2016 Market Forecast: Dodging Market Strikes

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UPSTREAM OIL

A Time of Price Pressures

John Spears, president, Spears and Associates, had the unhappy task of sharing some negative news on the upstream oil front this year.

“As we were meeting last year, prices were dropping, but nobody expected them to drop as much as they have,” Spears reported.

U.S. oil supplies grew faster than world oil demand in 2013 and 2014 and by the third quarter of 2014, slowed demand in this country combined with these growing supplies was putting a strain on prices.

Meanwhile, “The Saudis were not willing to cut production and lose share. Prices plummeted,” he explained.

In looking ahead at pricing, Spears could be somewhat more positive. He pointed out that: “World oil demand growth has accelerated in response to lower oil prices. At the same time, U.S. oil production growth is slowing.”

Still, OPEC has increased output in the last four months, which means “global oil production will grow in the next year, resulting in continuing low prices,” he said.

Spears expects U.S. oil production to continue to slide for the rest of 2015. Also, despite the Energy Information Association’s forecast of slight U.S. oil production growth for 2016, Spears anticipates negative overall growth. If that occurs: “It will help tighten the market as time goes by.”

He also pointed to another current concern, which is: “How fast and to what extent will Iran’s re-entry affect the market?”

THE GLOBAL PICTURE

China accounts for 37% of the growth in demand, he said, while the Middle East is at 22% and India is at 12%. These three combined account for over 70% of net increase in global oil demand since 2010. This means that even though economic improvements in North America translate into a fairly significant increase in oil demand for 2015 to 2016, the stagnation in China could negate those gains.

Lessening demand in China also is responsible for the other worry for the rest of 2015, which is a cutback in capital markets. Earlier in 2015, producers found an open market, but bankers re-evaluate risks twice a year. Because of lessened demand, “banks will close their lending windows to many of these producers,” said Spears. “That means oil patch operators will have to self-finance every new thing they plan to do.”

The good news is that producers have been proactive in reducing costs. Last year, the break-even price averaged about $60/barrel dependent on location. Above that amount, operators would drill anything. However, price declines mean operators are trying to drill only the best wells and are changing how wells have been drilled to some degree. The result of those efficiencies is that the break-even price has gone down to about $40/barrel, which makes the industry healthier over the long term.

Another factor that could lead to a tightening of the oil market is that surplus production capacity is near an all-time low. “The rate we’re running now is something less than 2% below demand,” said Spears, which means there is about 18 months of spare capacity. He said he believes that the OPEC nations figure it will be U.S. producers that can pick up the slack when needed because those producers have the capability of adding 1 to 2 million barrels per day. Spears warned, however, that increasing or decreasing production according to market is not as smooth as opening a valve. Still, overall, that means the demand picture looks better than a year ago and should continue upward motion; market tightening will take place in the second half of 2016, which might mean a $65/barrel price by then.

FORECAST

• The oil and gas price environment will be challenging through year end 2015, but gradual improvement is expected over the course of the next year as supply growth slows and markets tighten.
• U.S. rig counts are expected to fall 45% in 2015 and another 10% in 2016.
• U.S. oil production will not exceed the second quarter 2015 production peak until after 2016. Oil-related midstream construction will slow sharply this year and next; it will probably be 2018 before this area will get back to peak levels.
• Uncertainty about future prices will diminish upstream investment, which means improvement in North American drilling activity is more likely to occur in the second half of 2016.
• This situation will create headwinds for the valve industry in this area through 2016.

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LNG/NATURAL GAS

Energy Demand Sets the Stage

“The price in Asia was $15 [price per thousand cubic feet or mcf] then, now it is in the $7 to $8 range,” he said. In the U.S., prices are about $2.50 mcf.

“So while the spread is not as large [from world to U.S.], there is still enough difference to support trade. The question is: How much demand will there be, and who will fulfill it? The U.S. is not the only country interested in exporting natural gas,” he said.

Medlock pointed out that one of the biggest drivers of volatility in natural gas is who will need the energy, and who will provide it. On the supply side, oil, natural gas and coal are growing in the developing world, but moderating in North America.

Also, despite a slowing, “shale is not dead,” Medlock said. “But operators have to be smarter about where and how they produce.”

Cost reductions between 25-35% have been implemented partly because of better prices from suppliers. These lowered costs as well as improvements in productivity have moderated the impact of lower prices, Medlock said.

