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Weekly selected highlights in flow control, treatment and combustion from the many McIlvaine publications.
- Hydraulic Fracturing Presents a Most Profitable Market Opportunity for CFT Product and Service Companies
- Forecasting of Most Profitable Markets for CFT Products and Services
- Hydraulic Fracturing Presents a Most Profitable Market Opportunity for Pump Manufacturers
- Dry Scrubbing: Most Profitable Markets
Hydraulic Fracturing Presents a Most Profitable Market Opportunity for CFT Product and Service Companies
The hydraulic fracturing market offers the opportunity for combust, flow and treat (CFT) suppliers to generate large unit margins and substantial gross profits by creating products with lower total cost of ownership. This is due to the severe and critical service requirements as well as rapidly evolving technology.
McIlvaine is offering a service to help suppliers quantify the market in terms of the obtainable gross profit at various prices levels resulting in the revenue and gross margin combination to provide the Most Profitable Market (MPM).
The market is large and will grow at close to double digit rates in the coming years. Because the frac sand manufacturing plants are now being built near fracking sites and because many of the same CFT products are used in both the two markets can be treated as one. The Total Available Market (TAM) is $70 billion per year for all CFT products and services.
The pump and valve TAMs are each in excess of $3 billion per year. There are very large markets for instrumentation, software, dust collection, liquid filtration, sedimentation, centrifugation, dryers, conveyors and screens.
The Serviceable Obtainable Market (SOM) is the market which can be addressed with the lowest priced product at even small unit margins. The Most Profitable Market (MPM) is the one for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
Hydraulic fracturing offers a large and fast growing MPM for CFT manufacturers. New developments in the last month will cause a large increase in fracking sales. It now is a good bet that the U.S. will produce 25 million bbl/day of liquids by 2025. The oil companies are saying that OPEC and IEA are wrong. They are setting their capital budgets on this premise.
OPEC expects shale growth to slow after 2023, causing U.S. output to peak at 14.3 million barrels a day by 2028. OPEC then expects U.S. production to fall to an average of 12.1 million barrels a day by 2040. IEA expects shale production to plateau in the mid-2020s, ultimately falling by 1.5 million barrels a day in the 2030s due to resource constraints.
Exxon and Chevron, now two of the most significant players in the Permian, are much more optimistic even under lower oil price scenarios. The two majors are expected to produce close to 2 million barrels of oil equivalent a day combined from the Permian by the mid-2020s, effectively tripling their 2018 output. Chevron plans to increase production to 600,000 barrels a day by 2020, reaching 900,000 barrels a day by 2023. Exxon, meanwhile, expects its Permian production to hit 1 million barrels a day by 2024.
Shale investment is low and the returns are seen very quickly. Exxon reports that wells in the Permian are capable of delivering returns of more than 10 percent at an oil price as low as $35 a barrel. Chevron owns most of its land outright and is looking at even higher returns. Both companies see continuing growth past 2025 due to the fact that the amount of oil recovered to date is less than 10 percent of the potential.
Royal Dutch Shell and BP are also building prominent positions in the Permian. This group has the financing to create the necessary infrastructure including pipelines for production of associated natural gas. They can also invest in the refineries and petrochemical facilities to process the surplus of light, sweet crude and associated gas that shale basins generate. It is therefore likely that U.S. liquids production could reach 25 million barrels/day by 2025 at a price of $55/barrel and that it will not nosedive thereafter.
The international market is looking very promising. The major oil companies are pursuing opportunities in South America and China. Saudi Arabia is pursuing hydraulic fracturing for gas extraction. The purpose is to generate power with gas turbines instead of oil fired boilers.
Hydraulic fracturing processes utilize pumps for chemical blending and treatment of water which flows back as a result of the fracking operation. The big market is in the actual pumping of proppant into wells. This fluid which consists of sand, water, and chemical additives is pumped at very high pressures. The purpose is to create fractures in the shale. Oil then flows through these fractures to the surface.
These large pumps are typically installed on trucks which can then move to another site once the fracturing process has been accomplished. Due to the pressures and abrasive nature of the fluid, the wear rates on pump parts are measured in months and not years. When downtime, labor, and part costs are considered the costs are high. There is a large potential for a company to design a superior pump. Even with a high unit margin the company can generate a large sales volume if it can demonstrate the lowest total cost of ownership. Given the size of the market the company with a superior product can pursue a very large MPM.
