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Steep Global Inflation and the Soaring Costs of Water

What Does Oil Have to Do with Water?
The price of petroleum has soared sharply—indeed, it has quadrupled since 2003. A barrel of oil hit the record high price of above U.S.$140 in mid-July 2008. What does oil have to do with water? How does oil price affect water price?

It has been widely reported in the mainstream news that the soaring oil prices have affected the pricing of a wide variety of goods consumers purchase: from airline tickets to tires and toiletries, from plastic packaging to computer screens, cell phones, shampoos, and foods. Companies are forced to pass on higher raw materials prices to customers. A major manufacturer, Procter & Gamble, expects to spend an additional U.S.$2 billion on petroleum-based raw materials and commodities in 2008, a doubling of 2007's increase (The New York Times, June 8, 2008).

The price of gasoline was approximately U.S.$1.20 per gallon in 2000. In July 2008, it averaged $4.60 per gallon in California. This rapid rise of oil and gasoline have caused police departments to switch to bikes and horses—and even walking—to save money. For example, in Suwanee, Georgia, U.S.A., Police Chief Jones budgeted approximately U.S.$60,000 for fuel in the fiscal year 2007-2008 that ended in June; but the department spent U.S.$94,000. This year, he budgeted U.S.$163,000 for gasoline in a total budget of U.S.$3.8 million. So he orders his policemen to walk instead of drive (The New York Times, July 20, 2008). It is widely known that in 2008 Americans are driving less and less and switching to more fuel-efficient vehicles. This rapid fuel price increase has permeated to all sectors of the economy and affected every industry, including the water industry.

For water companies—municipal water and sewage-treatment utilities, and private bottled-water vendors—and their customers, water prices have risen as a result of skyrocketing fuel and chemicals prices. For example, in May and June 2008, the Dow Chemical Company announced two large price increases within a month—the first, a 20% increase in late May, and the second, another 25% price hike in June 2008. Energy and chemicals are used extensively in water and sewage treatment.

How do soaring commodities prices worldwide affect the water you drink and the water you flush down the toilet? What does a global surge in oil and energy prices mean for bottled water you drink and the empty bottles you dispose?

Dow Chemical Raised Prices by 20% in May 2008
In late May 2008, the Dow Chemical Company, a U.S.$50-billion-a-year company, announced that it would raise the prices of its chemicals by nearly 20% immediately to offset the soaring cost of energy. Dow Chemical said that it spent U.S.$8 billion on its raw materials—energy and hydrocarbon-based feedstock—in 2002, but this amount quadrupled to U.S.$32 billion in 2008 (The Associated Press, published in the New York Times on May 29, 2008). The company's feedstock and energy costs rose by more than 40% within one year (from mid-2007 to mid-2008). Dow Chemical makes a wide diversity of products from chemicals (industrial, agricultural, domestic) to plastics, industrial lubricants, and building materials.

Analysts have called this price increase "the trickle-down effect of the high price of oil." Dow Chemical Company manufactures and sells 3,100 products, and all of these products are affected by the skyrocketing oil price. Indeed, these analysts wrote that while most people focused on the surging gasoline and diesel prices, "increased costs for the tens of thousands of other products made from petroleum are now seeping into the rest of the economy" (The Sacramento Bee, June 3, 2008).

Second Time in a Month: Dow Chemical Hiked Its Prices by Another 25% in June 2008
Less than a month after its initial 20% price increase for 3,100 products, Dow Chemical Company announced in late June 2008 again that it would raise prices by another 25%, plus freight surcharges and reducing production in plants across North America and Europe to offset a "relentless rise" in energy costs. Dow Chemical will impose shipping surcharges of U.S.$300 a truck shipment and U.S.$600 a rail shipment beginning August 1, 2008, in the United States (The New York Times, June 25, 2008). Dow said that until its first price hike in May 2008, the higher feedstock and raw-materials prices had been largely absorbed by company profits. But with continued surge in oil and natural gas, the company could no longer absorb the high raw-materials prices and thus had to pass the higher costs to customers.

Global Inflation in Chemicals and Water-Treatment Costs
Since Dow Chemical raised its prices twice in a month from May to June 2008, many users of its products will feel the shock as well. Dow manufactures everything from propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals, to acrylic, acid-based products used in detergents, drinking-water and wastewater-treatment, and disposable diapers. Dow's 3,100 products are sold in 160 countries and used to make paints, textiles, glass, packaging, and cars. Other manufacturers are following Dow's example and have begun raising their prices.