On the demand side, the slope is driven by what’s happening in Asia since energy growth is not about to occur much in developed countries, he noted. “Energy used per unit GDP [gross domestic product] is relatively low in developed countries because most growth comes from the service sector,” he said. That sector doesn’t require as much energy as industries such as manufacturing “so even if there is economic growth, there is not huge growth in power needs,” he added.

Sources of energy also come in and out of favor as the population gains wealth, Medlock pointed out.

For example, “The Chinese use of coal is tapering and flattening out because, as people get wealthier [and their energy demands have been met], air quality gets more important,” he said.

At the other end of the spectrum are developing countries such as Malaysia, Thailand, Myanmar, Laos, Cambodia and Vietnam.

“These are poor countries with tremendous potential due to low labor costs and slack regulations,” said Medlock. “A dramatic growth in manufacturing makes these countries huge consumers of energy.”

Also, while per capita income is still low compared to other areas of the world, it’s growing.

“Even at modest rates of economic growth (4-6% per year), by the 2030s, you will have millions more people moving into the middle class,” he said.

As they do that, they buy stuff and will need more power for gadgets and cars, he said. “This change in needs sets the stage for energy demand to grow.”

As an example, he said India is ­currently about where China was in the mid-1990s in terms of per capita income. Economic growth rates in that country are accelerating at about

6.5-7% growth per year, which creates an increasing appetite for energy. However, the country has a trading partnership with Iran, a relationship that will deepen around energy. This means that Iran, which has the second largest conventional natural gas supply in the world, will be the major competitor with the U.S. for exports of LNG to India.

While many in North America are looking to China as a customer for ­natural gas, that country built 60% of its infrastructure in the last decade. Those power plants are coal-fired, and coal plants are not retired quickly. “Once you build [coal plants], you’re in it for the next 30 to 40 years, so they are not going to stop using coal anytime soon,” noted Medlock. As a result, China won’t be buying huge quantities of natural gas in the immediate future.

FORECAST

• The growth in global LNG trade will occur in multiple locations. The U.S. is viewed as the third largest exporter in the world at just under 7 billion cubic feet per day.
• New consumers will enter the market as global demands increase, with Asia leading the way.
• LNG will become an important “balancing” mechanism in the global gas market moderating global spot prices (and based on transportation costs).
• The next decade will be a buyer’s market. Contracts to buy products at a particular price will remain important to underpin financing, but will be less important for dictating the terms of trade.

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THE CANADIAN OIL SANDS

A Shakeup for Suppliers

In Alberta, “There is a lot of fear. Colleagues and friends in oil sands are more frightened than they were during the recession,” said Martin Brotschul, principal with the company.

The relative strength of the U.S. dollar is adding more stress to the ­situation, because producers buy ­supplies in American dollars, he said. “At 29 cents premium on the dollar, [that] has a huge impact.”

Canada has been the hardest hit as far as the oil sands situation with a double whammy of lower oil prices and a weak Canadian dollar; 75% of all major project cancellations announced are within Canada, and people are focused on producing the choicest assets with the best technologies.

When oil prices were high, there was a proliferation of small exploration and production (E&P) companies, which required much capital. As prices remain low, he expects those smaller companies to be consolidated into the larger companies, which could mean a smaller customer base for valve manufacturers.

He also anticipates that prices will be tested further with the possibility of Iran production coming back into the world market.

Producers who survive this situation will do so by taking action now, he said. His assessment of the situation was:

• A shakeout of smaller, less-well-capitalized companies will occur. Companies with strong balance sheets are seeing this as an opportunity to gain market share and scale, ultimately meaning fewer, larger customers in the market.
• Marginal programs and projects will be mothballed or abandoned. He pointed out there are already more than 17 oil sands projects that have been cancelled. If oil stays below $50/barrel, that number could easily double.
• Producers are cutting back production to only the most profitable wells to manage cash flow. Most companies engaged in cost reduction programs in 2015. Continued softening would mean further contractions and negotiations.

Grant Poeter, specialist leader with Deloitte, says E&P companies also are currently figuring out how they can make their processes and internal cost structures as low and efficient as possible. To accomplish this, they break down what the input costs are from each of their suppliers, including those that supply valves, he said. Because they can’t ask all companies that produce the products they need for an across-the-board percentage cut, they look at the cost structures of each of their suppliers. They then break down, by component, the actual cost for suppliers and ultimately for end users. By driving to this level of information, they have educated conversations on pricing, including indexing to key cost drivers such as materials.

