Peak Water

Peak Water:Running Out of Water?
A Daily Reckoning White Paper Report
By Mike Shedlock

Not only arerisk preferences such that people are willing to speculate heavily on home price appreciation, they also seem willing to take a gamble on water supplies at the same time.

Please consider Vegas builder’s Mohave County plan stirs worries:

“If Arizona lawmakers want a reason to rethink the state’s rural water laws, Earl Kemp figures he’s stuck dead center in the middle of Exhibit A.

“Kemp watches daily as earth-moving equipment rumbles past his home in rural Golden Valley, near Kingman, pushing aside dirt and desert scrub as a Las Vegas developer prepares to build the first of more than 130,000 homes. It’s an eye-popping plan that, when the final shingle is nailed in 20 or 30 years, will leave behind a city the size of Mesa in a 40-mile radius.

“The developer, Jim Rhodes, assembled ample land and promised to build roads, parks, schools, and shopping centers. What he couldn’t promise, not with certainty, was that he could provide enough water for all the people, a failing Kemp thought would doom the project.

“‘There’s no water out here to begin with,’ said Kemp, who pays to have water hauled in because he can’t hook up to one of the few small systems that serve Golden Valley. ‘We’re depleting the aquifer day by day as it is. The native plants are dying. Everything’s disappearing before our eyes because it’s so dry.’

“But water worries haven’t derailed the project. The Mohave County Board of Supervisors approved all but one of Rhodes’ subdivisions in early December, and the fifth was hung up on land issues, not water. The Arizona Department of Water Resources has yet to finish its assessment of whether the area has adequate water to sustain nearly 400,000 people.

“Even if the state finds the water supply inadequate — that’s what appears likely unless the builder’s engineers can shore up their studies — Rhodes can keep building. While developers must prove they have a 100-year assured water supply in Phoenix, Tucson, and Prescott, they face no such regulation in rural Arizona and, under the law, can build even if the state rules their supply is inadequate.

Peak Water: Caveat Emptor?

“Rep. Tom O’Halleran, R-Sedona, has filed bills in the Legislature that would force developers to disclose more information about water to buyers and grant cities and counties the authority to reject subdivisions that lack adequate water supplies.

“But those bills don’t have widespread support in rural Arizona, where elected officials resist state interference even as they complain about growing pains and dwindling water supplies. Many officials worry about losing revenue if growth slows…

“Mohave County officials don’t deny that they are missing some information about water supplies, but they insist they are only following the law. They angered opponents of the subdivisions when they said state law prevented them from rejecting proposals solely because the builders couldn’t guarantee water supplies…

“A Vegas suburb?

“Bill Abbott hasn’t conducted any engineering studies, but he can offer firsthand evidence that it isn’t easy to maintain water in the arid valleys outside Kingman. He and his wife kept a few horses on their small spread and lived for years off two wells.

“Then the wells started to slow and before long, they’d nearly gone dry. Abbott had to start hauling water and wound up selling his horses. He worries now about selling so many new homes without assurances that the water will hold out.

“‘When I see my wells going dry, when I see my horse trough going dry, I don’t go out and buy more horses,’ he said.”

It’s a lovely situation, isn’t it?

• Wells going dry
• The Arizona Department of Water cannot certify there is enough water.
• Some people in the county already have to pay to have water hauled in.
• 130,000 homes are approved; water or not, here they come.
• All officials worry about is losing revenue if growth slows.
• They are depleting the aquifer day by day and the native plants are dying.

Peak Water:The Southwest today, the rest of the US tomorrow?

I asked a friend of mine who is more knowledgeable about the Southwest than I am.
Here are his comments:

“Water is in very short supply in the Southwest region of the United States. The most critical component of being able to build on a piece of land is being able to hook up to the municipal water supply, being given a water meter.

“Many coastal cities north of Santa Barbara have a limited supply of water meters. They are auctioned at prices like $350,000.

“There is more water allocated to each user from the Colorado River than there is water to allocate. As long as some people are willing to sell their water, this isn’t an immediate problem.

“Chevron’s water rights for its DeBeque, Colo., shale oil project are leased, not sold, to the city of Las Vegas for drinking water. How will Las Vegas replace that in the future when Chevron won’t extend the lease?

“When buying property in this region, really examine where the water comes from and whether it is sufficient for long-term supply. Many areas are using ground water that will be used up entirely in just a few decades.

“Despite opposition from the federal government, both New South Wales and Western Australia are building reverse osmosis desalination plants adjoining the ocean. Los Angeles County built a plant like this, which is not currently in operation. I think this is the future, even though it costs 15 times as much — at current energy prices.”

