Market Outlook 2012: The Winds of Change

But attendees were soon to learn that outlook speakers, while they admitted some figures might need to be adjusted for the remainder of 2011, felt their overall prediction was on track—the valve and actuator industry will see a brighter 2012.

“I hope as you leave here today, you leave uncertainty behind and realize things are not as bad as you may have thought. There is still force in our sails … it just might be time to adjust those sails to the prevailing winds,” Alan Beaulieu, president, Institute for Trend Research, emphasized.

Common Themes

It’s a different world: There wasn’t much talk this year about looking to the past to respond to the future. That’s because almost every presenter pointed out that the world and this nation are in a unique economic situation. Most said to expect the rocky stock market in the U.S. to remain volatile and that while the nation is in recovery mode, it’s going to be a long steady climb back to the prosperity we experienced just before the Great Recession.

Shining stars burning brightly: India was ­mentioned by more speakers this year than at any previous workshop. The country began a climb toward prosperity in the 1990s when ­economic reforms went into effect. It did not suffer the consequences of some other nations during the recent economic woes so it is one of today’s ­shining stars. Brazil continues to prosper and was mentioned by many speakers as a good place to do business. China is still a tough ­contender for business, but it has experienced high inflation rates and other challenges that may mean some business returning to U.S. soil.

Renewables are catching hold: This is the first workshop where one session was devoted to renewable energy sources, but it wasn’t just that speaker who explained why. From international reports on global warming to new technologies that make renewables more cost effective to unfavorable attitudes toward coal, speakers gave reasons why wind, solar, biofuels, biomass, hydropower and other new sources of energy are gaining ground.

Shale drilling “rocks”: Any of the speakers who addressed energy, petroleum or related products mentioned the changes in this country that are occurring because of shale drilling both here and in Canada. Gas prices remain low; drilling has increased; more drilling is occurring on-shore; new technologies are increasing outputs; new shale sources are being discovered. All of these shale drilling developments mean less reliance by North America on foreign sources of fuel.

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The Domestic Economy: A Brighter Year to Come

When economist Alan Beaulieu of the Institute for Trend Research stood before the Market Outlook workshop audience this year, he was facing a room of people afraid of what he might say. Last year, Beaulieu dropped a bomb when he predicted a depression 20 years down the road, and that prediction did not change this year. However, as far as the short-term future, Beaulieu was this year’s voice of reassurance.

“This country has no institutional memory. We’ve already forgotten the early 1980s, which was a much worse time,” Beaulieu pointed out. “This feeling of doom and gloom has really been overplayed.”

However, the main point he said he wanted to make was this: “The next 20 years are going to be vastly different than the last 20 years.”

In the immediate future, stock market volatility will remain, and it may mean some of the forecasts that experts have been laying down as the nation recovers from the Great Recession may not be as rosy as originally predicted.

“But the recovery will continue through 2012 and 2013 before we hit the next dip. And unless you’re into housing, there will be significant opportunities,” Beaulieu said.

In fact, Beaulieu said that during 2012, there will be a mild movement upwards in stocks overall, which means it will be a good year for investing. He also said that because the real estate market is still suffering, investing in that area could be beneficial.

Although Beaulieu focuses on the domestic outlook, he brought up several points about what’s happening globally because of the effects those developments will have on this country. For example, he said that the downgrading of U.S. credit rating means little in the international picture.

“With all the uncertainty going on in Europe and other places, the bond market still favors the U.S. It’s a safe haven for investors,” and a downgrade will not bring skyrocketing interest rates or a fall in the U.S. dollar as newscasters predicted, he said.

He also brought up what’s happening in China, where inflation is significant.

“We can’t ignore what’s going on [in that country], because we will eventually feel the pain. Inflation will come to the U.S.” in the form of higher prices for many consumer goods, Beaulieu said.

Still, China and many other areas of world are currently losing some of the advantages that made them so appealing a place to do business at the same time their economies are in need of additional goods.

