Water is essential for energy production—when water risks arise, energy producers around the world feel the impacts. A massive flood in Australia in 2011 reduced its coal export volume, pushing global coal prices higher. Drought in the U.S. Midwest ravaged corn fields in 2012, contributing to higher gasoline prices.
The trend is clear: Regional water concerns are creating significant financial risks, thanks in large part to advanced global commodity trading and energy industries’ high dependence on water. And it’s a trend that is poised to worsen. BP projects a 36 percent increase in global energy consumption by 2030, while the Water Resources Group predicts that in the same amount of time freshwater supplies will fall 40 percent short of total demand globally.
The water–energy nexus is becoming one of the great challenges of our generation—one that also holds significant implications for political leaders and investors alike.