Mohave County, Ariz., could be headed for a real problem. Right now, however, officials are more worried about growth than water. I guess they assume that they haven’t run out of water yet, so they never will. I am looking ahead to the legal problems when someone drills a well, possibly causing another person’s well to run dry. Heck, what happens if they all run dry? Now, perhaps this is not today’s issue, but is it an issue 10 years down the road?

Right, wrong, or indifferent, developers do not seem to care. They were allotted 130,000-plus houses and seem bound and determined to build them. The county is more worried about growth than water, even though the Department of Water Resources has not yet finished its assessment of whether the area has adequate water to sustain the expected growth of nearly 400,000 people.

Peak Water:Is Running Out of Water That Farfetched?

If you think so, consider Scott City.

“Farmers around Scott City pumped with abandon from the underground reservoir called the Ogallala Aquifer in the 1960s, ’70s, and ’80s, raising record wheat, corn, and alfalfa crops, and never once worrying that they might hit ‘E’ on the tank fueling the economy.

“But today, in a withering downtown that no longer has a place for residents to buy shoes or dress clothing, some have likened the situation to a car running out of gas.

“Car dealer Spangler doesn’t buy that analogy.

“‘It’s a little more frightening than that,’ he says.

Just ask farmer Kelly Crist.

“‘If you run out of water for your crops, that’s one thing,’ he says, recalling the day about a decade ago when his well went dry. ‘But when you go to your house and turn the shower on and there is no water, it’s a serious situation.’

“Today, the 46-year-old farmer relies on an 800-foot-deep well that pokes into a deeper but smaller aquifer to fill his toilets, sinks, and bathtub. In his farm fields outside Scott City, he depends solely on what falls from the sky to raise milo. He fears there isn’t enough of a future to lure his children back to land their great-grandfather first tilled in 1890.

“Water levels in the Ogallala, which stretches from Texas to South Dakota, vary in depth, and some communities have decades — or even more than a century — before the water runs out.

“Scott City sits atop a shallow portion of the aquifer. Water experts say that makes it a window into the Plains’ future.

“‘The area around Scott City is beginning to experience what the rest of the region is going to experience if we continue to pump the way we do,’ says Rex Buchanan of the Kansas Geological Survey. ‘If they keep going at the rate they are, it’s not a sustainable lifestyle. Something has to give.’

“Scott City, which now has a population of about 4,000, won’t become a ghost town. There won’t be a violent economic crash, Buchanan says; it will be more like a bumpy landing. The irrigated corn will be swallowed up by dryland grain farms — a much less lucrative enterprise.

“‘We will do what we have to,’ says 49-year-old farmer Jay Wiechman, who still has some water left for irrigation on his farm just north of Scott City.

“Farmer Greg Graff already is. He has a foot in both worlds — half his operation still has adequate irrigation to grow corn, the other half has reverted to dryland farming. He says his pumps used to suck 1,500 gallons per minute out of the ground, but now that’s dropped to between 200 and 300 gallons a minute. It is a pace that keeps the slow-recharging aquifer from depleting even further.

“‘For so many years, nobody thought about this,’ he says of the aquifer depletion. ‘Had we known then what we know now, we would have managed our aquifer differently.'”

For those living near the Great Lakes or where rivers run plentiful, the thought is far from their minds. Unfortunately, it seems far from all minds, even in places where it should be a huge concern.

Building in the desert is easy. Finding water when it runs out will be another story.

Related Articles on Peak Water and other water issues:

Bottoms Up! – 01/05/2006
By Dan Denning “A ‘watershed moment’ has arrived!…Literally. One of the most dynamic and profitable themes for the rest of this decade will be investing in water.”

Blue Gold – 01/03/2006
By Chris Mayer “A gallon of crude oil costs $1.45. A gallon of Evian costs $11.91. This simple observation led one successful investor to assert that oil is undervalued. We see things a little differently…”

Got Gold? – 01/09/2006
by The Mogambo Guru “The Mogambo smiles as he says, ‘Harken to me, my darling dudes and dudettes. Gold! Got gold? Get gold!'”

Related Links on Peak Water and other water issues:
Gillespie Research – John is one of the country’s foremost experts on water investing.
Water-Stocks.com – InvestorIdeas.com – Big ideas for the small cap investor, where smart investors and industry leaders meet to track trends.
BusinessWire.com –  Water is a booming business, according to an English publication Global Water Intelligence.
Yahoo! Finance – Get stock quotes, market news, mortgage rates …At Yahoo! Finance, you get free stock quotes, up to date news, portfolio management resources, international market data, message boards, and mortgage rates.
NASDAQ Trader – NASDAQ Ten most active share volume. Latest trading halts.