“That should translate into business for you, including more export business,” he said.

As far as what’s happening on this shore, Beaulieu said to look at:

Employment. Instead of looking at the unemployment rate (which was 9.1% at the time of the workshop) corporations need to focus on how many jobs are created in the private sector. At outlook time, that number was about 157,000 jobs per month, and anything over 100,000 is a favorable figure, he said. “When jobs are created (as opposed to lost), that means houses are paid for, kids are going to school, people are buying.”

Lending. Another good piece of news in this country is that banks are lending, Beaulieu said. “Delinquencies are down, the money supply is expanding. That’s economic activity, not a double dip.”

Interest rates. Along with the inflation rate, interest rates will begin to move up and will continue to do so for the next 20 to 25 years, Beaulieu warned. Most people in business today don’t have much experience with this pressure; however, “we are returning to the 1970s,” so look to what happened during that time as an example of what to do.

FORECAST: The rate of recovery will slow in 2011, but continue to climb in 2012 and then flatten out in 2013, when the next recession will begin. The years 2015 to 2017, however, will create new opportunities. Beaulieu said his prediction of a depression in the 2030s is still on target, but that a lot will depend on whether Congress is able to do anything in the next year about the U.S. budget woes. “2012 could be a very interesting year to be alive,” he concluded.

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Wall Street: A Note of Caution

Although Michael Halloran, vice president of Robert W. Baird and Company, agreed with other speakers that “the market has certainly thrown us for a loop,” he said caution, not panic is in order.

“I think it’s important to start with the fundamental tenet that industrial companies are not seeing weak trends at all; there are markets that are weak and there is deceleration in growth rates, but demand is pretty healthy when you look at the overall industrial picture,” he told attendees.

The industrial economy is entering a mid-cycle slowdown after seeing growth rates peak in 2010—growth in the U.S. turned positive in March of 2010 and peaked in December of that year. Since then, trends have generally moderated. Globally, trends have been on a similar trajectory and currently remain at healthy levels, Halloran said.

For example, Global Insights forecasts favorable trends in global fixed investment (GFI) growth, which turned positive in the second quarter of 2010 and averaged 5% for the rest of that year. Although those trends were slightly weaker in the first quarter of 2011, the company still is projecting healthy growth for the remainder of the year and into 2012, Halloran said.

However, he also cautioned that threats of recession “cast a long shadow on the capex opportunity for project work and expansionary capital ­deployment.”

One trend that remained a positive development despite the market’s volatility was that lending standards are relaxing. “Lending standards are pretty straightforward. If things are loose and credit is available, it’s more conducive to capital spending,” Halloran explained. Currently, access to capital is readily available, but the question in an uncertain market is “do people want to take advantage?”

The indicator that Halloran says Baird and other investment firms look at most closely in regards to how investment should fare is the Purchasing Managers Index—which is positive above 50. The index rose above that point in August of 2009 and has remained above it since then. It did very well in the beginning of 2011 but was hovering around 50 at the time of the workshop “so things are still growing, but more moderately.”

As far as end-user industries:

Oil & gas demand was strong at the time of the workshop, showing no signs of deceleration. Globally, rigs were up over 50% from where they hit bottom in 2009, and in North America, rigs were up more the 100%. Halloran said “high oil prices are contributing to the sustained drilling trend, as oil companies look to take advantage.”

Horizontal rig applications “have been the driver” in recent years in the upstream market, which is good for equipment suppliers because this type of drilling “leads into a lot of burn and replacement,” Halloran said.

An important overall global trend in upstream oil & gas markets is that “capital spending should grow at rates of 5% to 7% (or more) because infrastructure investment in emerging regions has yet to catch the pace of demand,” Halloran said.

On the downstream side of the business, he noted that Global Insights said global capex spending increased 7% year over year in 2010, which indicates the potential for favorable “growth rates long term on the refinery side.” Most of that growth, however, is in emerging markets. In North America, most new additions are for Canadian refinery projects, though some modest growth in all areas will occur in maintenance spending going forward.

