According to the group, Earth Security Initiative, 60% of the coal power plants that China is planning are to be built in water stressed regions of the country even though coal power requires lots of water. Meanwhile, Mosaic (NYSE: MOS ) notes that, "Farmers will need to plant record area and reap record yields year after year in order to meet the projected demand for agricultural commodities" globally. The fight over water between power plants and farms is going to be a big one in China, the world's most populous nation—and you can make money no matter who wins.
Powering a nation
Economic development requires electric power. That's why Peabody Energy (NYSE: BTU ) is projecting around 200 gigawatts worth of coal-fired power stations will be opened in China over the next couple of years as it continues to move up the economic ladder. The international coal giant expects the new power plants to increase coal imports by nearly 25% by 2017.
That's on top of Cameco's (NYSE: CCJ ) estimate that around 30 nuclear power plants are under construction today in China, nearly double the 17 currently providing power to the nation. That puts both companies in good position to benefit. Peabody, for example, recently signed a 50/50 joint venture with China's Shenhua Group to provide the country with thermal coal. Cameco, meanwhile, is working on expanding its uranium production by nearly 60% over the next four or five years to meet expected demand.
Feeding a nation
But giving people power is only one part of the equation. The Earth Security Initiative identifies "land governance, water security, climate security, crop performance, population growth, food security, fiscal stability and energy security" as top level issues that countries need to consider with regard to their resources. It's pretty clear that China's needs are going to be butting against one another.
For example, Mosaic expects demand for meat in Asia to grow by over 60% between the turn of the century and 2030. More meat consumption means more need for crops to feed animals. That's on top of the crops used to feed humans. You can't grow crops, or cows and pigs, without adequate access to land and clean water. But if you build water hungry power plants in water starved regions you may not be able to have energy security, water security, crop performance, and food security...
While the fertilizers that Mosaic sells can help improve productivity, putting the company and competitors like PotashCorp of Saskatchewan (NYSE: POT ) in a good position to grow, increased crop yields can't overcome land and water constraints. There's a big fight brewing, particularly in light of China's increasing concern with the environment.
Maybe try cleaning the sea
There's no easy answer, but it wouldn't be surprising to see trade-offs being made. For example, some of the planned coal plants might get pushed aside by more environmentally friendly, and less water intensive, power sources like solar and wind farms. But the need for power is just too great for a wholesale shift away from coal and big changes aren't likely over Peabody's three year horizon.
A more interesting way to deal with the resource issue may be offered by Consolidated Water's (NASDAQ: CWCO ) desalination project in Indonesia. The project is a demonstration of desalination with the hopes of building a bigger business in the region. It could provide up to 1.5 million gallons of drinkable water a day to Bali. That much water would be a big help in China's water starved regions.
If the energy intensive process works well enough, look for Consolidated Water to target China next. And since competitor Modern Water (NASDAQOTH: MWATF ) recently signed deals for three such water facilities in China, that's not an outlandish notion. Note that Consolidated already operates 13 desalination plants in the Caribbean. This isn't having your cake and eating it too, but it would help to resolve the water issue without undue sacrifice on the energy front.
No win/win for the environment, but financially...
China's need for food and power is so great that Peabody, Cameco, Mosaic, and Potash are all likely to benefit over the long term. That will be true even though it means continued competition for scarce resources like water. However the big winners may be companies that solve the water problem in a different way—like Modern Water and Consolidated Water that take abundant, but unusable water and turn it into drinking water for people and farms.
Water is vitally important but it's not the only battle in China
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