“Users understand that there has to be profit for their suppliers,” Poeter said. But “60-70% of our operators are getting into in-depth analysis of costs of their suppliers and ultimately for their own operations.”

An issue going forward for manufacturers will be how they can respond to “the squeeze,” as Ted Brennan, senior manager at Deloitte, called the situation.

This squeeze has been helped along by a number of market trends in the manufacturing industries. For example, “Commodities are volatile,” Brennan said. Prices increased right up until the economy collapsed in 2008. “Now we have price decreases again as the economy stalls. The second downturn in 15 years means that it is imperative that manufacturers become increasingly sophisticated in managing commodities. It will give them a competitive advantage,” he said.

He suggested manufacturers look at strategies they can put in place now to work with their supply base in the future.

FORECAST

• Low oil prices are likely here to stay: A consensus of analysts and data point to no real improvement for 12 months or more with an upside that would be $70-$80/barrel. No one is predicting a return to $100 anytime soon.
• All operators have conducted cost-cutting programs with mixed results. More will likely follow.

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U.S. AND WORLD ECONOMIES

Growth will Come; but not from China

Three major factors affecting today’s economies are:

• Divergence: “The developed markets are trending up but the emerging markets are trending down,” Mocuta said. “This could actually intensify over the next year. The only big country [among the BRICs—Brazil, Russia, India, China] that looks better today than a year ago is India. Its economy is not worsening, but it is also not really getting better.” There also is a huge discrepancy between emerging markets.
• Disinflation: The downtrend in commodity prices and easing consumer price inflation make Mocuta wonder if consumers are simply getting close to “too much of a good thing,” she said. “They just can’t or don’t buy as much,” she noted. “This is concerning because consumers generally, and the Asian consumer in particular, were supposed to be a big driver to the world economy.”
• Depreciation: Every major economy other than the U.S. has depreciated over the last year and many emerging-market currencies have depreciated sharply. “To a large extent, the dollar is close to its peak and will start weakening over the medium term,” she said. Meanwhile, China has done nothing to its currency over the last year, and the fundamentals in that country are worsening.

“That will have a further effect on demand from Chinese consumers,” she said.

POST-CRISIS ECONOMICS

Mocuta reports that fiscal deficits are decreasing in most countries and household debt is on a better trajectory than recent years. Inflation remains mild, and global current-account imbalances are manageable.

Canada is technically in a recession at this time, thanks in large part to the slump in oil prices, she said. One of the biggest concerns in this country is that foreign investors are buying properties in Canada, which drives up prices for real property.

The fact Asia isn’t doing as well as it did previously creates a risk that this particular source of demand and support will weaken.

Mexico’s economic outlook is optimistic. Constitutional changes are opening Mexico’s oil and gas industries to foreign investment, and global automakers are committing to new capacity in Mexico.

The Eurozone economy is slowly gaining momentum, led by an acceleration in consumer spending. Investment will strengthen as 2015 progresses, helped by rising business confidence, export growth and easing credit conditions. Mocuta sees a 45% probability that Greece will exit from the Eurozone.

“The key to everything is China,” Mocuta said. The country’s real GDP growth held steady at 7% in the second quarter of 2014, and economic growth is expected to settle near 6.5% over the next few years, she said.

Also, while the rise and fall of stock prices had a limited impact on consumer spending, “the government’s reaction to the stock market correction in China earlier this year was more frightening than the correction,” she said. “There was such a barrage of ‘throw everything at this problem’ that all the steady progress in terms of liberalizing the financial markets was erased within a week,” she said. Mocuta cautioned companies whose business growth depends on Chinese growth to rethink strategy.

Latin America’s economic growth has stalled, especially Brazil where the government is facing a crisis of confidence. Low oil prices and corruption investigations at Petrobras are taking a toll on the energy and construction sectors, while a currency depreciation and a drought pushed the consumer price inflation up to 8.5% year over year in May, its highest rate since 2003.

FORECAST

• Low oil prices, monetary stimulus in Europe and Asia, and better U.S. growth will provide the foundations for a pickup in the global economy.
• The U.S. expansion is led by domestic demand, with consumer spending and residential construction accelerating.
• The Eurozone is gaining momentum, helped by a weak euro. Contagion from the ongoing Greek situation will be limited.
• The Asia-Pacific region will make the strongest contribution to global ­economic growth.
• The biggest risk to the global economy is a hard landing by China. If ­consumerism starts to decrease in that country, big trouble could be around the corner.