Halloran said that trends in the chemical market overall are healthy and have been since late last year. In the U.S., plant capacity utilization rose in 2010, but remained well below peak levels at about 76% for the year. The overall trend in the chemical industry continues to be that chemical production is moving away from North America and Western Europe to the emerging markets and the Middle East.

In power, Halloran said demand in the U.S. and some other developed regions remains sluggish, but quoting activity appears to be picking up in places (especially emerging nations) because of the need for infrastructure investments.

The water/wastewater market is growing at a rate of 6% to 8%, driven by population growth, rising living standards, industrialization and the need for maintenance. Halloran said that in general, the market is weak for capex spending, though the stimulus monies have helped. The operating expenditure side, however, is seeing some growth right now.

FORECAST: Global Insights believes global oil & gas downstream capital expenditures should increase 10% in 2011, 6% in 2012 and 7% in 2013. Further, Global Insights believes global capital expenditures for chemicals should grow 13% in 2011 and 9% in 2012, but that growth will be driven by China and Latin/Central America. Estimates are for world energy consumption to grow 49% by 2035 (over 2007) driven primarily by developing regions. Renewable energy use will grow 3% per year to take a 23% share of the energy market by 2035.

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The Global Picture: Fighting Black Swans

Despite significant headwinds that arose last year, the global economic expansion will continue on course in 2011 and 2012, according to Sara Johnson, senior research director of IHS Global Insight.

“Certainly we will be at a more modest pace [than some economic recoveries have been], but that is to be expected in the aftermath of such a severe economic challenge,” Johnson said. Households are still cautious and trying to rebuild their retirement assets while governments that provided massive stimulus are having to wind down that support.

“We’re projecting world GDP [gross domestic product] will slow from 4.1% last year to 3.1% this year,” she said. However, part of that slowdown is a direct result of what Johnson called black swans: “a number of events that had low probability but high impact,” she said. For example, because Japan makes up 8% of the world’s economy, 40% of the global deceleration can be tied to after­effects of Japan’s earthquake and tsunami. Also, geopolitical instabilities are affecting areas of North Africa and the Middle East, causing events such as a major disruption in Libyan oil production (and a drop of 40% to 50% in that country’s GDP), she added.

And in many areas of the world, including the U.S., developed countries are discovering that the recession’s effects were deeper than originally thought.

“So instead of having this cycle [of past recessionary periods] where households spend more and employment rises, we are in a more stagnant position” with a loop of weak hiring and weak spending, she pointed out.

Confidence in policymakers has not helped, she said—not just in Washington, DC, but also in most parts of Europe after the spread of the sovereign debt crises to Spain, Italy and even France.

“European policymakers seemed to be a couple of steps behind the market,” Johnson observed.

She said the major driving force in the global economy now is the emerging markets, and this two-speed world ­economy will persist well into the future. Advanced countries will experience slow to moderate growth, high fiscal deficits, lower inflation than emerging nations and currency depreciation while emerging markets will see rapid growth, moderate to high inflation, rising interest rates and currency appreciation.

More specifically, Johnson said:

Asia will see the fastest growth rate at an average of 7% over the next few years. China will see a deceleration of exports, but a growth in industrial production, giving the country a soft landing. Indonesia will see “very strong performance” with strong growth prospects. Japan is bouncing back rapidly, held back by the shortage of electric power because it’s operating at about 20% less nuclear capacity than a year ago and by the need for financing for reconstruction. India is supported by a rising middle class and the easy availability of credit. However, interest rates are rising, slowing investment growth.

In South America, Johnson said there are two sets of countries: those that are able to attract foreign investment such as Brazil, Chile, Peru and Columbia and those that suffer from resource nationalism such as Venezuela, Bolivia and Ecuador. Brazil faces a particularly challenging inflation picture, and the environment changes day to day. But fiscal policy in that country is tightening and the administration is focusing on social programs and infrastructure challenges.

