'The river has a gun to everybody's heads'...
That's how a member of the local irrigation board described the new reality of California's Imperial Valley.
The valley's 180,000 residents have only one water source – the Colorado River.
That makes it an essential asset... even more so when the region experiences an extreme drought, as was the case in 2022.
The river's main reservoir, Lake Mead, fell to its lowest level since the 1930s. If nothing changed, it would become a "dead pool." Water would stop flowing to the river altogether.
Water preservation – and fair distribution – was top priority. There was just one problem...
The river was controlled by a series of 'little kingdoms'...
And they had first dibs.
It started in 1908 with John Elmore, the poor son of a Missouri preacher. When he first arrived in the valley, he dug ditches to deliver water to homesteaders. Eventually, he acquired enough land to establish the Elmore Desert Ranch.
Over time, other farming families accumulated land. These turned into huge family-owned agribusinesses spanning hundreds of acres in the Imperial Valley.
And with them came the need for enough water to irrigate their crops...
Annual snowmelt kept Lake Mead filled and flowing to the Colorado River for decades. So these farming "kingdoms" were able to monopolize the river's water supply without fear that it would run dry.
Then in 1980, the Supreme Court ruled against restricting the farmers' water rights...
That meant they would receive first access to water – even as the river delivered less and less.
During the drought in 2022, just 20 farming families in the Imperial Valley received one-seventh of the Colorado River's supply through its lower half – amounting to 387 billion gallons.
That's more water than all of Arizona and Nevada get... combined.
This kind of consumption isn't sustainable, especially with only one water source. And legal priority means next to nothing if the source dries up altogether.
In other words, folks need to get smarter about water usage.
ProPublica reports one top family spent about $6 million installing water-efficient sprinklers on 2,000 acres. It remains to be seen what other folks will do... and whether or not it will solve the region's water crisis.
But one thing is certain...
When every gallon matters, the companies that help manage water aren't just nice to have...
They're essential.
Today, this crucial resource is being stretched further than ever.
We can thank AI for that. Regular readers know that AI is creating the biggest energy-demand jump we've seen in decades...
Peak demand has been effectively flat for the past two decades, averaging around 750 gigawatts ("GW")...
But the rise of AI has triggered tremendous growth in demand for energy to power those advanced AI models...
The Federal Energy Regulatory Commission estimates peak energy demand will reach 947 GW by 2029.
That's a 26% jump for a metric that has largely been flat over the past 20 years.
Oil and natural gas are playing a big part in satisfying AI's hunger. This year alone, natural gas production is expected to rise 2%, with 3% growth in 2027... while crude oil production is forecast to reach all-time highs.
That also means we'll need more water.
Water is vital for everything from oil and gas production to data-center cooling...
Producers need it to keep drill bits cool while they bore through the earth. Once wells are drilled, millions of gallons of water help shatter shale rock and extract trapped resources in a process called "fracking."
Operators in the Permian Basin – the largest oil-producing basin in the U.S. – handle more than 22 million barrels of produced water (a byproduct of this energy extraction) each day. That's equal to 924 million gallons.
This figure is expected to rise 39% by 2035. So it's no wonder the Permian midstream water market is expected to reach $101 billion by 2030.
Then there's the data-center side. A single data center can consume 5 million gallons of water per day... or 50,000 people's worth.
Energy demand alone will account for trillions of gallons in additional water usage over the next few years. That's not even accounting for the human element.
It's no wonder we need water-services companies to make the most of our limited supply. If you're looking for an under-the-radar AI play, this is a space to consider today.
Regards,
Joel Litman
May 26, 2026