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DOMESTIC U.S. ECONOMY

An Area of Brightness

Werling used August 2015 job figures as an example: From July to August, 215,000 net new jobs were created, the unemployment rate was steady at 5.3% and average wages grew by 2.1% year over year.

Oil prices are low, and consumers are confident, he added. The relief of pressure on states and localities means growth in infrastructure spending, while health care “is growing at a fast rate,” he said.

On the downside is the reality that while employment has been expanding modestly for about 60 to 70 months, “wage growth is still very sluggish. That is symptomatic of a lot of the angst about the economy,” he said.

Also, while the GDP is showing steady, moderate growth, it’s not where it should be—at about 3%, he said. Instead it was about 2.3% from 2014 to 2015. The growth that is occurring “is driven in large part by energy production and personal consumption. Private business is not investing in equipment and non-residential construction, despite having plenty of cash and inexpensive credit,” he said.

Werling also finds it troubling that the percentage of growth after each recession has fallen. “In the past, non-farm employment would snap back pretty quickly. But the recent recession was huge, and we are not snapping back like we used to. In each recovery over time, you see the percentage growth has fallen,” he said.

Another issue to watch is the labor force participation rate, which fell from 65.5% to 63%. “That’s nearly 3% of the labor force,” Werling said. While some of that can be blamed on retirements, “another factor is that, when people get laid off, they might not go back because jobs are just not that great,” he said. A more troubling ­statistic is residual defection. “People are just not participating in the labor force for whatever reason, and it is taking out quite a bit of potential economic growth,” he said.

Like Mocuta, Werling sees foreign financial problems and security issues as the biggest threat to domestic economic growth and stability. But other issues are contributing.

“We are in a unique time in macroeconomics because monetary policy, meaning the interest rate cuts, didn’t stimulate the economy,” he pointed out. This is because companies, banks and homeowners were all over-leveraged.

“If you can’t borrow, zero interest rate doesn’t help,” he pointed out.

The lack of inflation is also a problem. Disinflation and deflation make debt loads for governments and individuals more difficult to deal with, he said, because there is no growth to cover the debt load.

Another problem Werling sees is that governments have not been spending on infrastructure. “We were spending 10% less on infrastructure in 2012 than 2003,” he said. The very short stimulus period was not enough to counteract the recession, he added.

FORECAST

• Werling looked to 2030 and said potential GDP growth will be about 2.3%. The manufacturing outlook is challenging due to the real exchange rate.
• Government services will ­e­x­pand. Healthcare spending (with or without reform) will dominant government ­spending and domestic ­production growth, he said.

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WALL STREET

U.S. Production Growth Looks Positive

Halloran had positive comments on the macro-economic front. He pointed out that U.S. industrial production growth has been steady since exiting the recession, even though that growth is a modest 2.5% year-over-year from the second half of 2012. Global industrial production growth, meanwhile, has moderated into a range of about 1-2% growth through early 2015.

“While most companies still anticipate positive demand trends in the U.S. for 2015, the growing global headwinds have tempered both domestic and global growth trajectory and outlook,” Halloran said. He believes 2016 and 2017 will not be as strong as 2015.

“Capex [capital expenditures] investment started showing signs of inflection in the second half of 2013 and early 2014 as end users and equipment manufacturers gained confidence in the anticipated ramp-up of late-cycle infrastructure work,” he said. However, expectations failed to materialize and conversion of projects from bidding and quoting to final orders took longer to complete than anticipated.

“This long cycle is exacerbated by recent declines in commodity prices, particularly oil,” he said.

Halloran said the lower oil price environment and increased fears about the global backdrop have meant large energy infrastructure projects were put on the backburner, with end users maintaining a “wait and see” attitude.

Demand in the U.S. remains positive for the most part, Halloran said, though concerns about the trajectory of growth are building, particularly in light of an expected Federal Reserve rate hike later this year. Europe is still generally sluggish; and growth in emerging markets such as China, Brazil and Russia continues to deteriorate. Overcapacity is a key concern, he said.

