearly muddied by the financial engineering within the UK sector. While Ofwat kept the bills down, the privately owned companies took out massive dividend cheques. And now the same companies are asking for huge increases in bills. Not surprisingly, the case for new investment is being drowned out by calls for the companies to be punished.
What is the value of water? It seems that it is increasing. With the growing emphasis on the environment in societies around the world, the one thing we can all surely agree on is the value of clean water. And we should not be afraid to pay for it. Is that value determined at source, ie, the actual economic value of water itself, or is it simply to be determined by the cost of transporting it? Why not both, in the same way any resource commodity such as oil and gas is priced? Water is too valuable to be simply valued on the basis of its transport cost.
Water has always been a key component of industrial processes. Flour mills were sited on rivers in pre-industrial days, then large-scale thermal and nuclear power stations needed vast amounts of water. Now, in the energy transition age water is needed even more. It facilitates various decarbonisation initiatives such as hydrogen projects, the extraction of lithium for batteries and green steel manufacturing.
The cost of water should be fully priced into a process such as the production of green hydrogen. It is not a free gift from nature. If CO2 is to be priced, so should H20. Of course, there is a cost and a price for desalinating water where it is not abundant, but again, this is the cost of the industrial process, not the commodity itself. If water is to be used for decarbonisation, it should not be taken for granted.
Large-scale water transport projects are emerging to serve the new sectors. Last month, Almar Water Solutions, part of Abdul Latif Jameel, and local Chilean transmission group Transelec, through joint venture Aguas Esperanza, closed a US$1.5bn financing package backing a water conveyancing project connecting the Centinela copper mine in Antofagasta. The scheme will facilitate the expansion of the mine via the second concentrator project, known as Nueva Centinela, which will add 144,000 tonnes of copper, 3,500 tonnes of molybdenum and 130,000 ounces of gold extraction per year.
In Australia, Suez, new Perth-based water developer Legacie, and the Ngarluma Aboriginal Corp are planning a A$5bn (US$3.34bn) desalination plant on the Balla Balla River in the Pilbara region of Western Australia. Offtakers of the desalinated water could be both existing and greenfield mines, industrial projects and local councils or government entities. The project's proximity to the North-West Interconnected System (NWIS) electricity grid offers a pipeline route, facilitating water supplies to key industrial areas and supporting green steel, hydrogen, and minerals processing.
Old-fashioned water transport projects are still troubling the project finance sector. In Saudi Arabia, the next two independent water transport projects are huge. Bids are due on the 605km 650,000m3/day Jubail to Buraydah scheme and costs could be around US$4bn. The request for proposals was issued last week for the next scheme, the 859km, 650,000m3/day Riyadh to Qassim, which could cost US$6bn. Bids are due next week on the £2bn–£3bn Haweswater Aqueduct Resilience Programme PPP concession-style update scheme, which will take water from the UK's Lake District to Manchester.