Naturally, when energy prices (i.e., petroleum and natural gas) rise, Dow Chemical and other chemical manufacturers that use hydrocarbon as feedstock have to raise their prices as well. Consequently, the users of products manufactured by these chemical companies also will face price hikes. After this chain of price raises, in the end, it is consumers who will have to pay higher prices for everything. For example, a small dry-cleaning shop in Sacramento, California, experienced price increases of nearly 50% of dry-cleaning fluid, detergents, electricity and utilities, and plastic bags within just a few months in 2008 (Sacramento Bee, June 3, 2008). The Sacramento Bee cited that a 30-pound roll of the plastic bags used to cover clean garments has increased from U.S.$22.50 to more than U.S.$35.

Consumers will pay higher prices for drinking-water and wastewater-treatment (sewage) fees. In the first half of 2008, many municipal water and sewage utilities have raised fees in the United States and elsewhere throughout the world—again, due to soaring prices of energy and chemicals used in drinking-water and wastewater treatment.

Chemicals Used in Water Utilities' Water Treatment
Water utilities use several inorganic chemicals in drinking-water treatment and water recycling (of treated effluent from sewage-treatment plants), as follows (Newnan et al., 1995):

  • Activated carbon—Reduction of taste and odor
  • Aluminum sulfate—Coagulation of impurities in water
  • Ammonia—Disinfection and reduction of chloramines
  • Ammonia fluorosilicate—Fluoridation
  • Calcium carbonate—Corrosion control
  • Calcium fluoride—Fluoridation
  • Calcium hypochlorite—Disinfection
  • Calcium oxide—Softening of water
  • Carbon dioxide—Recarbonation
  • Chlorine—Disinfection
  • Chlorine dioxide—Reduction of taste and odor
  • Ferric chloride—Coagulation and settling of impurities
  • Ferric hydroxide—Coagulation and settling of impurities
  • Fluorosilic acid—Fluoridation
  • Oxygen—Water aeration
  • Sodium bicarbonate—pH adjustment
  • Sodium carbonate—Softening of water
  • Sodium hydroxide—pH adjustment
  • Sodium hypochlorite—Disinfection
  • Sodium fluorosilicate—Fluoridation

Manufacturing these chemicals is an energy-intensive process. With skyrocketing prices of oil and natural gas, there is a price hike in these inorganic chemicals used in water treatment.

These chemicals do not include the organic polymers used in sewage treatment. For example, lower-molecular-weight polymers are intended to replace alum (aluminum sulfate). The higher-molecular-weight polymers are also used in settling of effluent by bring about the formation of larger particles. The polymers are charged and can be cationic (positively charged), anionic (negatively charged), or nonionic (no charge). These polymers—many of which are petroleum-derived—used in sewage treatment are also manufactured by Dow and other chemical companies. With energy costs soaring, these polymers' prices are also rising as well.

Municipal Water and Sewage-Treatment Utilities Hiked Fees in 2008
As a result of global inflation in energy and commodities (i.e., treatment chemicals) prices relating to drinking-water and sewage treatment, many utilities in the United States announced price hikes in 2008. According to the Municipal Cost Index (MCI), developed by the trade publication, American City and County, the index is designed to show the effects of inflation on the cost of providing municipal services. As of April 2008 the index rose by 5.4% percent over 2007. Some water utilities have been hit with a doubling (a 100%) in treatment chemical prices and must pass that cost to their customers. Here is a snapshot of what some utilities are doing to hike water-utility fees:

  • In Murfreesboro, Tennessee, water utilities have proposed price hikes for water and sewer fees: The water rate will remain at $2.74 per 100 cubic feet; the sewer rate is 100% of the water rate plus $0.70 per 100 cubic feet or $3.44 per 100 cubic feet. For the 2008/2009 fiscal year, the minimum charge to the water customer is recommended to remain at $8.22. But the allowance of water for this amount will be reduced from 300 cubic feet to 200 cubic feet per month and additional charges would result from anything above that. The sewer minimum charge will be increased by $1 from $8.22 to $9.22 but the usage allowance will also be reduced from 300 to 200 like the water usage allowance (The Murfreesboro Post, June 2, 2008).

    The reasons for the price increases? A 10% increase in power cost and fuel costs, plus a 100% rise in chemical costs. (The utilities' operating cost only increased by some 5%.) The water utility said that its costs of chemicals for water and sewage treatment are expected to double for 2008—in addition, a new treatment process of membrane filtration is due to begin in 2009, and the utility will be required to purchase new chemicals for cleaning membrane filters. The utility will be short of $680,000 (The Murfreesboro Post, June 2, 2008).

  • In Louisville, Kentucky, and southern Indiana, the costs of drinking water and sewage treatment are projected to rise by at least 5% and maybe more. The water utility's manager cited the "increasing cost of fuel and chemicals to treat water" as the driving forces of rises in water price. This year's tentatively proposed combined cost increase was 6.5%. The Louisville Water Co. and the Metropolitan Sewer District have announced proposed rate increases of approximately 5% for their 2009 budgets. Last year's water fees increased by 33% was worse than next year's proposed 5% increase (Courier-Journal, June 6, 2008).