Many global industrial companies are looking at flattish organic revenue in 2015 as a “good case” scenario, however. Halloran said the automotive, U.S. commercial and residential construction, and aerospace and defense industries will exhibit growth for 2015 while power and municipal water and wastewater will have a year similar to 2014. Meanwhile, general industrial, oil and gas, chemical, mining and agriculture are trending downward. His assessments:

• Oil and Gas: In the upstream oil and gas markets, rig counts have declined and an inventory of wells has been drilled but not completed. Capital spending is down as much as 30-40% in North America and 10-15% internationally. Markets for midstream and downstream are seeing spending cuts, resulting in a slowdown in orders and a number of project suspensions or postponements until 2016.
• Chemical Processing: New capacity investments are on hold because of hesitant end-user spending, although end-user demand for chemical output is stable and improving. North America is expected to be the primary driver of chemical demand.
• Power Generation: In addition to overcapacity in the industry, near-term power demand remains constrained by global economic uncertainty, delays in finalizing environmental regulations and broader market overcapacity. A material global infrastructure investment acceleration appears unlikely near term, but signs of improvement are increasing, particularly in Asia, tied to emissions control regulations. Energy-efficient solutions are at the forefront of new project work and product innovation as customers and end users look to reduce cost of ownership and save on energy usage costs.
• Municipal Water/Wastewater: Large municipal infrastructure project work has been weak for several years, but there is an encouraging pickup in capital investment spending. Break-and-fix activity levels remain solid because end users can only put off these investments for so long.
• Mining: Demand remains challenging and global mining equipment shipments continue to fall. Aftermarket activity appears steadier but is still constrained by lack of growth in the installed base.
• General Industrial: Global business investment is muted and commodity price declines have led to a capex pullback and general uncertainty in this sector. Automation is the one area in which people are spending money because it provides a return on investment.
• Construction: U.S. commercial construction is one of the primary bright spots for industrial companies, and new project work is building through 2015. Outside the U.S., emerging markets continue to be strong, but Europe remains soft, with growth still very modest. Despite more moderate than expected growth, residential construction in the U.S. continues to be positive.

FORECAST

Baird expects that in the upstream oil and gas market, softness will persist for the foreseeable future. In the chemical market, maintenance activity should improve in the second half of 2015 as turnaround activity normalizes. Capex spending growth is expected to increase slightly, to more than 4% year over year in 2015 and 2016. In construction, low- to mid-single-digit improvement in ­commercial construction markets is expected in 2015 with potential for acceleration in 2016.

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GLOBAL PETROCHEMICAL

Shrinking Differential

“If you’re a chemical executive deciding on where to make plans for growth, this shifts the profitability,” Eramo said, and it changes the price dynamics. “Approved projects are moving forward, but unapproved projects are being put on hold.”

New technologies also influence decisions for plant locations and what kinds of products will be made. For example, a new process makes it possible to convert gas or coal to methanol, and another involves catalytic/oxidative coupling of methane to ethylene. These technologies affect the potential for chemical processing growth in North America, he added.

Recently, a large shift in the geographical location of petrochemical investment in China has occurred. In the past, many of the plants were in coastal provinces, and they used oil for feedstock. As oil prices rose, more development went into coal-based olefin and mono-ethylene glycol facilities, so more of the plants were moved west and inland because they were closer to coal mines. “This strong domestic investment is focused on reducing import dependencies,” Eramo said. “However, these processes are huge consumers of water and require high capital investments. With the environmental and cost issues, we expect a slowdown after this current wave gets built.”

In the Middle East, the investment pace has been moderate lately, but these countries are also diversifying the feed slate to support downstream market development and industrial expansion beyond ethylene chemistry.

GROWTH

With a global economic growth forecast for the chemical industry of about 3.5%, that puts demand growth in this area in line with global GDP. This equates to nearly 20 million metric tons (MMT) of new demand growth each year.

The more than 60 MMT of ethylene and over 50 MMT of methanol growth that are expected during the next decade mean 40 new world-scale ­ethylene units and 33 new world-scale methanol units (if world-scale is 1.5 MMT).

“If North America keeps this up,” Eramo said, “it might recoup some of the production manufacturing lost in years past.”

FORECAST

• Total market size by 2020 is forecast at 565 MMT of basic chemicals.
• Integrated margins for low-cost producers are declining while some high-cost producer margins will improve.
• Approved “advantaged” projects will advance in the near term, but new projects may be put on pause.
• Developments in on-purpose technology will impact the decision on where to build and how much is spent, which will impact valve and attendant product sales.
• The epicenter for change is China.

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WATER AND WASTEWATER

Upward Movement now Clearly Visible

“Last year at this time, construction was below the line,” he said. “This year it’s at 10% overall growth through May,” he said.

In the U.S., the water business is about $100 billion per year with wastewater taking about 65% and drinking water 35%. Globally the business is about $500 billion with wastewater taking 40-45% of that amount and fresh water 55-60%, he said.