Weir is one pump manufacturer pursuing this course. The Weir SPM® QEM 3000 is designed to extend maintenance cycles by a factor of three as compared to what operators are achieving in similar service conditions currently. This includes expanding traditional frac pump life span to improve uptime and productivity while reducing maintenance costs and total cost of ownership (TCO) by at least 17 percent. Note that this 17 percent differential would be a conscious decision by Weir to price its pumps to maximize gross profit. A 17 percent differential is sufficient to create a large market share.
What is the Most Profitable Market (MPM)? The TAM is well over $1 billion/yr. Can Weir validate a three times longer life for parts? If so what is the pump cost compared to competitors? Where should the price be set? At a 17 percent TCO advantage Weir might achieve a 20 percent market share. If it raises prices 7 percent it may reduce its total revenue but may still have a larger MPM gross profit. So there is the need to evaluate the variables and determine how to obtain the largest MPM gross profit.
Another example is valves. Cameron claims that its frac sand gate valves have three times the uptime of competitor designs. When you take into account downtime, labor, and repair part costs what is the difference in total cost of ownership for valves if prices are the same as competitors? Once this differential is established the price to maximize MPM gross profit can be set.
IAC has a new dual feed rotary dryer which uses the moisture in the trim feed to cool hot sand. This increase in efficiency provides substantial energy savings along with other benefits. The TCO needs to be compared to other rotary designs as well as to fluid bed designs and the Optimum MPM program adopted.
Frac sand plants are changing their requirements and are requiring finer sands as well as better uniformity in size percentages. Wet and dry screens are therefore critical components. Screen life is measured in months. This results is big differences in total cost of ownership and opportunities for high gross margins.
The frac sand manufacturing plants and the hydraulic fracturing operations both have water challenges. Often both are competing for available water. Both need to maximize water reuse.
HYDRAULIC FRACTURING WATER CYCLE
Wastewater treatment involves chemicals, filtration and other separation processes as shown in the Anguil frac sand water reuse system.
There are many opportunities for water treatment system providers as well as suppliers of chemicals, pumps, and filters to provide products with a lower total cost of ownership.
The market opportunity for treatment chemicals suppliers will grow faster than the overall market. The development of slickwater and the use of various quantities of fluids at varying pressures all depend on the chemical combination which is selected.
The goal of the CFT company is to increase profits. Unless the company creates reliable MPM forecasts, it may place too much emphasis on SOM. This results in lower gross profit.
The McIlvaine Program
McIlvaine will provide custom forecasts of the SOM and MPM for any product. These can be supplied by country, process and even by individual owner. Purchases by Exxon Mobil, Chevron, Shell, Schlumberger, Saudi Aramco, Sinopec, Covia and Preferred Sands can be forecast. Site specific impacts on total cost of ownership can be considered.
Typically the assignment will include access to N049 Oil, Gas, Shale and Refining Markets and Projects and to the applicable product market report http://home.mcilvainecompany.com/index.php/markets.
It also includes Frac Sand Decisions 204I Frac Sand Plant CFT Decisions
Every company should strive to maximize the sales of higher performance products and services. Its R&D should be oriented to increasing the number of products with high margins due to their lowest total cost of ownership (LTCO). It should also be striving to increase the amount of its LTCO over competitive products. This will result in higher gross profit. The opposite side of this coin is that the competition will be striving to do the same. So the LTCO is always a function of the differential to all of the competitors. Therefore LTCOV needs to be a continuous effort. Changes in the MPM need to be quickly addressed by all the involved disciplines.
For more information contact Bob McIlvaine@mcilvainecompany.com or call him at 847 226 2391.
Forecasting of Most Profitable Markets for CFT Products and Services
A strong case can be made that market forecasting should be the foundation of a business program and not a peripheral tool. In order to become the foundation of the business model it is necessary to generate the most reliable Most Profitable Market forecast (MPM). This forecast needs to include projected unit sales, price, unit margins and gross profit. How can anyone argue against Utopia? These forecasts will determine where R&D, sales, and marketing efforts need to be made and at what investment. The salient argument against this approach is that it is impossible or impossibly expensive.