In the Eurozone, confidence is fragile right now, not just from consumers, but also in the industrial and services sectors. Western Europe in general faces persistent unemployment, meager wage gains and higher inflation, which will restrain consumer and housing markets. Germany and Sweden will be the pacesetters with growth led by exports. In emerging Europe, the Commonwealth of Independent States is currently benefiting from high oil and metal prices, Johnson said. However, the region is unlikely to recapture the 5% to 7% growth rates experienced before the recession.

FORECAST: Asia will lead global growth, while Latin America and Africa will improve upon historical performances. Emerging markets will run about 6% to 7% growth while developed markets will run at about 2% to 3% growth in GDP in the next few years.

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Water/Wastewater: It’s a Blue and Gray Market

The water/wastewater market is no longer a black and white market—it might better be described as blue and gray, Thomas Decker, PE, BCEE, vice president and mid-Atlantic area manager for Brown and Caldwell, Alexandria, VA, told attendees. Decker chose those colors not because of their similarity to water/wastewater, but because his presentation carried a Civil War theme in commemoration of the 150th anniversary of that conflict.

“There are a lot of opposing forces working in opposite directions in the water business right now,” he explained.

For example, in the year 2010, the market was up slightly: about 4% growth over 2009. However, “it was an interesting year to look at the statistics I typically track—the market was all over the place with really high highs and low lows,” he said. But it also faced a number of conflicting pressures and situations.

On a positive note, there was the American Recovery and Reinvestment Act, which pumped money for construction that boosted the marketplace, he said.

There was also the pressure of continued and increased enforcement actions “especially for wet weather, combined sewer overflow and sanitary overflow programs, and also some enforcement on nutrients as well as good old secondary wastewater treatment” issues, Decker said.

Another positive was the fact that money was available not just from the federal stimulus, but from attractive interest rates and increased utility ­revenues.

What happened in 2010 as a result of these and other factors actually defied historical trends, Decker pointed out. In past recessions, the water/wastewater market lagged behind the general economy, starting to dip or fall as the rest of the economy began to recover.

“But we actually saw an increase in the market during the last 18 months,” Decker said.

To understand how the industry got to this point, Decker took the audience through an “introspection,” and said:

• The market is huge and the U.S. has a large chunk of it. Internationally, water/wastewater is a $500-billion business. Of that amount, the U.S. holds about $107 billion.
• The market has seen significant regional swings, which will continue. An interesting development during this recession is that the northeast quadrant of the U.S. is seeing the most activity while the traditionally bulletproof areas of the southwest and Florida are experiencing drop-offs in business.
• Although engineering firms report a drop-off in design activity, the industry is still attracting many ­bidders for projects. However, the pencils are getting sharper on construction projects and fewer “newbies” are entering the business (firms who got into the business without a lot of experience when the market was so hot).
• Notices to proceed with utility ­projects are “slow as molasses” right now, though Decker is not ­seeing outright cancellations of existing projects as much as owners backing off of projects they had announced.

A newer macrodriver in the water/wastewater business is climate change. He cited a recent National Resources Defense Council study that examined the effects global warming are having in this country. Some traditionally wet areas in the U.S. are getting drier and some traditionally arid areas are getting wetter, which is going to affect water supply and demand in the future, Decker pointed out.

Another macrodriver is the balance between population growth and conservation. Decker said that, in this country, conservation efforts, such as low-flow showerheads, smarter water use, reuse of water for landscaping and other practices have been successful. He cited figures that show in 1980, this nation used 440 billion gallons of water per day—more than 30 years later, that number was 410 billion, which is pretty incredible considering the population growth.

For 2011, Decker says the battles between forces will continue but that “we haven’t hit a stone wall”— the ­market will continue to grow as it ­balances the pressures.

FORECAST: The market will be flat to slightly up at the end of 2011 over 2010 and will do better in 2012.