“Even though the signs are all very positive, we are having difficulty forecasting the timing of projects,” Decker told attendees. “We know there is work, but delays keep pushing things out,” so figuring out when work will start is a major challenge.

AGING INFRASTRUCTURE

The American Society of Civil Engineers has given plants in the U.S. a grade of D. Loss of treated water due to leaks, cracks or breaks can be as high as 31% in places such as Atlanta, and the American Water Works Association estimates that a trillion dollars must be spent over the next 25 years simply to keep the situation no worse than it is now.

Long-term supply of water is a concern not just in areas of drought, but in many places. At the same time, conservation is taking hold, “which is good for supply, but also means revenue is down for the utilities,” Decker said.

Today’s world population is 7 ­billion people with 60% living in cities; by 2050 the population will be 9.5 billion with more than 70% living in cities.

“This is putting stress, strain and capacity problems on water delivery and wastewater systems,” he said.

In the U.S., the fact the EPA is enforcing existing regulations is “a major driver on the wastewater side and probably the biggest single reason for the fact that 65% of money spent on water projects in the U.S. is on wastewater,” said Decker.

One issue that the water industry faces is getting funding when revenue is down. But while public apathy (out of sight, out of mind) exists, “when you have an initiative or bond issue, the public generally supports infrastructure-related bonds,” Decker said.

Desalination and reuse is increasing around the country. In Texas, for example, even though a recent drought is now officially over, the state is moving forward with a massive water plan with funding that could go as high as $27 billion. Both Texas and California have plans for desalination and reuse plants.

FORECAST

• The water and wastewater market will be up 3-4% in 2015 with a similar bump in 2016.
• There likely will be some water regulations coming up in 2016 on disinfection and lead and copper, but they will not be as comprehensive as the Safe Drinking or Clean Water acts.
• Housing starts, which have a positive effect on water/wastewater, are expected to be up 19% in 2015 over 2014.
• Over the next 10 years, there will be a 60-70% increase in reuse programs.

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UTILITIES

New Challenges Mean New Valves

“Suppliers to the power generation industry are going to be called upon to provide equipment and components that can support the new reality of more demanding duty cycles,” he said. “A greater emphasis will be placed on reliability, flexibility and the maintainability of the existing fleet. There also will be a huge need for equipment and components to support the new technology.”

Manufacturers will need to spend money on research and development for equipment to meet the challenges of building new facilities and for keeping the existing fleets operating. Those challenges include:

• Higher temperatures (up to 1300°F or 704°C) and pressures (over 4,000 psi) to achieve higher steam-cycle efficiencies
• Gas turbine and heat recovery steam generator improvements to increase efficiency
• Chemical-looping processes: instead of taking oxygen out of the air, metals such as ferric oxide are mixed with fuel and air to produce heat and power and to inherently separate CO2
• Oxy-combustion, where coal or gas is burned in the presence of pure oxygen to improve emissions and generate a pure CO2 stream
• Supercritical CO2 power cycles that operate at very extreme temperatures and pressures, but instead of steam, they use high pressure CO2 and push it through a turbine
• Coal gasification and post-combustion carbon capture and storage/utilization technologies.

REGULATORY CONCERNS

Riordan said the mercury air toxic standard is pummeling the power industry right now. “It is creating upheaval for cost, and producers don’t know whether or not to build. Public utilities want more power, but the EPA [Environmental Protection Agency] is making it difficult.”

He said one reason the lights haven’t gone off is the weather has been generally mild. “Additionally, the economy has been flat in some territories where the power has been cut back.”

A problem for many suppliers and utilities is that states are implementing renewable standards. When they need an extra 100 megawatts, for example, a certain percentage of that portfolio must be renewable, according to many state’s current requirements. However, the technology to do that is more expensive. Also, because there is no way that an economically viable coal plant can be built today, new baseload power plants will be fired with natural gas. Riordan says that may be a problem because, by 2040, a quarter of the grid may be supplied by renewables, and the other three-quarters by natural gas. “It’s like having all your eggs in one basket,” he said. “That is very risky.”

The net effect for the power generation industry is that a brutal winter or particularly hot summer could mean times when there is not enough power for the public or for industry.

Products to maintain and repair are going to be needed, which is good for the valve industry. The need to transport natural gas means more pipelines, valves and attendant controls.

In the long term, more advanced technologies will create the need for new valves with higher temperature and pressure requirements.