there's a slight problem with water sourced fuels. we fight over water enough now. do you really think its going to improve when/if we were using it up as fuel?
(while admittedly we have a massive amount of water, most of it is in a salty solution called ocean. it takes a bit of energy and time to desalinate it. Like petroleum based fuels, we would go after the easiest stuff to get first. Ie pumping fresh water. There's plenty of coal/oil here in the US and Canada but its quite a bit more costly to produce. Now that the liquid stuff is becoming harder to get, prices have gone up and is now making our local sources more feasible to go after.)