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Power: Long Term Favorable; Short Term Complicated

Because the power industry is driven by demand, and because the pressures and influences on that demand are so wide and varied today, policy in the industry “is changing almost daily,” said Mark Zeiger, principal vice president and manager of procurement for Bechtel Power Corporation.

For example, in the UK, the country has decided to place emphasis on clean air so it’s shutting down a lot of its coal facilities, and in Germany, the country has looked at what happened following Japan’s earthquake/tsunami and is considering shutting down its nuclear plants again, Zeiger said.

Overall, however, the power industry faces a favorable long-term outlook because demand throughout the world will grow. In developing countries, for example, “consumption is only limited to the extent you can get power to the people, so your potential is endless,” he said. And in certain other areas, the situation is rosy for other reasons. For example, Australia’s demand is growing because the “mining business is robust and takes a lot of power,” Zeiger said. And in Brazil, the economy itself is very strong, which means development, and that translates into power demand from both manufacturing and consumer needs.

Then, there’s China, which “dwarfs other global markets” with its potential. Zeiger pointed to figures from Global­Data that show China will add over 350 gigawatts (GW) of power in the next four years.

About 200 of those GWs will be ­coming from coal-fired plants, Zeiger said, but China has a robust nuclear program, as well. The country also is moving heavily into renewables—Global­Data’s figures show that wind capacity will grow to 77 GW, and hydro will grow to 50 GW by 2015.

Globally, coal is still the leading source of capacity additions—it will constitute a third of the world’s market for additions, but most of the growth will be in China. Gas will be the next greatest source of capacity additions in the immediate future because it’s the best and fastest source of replacement power in areas where coal or nuclear is losing ground, but renewables are gaining ground in many areas of the world, Zeiger said.

In the U.S., coal will not be playing much of a role going forward whereas gas is entering the picture very rapidly, Zeiger pointed out.

“Right now, there are only a couple dozen new [gas-fired] plants in development, but that can change quickly because plants have a very short development cycle,” he said. However, “wind seems to be where developers are placing their bets with a fair amount of solar on its way. But solar takes a lot of footprint,” he said. A lot of the drive in the U.S. for renewables, however, is driven by incentives, and with the economic situation putting constraints on budgets “we don’t know where those incentives will be going forward,” Zeiger said.

The next largest market, after China and the U.S., is India. That country will also have a very high amount of coal activity, some nuclear and some combined cycle, but it’s also got a source for power that many other countries haven’t tapped to the extent India has: hydropower. Figures from Global Insight show that capacity additions in hydro in that country almost match additions in coal “and this could be understated if funding [for development] can be accelerated,” Zeiger said.

As far as the markets for valves in the power industry, “the largest installation in valves on a global basis will be in China and India in coal.” In the U.S. the greatest potential for power business currently is wind and combined cycle plants.

As far as nuclear, “the industry has stalled for new plant generation construction. But at the same time events from Japan may cause modification work to be done to include lessons learned and retrofits,” Zeiger said.

FORECAST: Although capital expenditure spending has suffered from the economic uncertainties and policy issues, significant growth for power on a global basis is ahead. Projects worldwide will continue to provide greater challenges in scope and size. In the end, quality of product will be the differentiator for suppliers to the power industry.

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Petrochemicals: North America Back at Bat

Unlike some of the end-user industries covered at this year’s workshop that take a longer time to recover from a recession, the news from petrochemicals was mostly already bright.

In fact, speaker Mark Eramo, executive vice president, CMAI, says that North America is “back in the game,” while Asia is presenting new demand opportunities and seeing tremendous growth, and South America continues to pick up speed.

That’s partly because the industry is tied so closely to what people buy, as opposed to how cheaply raw materials can be taken out of the ground.

“At the end of the day, this business isn’t about pipelines. It’s about efficient delivery and demand for durable and nondurable goods,” Eramo said.