While perfection may not be possible a very high value MPM forecast can be achieved because of
· the huge amount of digital information available
· the rapid development of process management software and data analytics
· McIlvaine can help organize all of this data for you for any CFT product or service
The Total Available Market includes all sales of the product whether the supplier has the specific design needed or the geographical infrastructure to serve the market.
The Serviceable Obtainable Market is the market which can be served with the lowest priced product. The MPM market is one for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
Every company should strive to maximize the sales of higher performance products and services. Its R&D should be oriented to increasing the number of products with high margins due to their lowest total cost of ownership ( LTCO). It should also be striving to increase the amount by which it does have the LTCO over competitive products. This will result in higher gross profit. The opposite side of this coin is that the competition will be striving to do the same. So the LTCO is always a function of the differential to all of the competitors.
MPM Program
MPM forecasting needs to be pursued robustly and continuously. It starts with top management setting gross profit goals.
Market forecasts should be prepared in such detail that they shape the specific initiatives relative to products, processes, industries and even individual large owners. Most combust, flow, and treat products and services are purchased by less than 20,000 companies around the world. More than half the coal fired power plant, refinery, oil and gas, mining, and steel purchases are made by a very small number of companies.
The forecast should determine the gross profit which is achievable with the TCO of present products. This should be prepared for all the major purchasers.
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BASF
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Gate Valve
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Isolation
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BASF
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Gate Valve
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Control
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BASF
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Globe Valve
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Isolation
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BASF
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Globe Valve
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Control
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These forecasts should be prepared for each product for a company such as BASF and then for the individual plants. R&D and engineering design decisions should be made on the basis of potential gross margin and profit and not just on the total market. If the gross profit forecast is reduced because of a better competitors design, then the magnitude of the problem should be quantified. Decisions can then be made as to whether the investment in a new design is warranted. The knowledge of the LTCO for each process in chemical plants such as operated by BASF also needs to be taken into account. BASF is in a number of industries. It makes chlorine increasingly with the membrane processes but is phasing out its mercury process based chlor alkali facilities. Valve requirements are different for each process.
Services available from McIlvaine.
The starting point is the Total Available Market. McIlvaine already has forecasts for TAM for many thousands of CFT products and services in many industries and in each individual country. The background information needed to determine unit margins and gross profit has been systematically gathered by McIlvaine over the last 45 years. Some of this data appears in the many market reports and databases. Other information has not been published but is available to McIlvaine consultants.
One course of action is to purchase the report or reports with TAM and then add the MPM on a continuing basis with McIlvaine support
Information on the markets is shown at http://home.mcilvainecompany.com/index.php/markets
Information on the databases is shown at http://home.mcilvainecompany.com/index.php/databases
Information on other relevant services is shown at http://home.mcilvainecompany.com/index.php/other-services
For answers to your questions contact Bob McIlvaine at rmcilvaine@mcilvainecompany.com cell 847 226 2391
Hydraulic Fracturing Presents a Most Profitable Market Opportunity for Pump Manufacturers
The hydraulic fracturing pump market is one of the Most Profitable Markets (MPM) for pump suppliers. It is large and will grow at close to double digit rates in the next few years. The application is extremely challenging. This creates a situation where a better designed pump can be sold at a much higher price. The repair part market is bigger than the new equipment market. So this creates a large combined market.
There are a few major purchasers each of whom will spend more than $50 million per year on pump hardware, repairs and services. This makes direct sales possible. Without sales commissions or distributor markup the gross profit will be higher.
It is recommended that pump companies invest in very detailed market forecasting which is focused on increasing profits and not just revenues. This forecast can be described as the “Most Profitable Market” (MPM). The $70 billion industrial pump market is the Total Available Market (TAM).
The Serviceable Obtainable Market (SOM) is the market which can be addressed with the lowest priced product at even small unit margins. The Most Profitable Market (MPM) is the one for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
Hydraulic fracturing offers a large and fast growing MPM for pump manufacturers. New developments in the last month will cause a large increase in fracking pump sales. It now is a good bet that the U.S. could be producing 25 million bbl/day of liquids by 2025. The oil companies are saying that OPEC and IEA’s more pessimistic forecasts are wrong. They are setting their capital budgets on this premise.