  • In Holland, Michigan, residents' sewer rates went up 5% on May 1, 2008, will go up another 5% in November 2008, and are expected to rise by another 5% in May 2009. Most of those increases reflect the increased cost of chemicals and fuel. The sewage plant serves 75,000 customers and processes about 9 million gallons of sewage daily (The Grand Rapids Press, June 15, 2008).

The Skyrocketing Prices of Bottled Water
In the steep global commodities inflation, bottled water's prices must go up as well. We can analyze and account for the component of bottled water's prices, as follows:

  • The soaring price of oil—Oil is the key ingredient in plastic bottles and it is the fuel that transport trucks must use to operate. When the price of oil rises, everything associated with oil also rises as well.
  • The plastic bottles of bottled water—Plastics are made from petroleum. When a barrel of oil goes up in the global commodities market, the price of plastics also increases as well.
  • The transportation of bottled water—It takes a lot of trucking fuel to transport bottled water around the world. When diesel prices surge, trucking and shipping prices increase naturally.
  • The filtration and disinfection of water in bottled water—Energy prices increase, so the filtration cost (using reverse osmosis) and disinfection (using ultraviolet light) costs also go up as well. Parts of filtration membranes are made of hydrocarbon feedstock, and chemicals are required to clean the membrane filters at regular intervals.
  • Labor cost—The truckers and deliverymen who drive the water-delivery trucks, the clerks in the supermarkets where you purchase that bottled water, and the workers who separate your plastic bottles from other recyclables in the transfer facilities, etc.
  • Disposal or recycling of used water bottles—The municipal diesel-operated garbage trucks pick up your empty water bottles and other household trash from your curbside garbage bins if you don't separate and recycle the empty bottles. You pay for the diesel, other trucking costs (e.g., insurance, truck maintenance), labor costs of truck drivers and operators of landfills, landfill costs, and other related disposal costs. If you separate your empty water bottles from other garbage and place the bottles in the recycling bin, then there are the pickup costs well: the municipal recycling trucks that must pick up your empty water bottles, the workers who separate plastics from other recyclables in the garbage-transfer facilities, the trucking costs associated with transporting the crushed plastic bottles to new manufacturing facilities to be recycled.

In general, it is environmentally and financially costly to drink bottled water. With global commodities inflation, drinking bottled water just gets more expensive.

Avoid Bottled Water, or Better Yet, Save Money by Bottling Your Own Filtered Water at Home
How do you save money in this recessionary economy in which prices of major commodities from food to fuel are soaring rapidly? One way to save money is by ditching conventionally bottled water altogether (that is, those single-use plastic-bottled water sold in markets). The best cost-saving strategy is to bottle your own filtered water at home by using your own reverse-osmosis (R.O.) system. By using reusable glass or stainless-steel bottles, you eliminate the wastage associated with disposable, single-use plastic bottles. While it costs as much as U.S.$1 per 16-ounce bottle to buy from vending machines, if you bottle your own 16-ounce bottle of water using reusable glass or stainless steel bottles, it costs less than 1 cent per bottle.

We have previously recommended that readers avoid plastics for their food and water containers. In this economic recession, it appears that avoiding single-use plastic bottles makes great economic sense as well: reusable glass and stainless-steel bottles can save money in the long run for yourself and for your community.

Photographs: Bottled water is costly to produce, costly to transport, and costly to dispose. With global inflation in oil and other commodities, drinking bottled water gets even more expensive. (Photo credit: APEC/Freedrinkingwater.com staff)

 

References
The Associated Press. May 29, 2008. "Citing high energy costs, Dow raises prices." Published in the New York Times.

The Murfreesboro Post. June 2, 2008. "Murfreesboro Water bills may increase," by TMP staff.

Sacramento Bee. June 3, 2008. "Sacramento dry cleaner among those feeling oil price pinch," by Jim Downing.

Courier-Journal. June 6, 2008. "Louisville water, sewer rates will rise. Both utilities plan increases of about 5%," by Dan Klepal.

The New York Times. June 8, 2008. "Oil prices raise cost of making a range of goods," by Louis Uchitelle.

The Grand Rapids Press. June 15, 2008. "Sewer bills grow with the flow," by Jim Harger.

The New York Times. June 25, 2008. "Dow Chemical raises prices another 25%," by Abha Bhattarai.

The New York Times. July 20, 2008. "As gas prices rise, police turn to foot patrols," by Shaila Dewan.

Donald G. Newnan (editor), Braja M. Das, Bruce E. Larock, Robert W. Stokes, Alan Williams, and Kenneth J. Williamson. 1995. Civil Engineering License Review, 12th Edition. San Jose, California: Engineering Press.