In North America, investments in the conversion industry started to shut down over the last decade, but recently “we’re getting back into this business because we’re at a lower cost basis,” Eramo said. This won’t occur immediately, but “people are making announcements,” and building should begin sometime in the next five years. During 2011, for example, Eramo said more than 5.0 million metric tons of new capacity for ethylene investment in North America were announced for start-up by 2020.

Eramo said he expects to see a full recovery in the petrochemical market by 2012 or 2013. What drove down ­margins in 2008 and 2009 was surplus capacity, but “we’ve chewed through a lot of that,” he said, and demand is ­actually outpacing capacity in some areas of the world.

For example, demand in China and India is booming. Asia’s cumulative demand for basic chemicals and plastics grew at about 8% per year over the last decade. It suffered a small retraction during the recession, but it’s now back at about 7% cumulative growth each year going forward, which means the area “cannot build fast enough to keep up with demand” so it needs imports, Eramo pointed out.

In North America, on the other hand, some manufacturing moved offshore, which means this region has lost some of its export capability to competitors.

“The good news is that there has been a steady level of demand growth in North America,” which means some of the capacity may be repatriated here. Meanwhile, this area has other advantages. What it now costs to make goods in North America, for example, supports growth in the sector, especially for products based on natural gas liquids. As with many developments in the oil- and gas-related field today, shale gas is having a significant impact on the situation, giving North American producers an advantage over other regions, Eramo concluded.

FORECAST: Global ethylene capacity will grow to 165 million metric (MM) tons by 2015. Of that amount, Asian capacity will grow to 54 MM. After falling from 2008 to 2010, North American capacity will grow over the next few years to more than 32 MM. North American exports based on light feeds will continue to accelerate and new investment in the petrochemicals-to-derivatives part of the chain will total in the multi-billions of dollars going forward.

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Oil & Gas: Strength—Especially for Emerging Markets

Barring a double-dip financial crisis, the petroleum industry should remain strong for the next several years, according to John Spears, president of Spears and Associates. Over the long term, industrialized countries will see little growth in their own oil markets, but globally, that will be balanced by emerging markets.

“Global oil demand can grow at about $100 per barrel,” Spears said, and while some areas of the world are running higher than that, the U.S. has stayed about that level because of its supply, while the emerging nations have evened things out globally as far as demand.

The world consumes about 90 million barrels of oil per day and about half of that is consumed in the industrialized world, Spears explained. And while the countries in the other half of the world have only about a fifth of the consumption per capita, they have five times as many people.

“Clearly as emerging countries continue to industrialize and urbanize, they can support increased consumption of petroleum products,” he said.

One of the more immediate trends affecting the industry is that, because of volatility and high costs in the energy world, prices “will increasingly reflect the production end of the business” instead of consumer use, Spears said.

In the U.S., oil production from conventional sources such as Alaska and offshore is on the decline; however, that has been more than offset by increases from unconventional sources, such as the rising output from the Williston Basin in North Dakota, Spears pointed out.

Meanwhile, the numbers for natural gas liquids “will grow pretty dramatically” because of drilling in liquid-rich gas reserves such as the Marcellus and Eagle Ford shales, Spears said. Over the next five to six years, about 25% to 30% of natural gas will come from onshore shale sources and by 2035, almost half the production of gas in the U.S. will come from shale sources.

This emerging market is also spreading to a number of other countries around the world. Spears pointed to a recent Energy Information Agency report that showed 33 countries around the world have enough recoverable shale gas reserves to increase the world’s supply by 40% to 22,600 trillion cubic feet.

New horizontal drilling methods will compound the importance of these shale supplies, “changing the economics of drilling tremendously,” Spears said. The combination of hydraulic fracturing and directional drilling, a combination that began to be used for gas in 2004 and for oil in 2009, means that each well can produce much more and the returns on investment for operators have gone way up. For example, the Bakken field is currently producing about a 70% return compared to only about 5% for open water shelf drilling.

