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I don't think water is an issue, they also use this stuff around pools for safety reasons. I have used it to seal around the engine bay and radiator, lasts no problems, but does go hard and cracks where I have had it directly in contact with the engine itself, not sure if it is the heat or oil or both.
A thin harder skin of polycarb or something like that could be glued to it on the outside, thought it was an idea to consider.
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