Water reuse has overtaken desal. What does it mean?
Published March 24th, 2016
I have been in Jeddah this week for the launch of the National Water Company’s Western Region projects, before coming back to the office to work on some of the forecasts for our new Global Water Market report. The two activities complement each other quite well. The issue I have been working on in terms of forecasts is the relative outlook for desalination versus water reuse. The data suggests that the reuse market probably overtook the desal market in 2014 in terms of new capacity contracted, and that demand for water reuse will stay ahead of demand for desalination for the next seven or eight years. This is in part because of the current weakness of the desalination market (demand for brackish and seawater desal remains around 70% down on the 2007 peak) and in part because of the strength of the reuse market. Getting out into the field helps put a narrative to the data.
I think that what we are seeing in Saudi Arabia – and the rest of the GCC region – is a switch from production being the main driver of investment to water efficiency becoming a more important policy goal. This is happening for a number of reasons. The most obvious is the fall in the oil price: governments want to rein in spending while ensuring that they still have the water they need to grow their economy. A second reason is that even before the oil price fell, the scale of investment that was going into desalination was becoming a source of fear for the future. Governments began to worry that the ever larger proportion of their oil and gas resources which was devoted to water production was fundamentally unsustainable. Increasing the efficiency with which water is being used became the only hope of ensuring that countries were not impoverished by their own success. A third factor has been the maturing of the utility sector in the region. The National Water Company is a case in point. Ten years ago, water distribution was the responsibility of the Ministry of Water and Electricity. Its dusty offices seemed suffused with the lethargy that comes with secure government jobs and low expectations of performance. Today, the Saudi National Water Company must rank as one of the most hyper-active water utilities in the world, surpassing even Singapore in terms of the scale of the projects it has been working on simultaneously. Utilities across the region have become dramatically more professional as populations have grown and service expectations have risen.
The push for greater efficiency in water encompasses a range of different initiatives: tariff reform, leakage reduction, smart metering, and reuse. It is reuse, however, which can generate the most powerful value proposition. Besides reducing the need to invest in new production capacity, it also turns something which is generally a cost centre (i.e. wastewater treatment) into a profit centre (i.e. recycled water sales). In Saudi Arabia it has become a key source of revenue for the National Water Company. The company has developed a fast-growing business selling treated sewage effluent to industrial users such as Aramco and Sabic.
Looking at the global picture, these issues of water efficiency and financial benefit are driving demand for water reuse, but the political dimension is also an important driver. There are two sides to the politics. One is that after the Australian experience, politicians – particularly in America – have become wary of ordering up desalination plants in response to drought. In California, for example, the millennial drought that the state is currently facing has had virtually no impact on the market for seawater desalination. It has, however, had a major impact on demand for water reuse (see GWI’s Water Reuse tracker for details), which seems easier to justify even after the rains return. In fact, political support for reuse during drought conditions is such that indirect potable reuse may be broadly accepted by Californians within five years.
The other side of the politics of reuse is corporate: business water users are discovering that taking municipal wastewater is a low-cost, environmentally friendly and politically advantageous alternative to depleting natural freshwater resources. We are beginning to see industry engaging with the municipal utility sector to explore water resourcing alternatives, while on the other side, utilities are beginning to see the opportunity in reaching out to industrial water users in the way that the National Water Company has in Saudi Arabia.
So if water efficiency and water politics are driving demand for water reuse, how can I be so confident that desalination will make a comeback? One news item I noticed this week was the decision by the Victorian government in Australia to place its first order of water from the Wonthaggi desalination plant. Drought has returned, and there is no alternative. It puts to bed the argument that Australia’s big desal plants are expensive white elephants. Ultimately they are the only drought-proof renewable water resource available in coastal areas. Yes, it is important to drive efficiency across the water cycle, but that alone will not solve the problem. Sooner or later you need new water in the system, and seawater desalination may be the only alternative.