Costs for drilling, however, will also rise, and Spears said that means activity may shift to some of the higher profitability areas.

FORECAST: U.S. natural gas demand will reach 25.6 trillion cubic feet in 2016, with the lower 48 onshore production of shale gas growing at an average annual rate of 14%. U.S. drilling activity will be up about 22% from last year and about 17% in 2012 with horizontal drilling activity up more than 25% in the coming year. Well costs are expected to rise about 4% per quarter through the end of next year. Canadian rig count will increase 17% in 2011 and 15% in 2012. International activity is expected to increase 7% in 2011 and 8% in 2012 with South America and the Middle East the fastest-growing regions.

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Renewables: New Opportunities for Valve Manufacturers

Despite the fact the advancement of renewable energy depends so heavily on government policies, many of which are in a state of flux, the industry “has seen continuous growth” around the world, according to Rakesh Radhakrishnan, associate director for Navigant Consulting, Inc.

The market share of energy that renewables provided stood at about 12% worldwide in 2009, according to the International Energy Agency (IEA) and about 6.2% in the U.S., but Radhakrishnan explained to outlook attendees why all that is about to change.

“Over the next decade, I feel it [renewable energy] will evolve into a clean energy standard—there are going to be a variety of technology systems adopted depending on regional priorities,” he said.

In the U.S.’s immediate future, the year 2012 will see annual renewable installations leap to almost 13,000 megawatts (MW) from just over 6,000 MW in 2010. What happens after that point, however, is largely dependent on whether the production tax credit due to expire for wind that year is renewed, the production tax credit for biomass expires as planned in 2014 and the investment tax credit for solar expires as planned in 2016.

Still, even with those expirations, renewable energy annual investments in the U.S. will range between $15 billion and $25 billion per year and biofuels make up another $25 billion to $35 billion per year going forward to 2020 (according to IEA). That opens up a lot of opportunity for suppliers to these industries, Radhakrishnan pointed out. Specifically, he said:

• Around the world, hydropower is the largest source of growth and opportunity, especially in developing countries such as India and China where the industry is well established. It’s also one of the cheapest sources of power available, producing electricity at about 2 cents per kilowatt hour compared to 9.5 cents for nuclear, 7.5 cents for coal and 6 cents for natural gas. In the U.S., growth will depend on policy, but a bill has been introduced in Congress that would support development of smaller hydroelectrical plants. These micro-plants are compelling because they don’t need the extensive permitting and approval process that large dams go through in the U.S.
• Seventy to 110 GW of biomass power will be added in the world by 2030 (according to IEA), though biomass will be competing with the biofuels sector for resources. In the U.S., facilities are being built to make ­pellets that will be exported to Europe where the biomass market is expansive. Feedstock will be the greatest challenge in the industry, though new technologies to use new sources are emerging such as animal digestive gas, cow waste and other sources.
• The geothermal market going forward will depend on how quickly new systems can be developed. About four years ago, systems were launched that could use low temperature heat such as wastewater from oil and gas drilling, which invigorated interest in geothermals. But although many projects were announced, few made it to maturity. Meanwhile, enhanced geothermal systems that harness energy from deep below the earth’s surface are also under development, and how fast the industry grows will depend on how quickly those systems, which share some of the same challenges as the shale gas drilling and fracking industry, can be put in place.
• The biofuel industry will see significant growth going forward as oil prices rise. Between 2009 and 2035, worldwide consumption will grow by 2.4 million barrels per day as a conservative estimate (by IEA). New generations of biofuels are currently being developed from cellulose and algae, and as a result, more specialty chemical production will be added, which means more capital expenditures (capex) spending in this area.

FORECAST: Navigant estimates (based on IEA figures) that capex in hydropower will offer $970 million to $1.4 billion in opportunities for valve sales by 2030. Capex for biomass will offer $3.1 billion to $4.9 billion in valve sales opportunities while capex opportunities for geothermal would be $600 million to $900 million; solar will offer $1.1 billion to $2.1 billion; and biofuels will offer $9 million to $1.2 billion.