For more information on the MPM forecasts for hydraulic fracturing and other pump applications click on N019 Pumps World Market
Dry Scrubbing: Most Profitable Markets
The largest market for dry scrubbing is to capture SO2 from coal fired power plants. Wet scrubbing is used by 95 percent of the coal plant operators. The reason is the much lower reagent cost and the opportunity to generate a byproduct (gypsum). Dry scrubbing offers much lower capital cost as well as reduction in water consumption and pollution. In many cases the dry scrubbing option is eliminated by default. Limestone for wet scrubbing is widely available at a predictable cost. Reasonably priced lime for dry scrubbing may only be available if a lime supplier agrees to build a dedicated kiln just for a plant or several plants in a region.
The catalytic filter with dry sorbent injection (DSI) is now proven in many smaller applications. The recent introduction of 6 meter long candles makes it a candidate for power plants as well as the smaller applications. One vessel instead of three is used to reduce NOx, SO2, other acid gases, and particulate. Furthermore clean hot gas at 600F is available for energy recovery.
System and reagent suppliers are challenged to determine which industries and countries to pursue. The goal is always maximizing profit not revenue. So opportunities should be quantified based on predicted return. Should a lime company ship product from one continent to another and be content with a low gross profit or should it build a plant close by and generate high gross margins? Should a system supplier and lime producer team to provide a total solution based on a yearly semi fixed contract ($ per ton of pollutant removed during the year)?
McIlvaine is offering a service to help suppliers quantify the market in terms of the obtainable gross profit at various price levels resulting in the revenue and gross margin combination to provide the Most Profitable Market (MPM).
Total Available Market (TAM) for dry scrubber systems, O&M, and reagent is $30 billion/yr. This includes the market lost to wet scrubbing. The Serviceable Obtainable Market (SOM) is the market which can be addressed with the lowest priced product at even small unit margins. This market is $5 billion per year and eliminates the wet scrubber portion. The Most Profitable Market (MPM) is the one for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
The main types of dry scrubbing systems are dry sorbent injection (DSI) and systems which use a dedicated vessel for the reaction. Vessels can be segmented into those which fluidize and those which recirculate the reagent.
Dry scrubbing is a market which is being pursued worldwide by air pollution system designers, reagent suppliers, and suppliers of components such as filters, valves, fans, conveyors, and instrumentation. There has been recent success with third party remote monitoring and guidance. The success at NAES plants has been well documented at Dry Scrubber User Association (DSUA) meetings.
Dry scrubbing is being used to capture acid gases in a variety of industries around the world. The largest installations have been in coal fired power generation. For decades the U.S. was the main market. Now power plants around the world are adopting this technology. Dry scrubbing is now widely used in waste to energy plants, glass plants, and in many other industries. So the market has evolved from one country and one industry to many countries in many industries.
The MPM for system suppliers is limited to those regions where a lime producer offers a reasonably priced product. The fact that reagent consumption is a very large percentage of total cost of ownership dictates a close working relationship between system and lime suppliers.
The McIlvaine MPM forecast is being customized for any lime, system or component supplier. The MPM is derived from the SOM which is provided in N027 FGD Market and Strategies. McIlvaine will assist in determining what portion of SOM at what pricing and packaging strategy constitutes the MPM. Part of the analysis will be to determine the cost of ownership of all the options. This in turn will be based on decades of evidence gathered in 44I Coal Fired Power Plant Decisions. For suppliers of fibers, media and bags the additional insights in N021 World Fabric Filter and Element Market will be utilized. In addition McIlvaine is working with others such as International Filtration News to provide ongoing total cost of ownership analyses. The Dry Scrubber Users Association is a continuing source of TCO evidence.
The MPM forecast of purchases by each owner is also available. A small number of power plants operate most of the dry systems. Forecasts for each owner and for each plant within a system are available based on data extracted from 42EI Utility Tracking System for coal fired power plants around the world and N032 Industrial Plants and Projects for industrial plants
For more information contact Bob McIlvaine at rmcilvaine@mcilvainecompany.com 847 226 2391.
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