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India: A Lucrative Market for Valves

India has a very strong demand for flow control equipment and is about a $2 billion market for valves, according to Ravi Krishnan, principal consultant at Krishnan & Associates. The country is one of the few in the world that did not suffer much loss from the Great Recession, and it is poised for major growth in many of the sectors where valves are used, he said.

The reason it was not affected as much by economic woes was because “India is not a high credit market. We had a small bubble burst, but the country has a low dependence on imports, a closely regulated banking system and an economy that has seen resilient year-to-year growth,” he said. In fact, India’s economy is projected to grow 8.75% this year. The gross domestic product, which is growing at one of the highest rates in the world (about 7.5% to 8% per year for the last 6 to 7 years), just crossed the $1.4 trillion line, which is pretty astonishing growth compared to the $410 ­billion it was just 10 years ago, Krishnan pointed out.

The huge population growth means the country has a large pool of both skilled and unskilled workers, and while many of them require training, the country ranks second only to China in the number of engineers, he said. At the same time, the manufacturing sector in India is growing rapidly, held back only by infrastructure challenges, government red tape and the need for tech­nology expertise.

In terms of individual sectors:

The current power generation capacity is at 167 GWs, putting it about sixth in the world in generated power. About 64% of that is from fossil fuels (53% is coal, 10% from natural gas and 1% from oils), 33% from renewables and hydropower, and 3% from nuclear. Coal is highly abundant in the country with proven reserves estimated at 200 years. Privatization of the coal mining sector will only accelerate the process of getting the coal out of the ground.

In the oil & gas market, deregulation of the upstream market means that ­private players are expanding into the market, and equipment opportunities for exploration, production and modernization stand at about $6 billion. In the midstream market, the infrastructure is growing at a rapid rate with pipeline projects under development that will add 6,400 miles for natural gas, 5,200 for cooking gas and 5,125 for crude products. And in the downstream area, refining capacity is undergoing an expansion from 150 metric tons per annum (MTPA) to 250 MTPA by 2015. Geographically, the country is better positioned for downstream production than China because facilities are closer to crude oil producers.

Petrochemicals is one of the fastest growing sectors of the Indian economy, mirroring the rates of the GDP, Krishnan said, with a 15% growth in the polyester industry alone in 2010. The industry has also been helped along recently by government initiatives designed to promote investment in this area.

Government incentives play a role in encouraging private investment in water/wastewater in India, Krishnan said. That market is driven by the rapidly expanding infrastructure for the country as well as diminishing water quality, and more recently, public awareness of the need for clean water and sewage treatment.

In all of these market sectors, “there is a strong demand for flow control, fluid isolation and pressure relief, thus a continual need for valves,” he said.

In recent years, India’s manufacturing sector is also seeking partners and suppliers that are experienced. Traditionally, the market has been very price sensitive with low bidders at an advantage and western technology at a disadvantage. However, the country’s industry is now looking at life cycle costs of equipment more broadly as some purchases have brought serious problems (such as boiler failures in the power industry).

“A lot of industries that procured low-cost equipment are now seeing that wasn’t necessarily the best decision,” Krishnan says, so differentiated tech­nology is beginning to command premium pricing.

FORECAST: Long-term growth rates are projected at 9% for the Indian economy supported by strong domestic consumption and strong growth in the services sector. Nearly 100,000 MW of new commissioning in the power industry will occur by 2017. Power capacity will grow from 167 GW in 2010 to 400 GW over the next decade. Petroleum refining will grow from 153 tons per year installed capacity to 302 tons per year by 2017. The water/wastewater market will grow at a rate of about 15% annually. Consequently, the valve industry will realize annual growth rates of 12% to 14% going forward.

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Genilee Parente is managing editor of Valve ­Magazine. Reach her at gparente@vma.org.