August 2015 - Water Market Insights 160

The markets for valves and pumps are being continually impacted by changing oil prices, the Chinese slowdown, Iranian politics and technology changes such as the lower hydraulic fracturing prices and improvements in coal to syngas. McIlvaine is revising all pump and valve forecasts quarterly and will review these changes in webinars explaining which factors were used in the new forecasts and what uncertainties remain.

These 40-minute webinars will display the forecasts by region and industry and provide a summary of the 50,000 forecasts in the full reports. The webinars are free to subscribers to the reports (N019 Pumps World Market or N028 Industrial Valves: World Market). The cost to non-subscribers is $700 but the cost is deductible from purchase of the report.

The Valve Market Forecast Changes webinar will be held on September 11 at 10 a.m. Central time. More information

The Pump Forecast Changes webinar will be held on September 25 at 10 a.m. Central time. More information

A webinar on September 10 at 10:00 a.m. Central time will cover the options and issues regarding selection of fossil-fired power plant pumps. There is a very ambitious goal to provide a website with the most comprehensive information on power plant pumps. This is part of a whole knowledge system to provide Alerts, Answers, Analysis, and Advancement in every aspect of power. Owners and operators around the world have free access to 44I Power Plant Air Quality Decisions (Power Plant Decisions Orchard) and 59D Gas Turbine and Combined Cycle Decisions. The Power Plant Pumps Decision Guide is one of the subsidiary websites in both these knowledge systems.

There is still time for vendors to submit one or two slides for the display deck. We intend to discuss issues during the session but due to the 90-minute limit, most of the time will be just spent on determining which types of pumps are best suited for specific applications.

The website already exists but there is conflicting information. For example, the introduction of ceramic impellers for FGD slurries needs to be more closely examined. These more detailed subjects will be pursued with continuing correspondence and future webinars.

If you want participate in the discussion and are an owner/operator or subscriber to 44I, 59D, or N019 Pumps World Market, there is no cost for participating in the actual discussion. Otherwise there is a $300 participation fee. For more information on supplying data or participating, contact Bob McIlvaine at rmcilvaine@mcilvainecompany.com, 847-784-0012 ext. 112.

The pump industry will grow by 17 percent from 2015 to 2019 at oil prices of $80/barrel during the period. At $40/barrel, the growth will only be 3 percent. These are the latest forecasts in Pumps World Markets published by the McIlvaine Company. (www.mcilvainecompany.com)

There are a number of variables which will determine the market growth for pumps. New insights are continually generated which justify changes in the forecasts. The Iran nuclear agreement is just one example. The plunging economy in China is another. However, the most significant development recently is the plunge in oil prices to $40/barrel.

The industrial pump market is dominated by oil and gas which represents 24 percent of the present market. However water and wastewater, power, refining, petrochemical and other industries account for 76 percent of the market. The impact of future oil prices on the market can be best predicted by estimating the impact on the individual segments.

Oil and gas can be divided into two segments. The aftermarket and routine purchases for small projects represent two-thirds of the total or 16 percent of the present total pump market. The longer term large project revenues represent only 8 percent of the current market. If the price of oil were to continue to remain at $40/barrel through 2019, revenues in this segment would shrink over the period.

At $40/barrel oil the long range pump product revenue from the oil and gas large project segment would shrink by 75 percent from 8 percent of the current market in 2015 to an amount in 2019 which is equivalent to 2 percent of the 2015 market. On the other hand, the oil and gas aftermarket and market for small projects would remain flat during the four year period. In fact, the market for pumps for pipelines will be positively impacted as low cost oil and gas needs to be moved to more places.

The petrochemical market will grow faster at $40 oil. Municipal water and wastewater will be unaffected by the fluctuation in oil prices. Lower prices will result in more gasoline being consumed and more oil being refined. The power market will be impacted by greater use of gas turbine combined cycle power plants but total revenues for pumps in the power market will not be impacted greatly by fluctuating oil prices.

McIlvaine will continue to assess the likely changes in oil prices based on the following factors:

o Hydraulic fracturing break-even point is $30 to $50/barrel equivalent based on improved management practices and the extraction of more product from existing wells.

o Bechtel experience with coal seam gas to LNG in Australia indicates lower break- even costs than subsea extraction.

o China coal to syngas and chemicals could be an alternative which is more than competitive at $40 oil. McIlvaine has recommended marrying the two stage (HCl/SO₂) scrubbing along with conventional hydrochloric acid leaching to extract rare earths and generate byproduct revenue.

o The slowdown in China could impact demand as could economic problems in Greece and other countries.

o Demand is a function of industrial activity. There is little equipment needed to extract Saudi oil. On the other hand, over 2,000 companies rely on the Alberta oil sands market for their revenues. The greater the industrial activity the greater the oil demand.

o Saudi Arabia could choose to restrict production. In many ways the situation is analogous to the gold in Ft. Knox. You could sell it at any price and generate positive cash flow. However it is a precious and finite resource which is important to future generations.

o Market driven companies will typically be reactive rather than proactive and will only increase drilling after oil prices rise to a level to make drilling profitable.

Some of these developments are more predictable than others. The low oil prices leads to lower extraction activity which eventually leads to shortages and higher prices. On the other hand, wars, oil spills and earthquakes cannot be easily predicted. As a result there will be the need for continuous changes in the forecasts to take into account the surprises.

The market for industrial valves will grow by 16 percent from 2015 to 2019 at oil prices of $80/barrel during the period. At $40/barrel, the growth will only be 9 percent. These are the latest forecasts in N028 Industrial Valves: World Market published by the McIlvaine Company. (www.mcilvainecompany.com)

There are a number of variables which will determine the market growth for valves. New insights are continually generated which justify changes in the forecasts. The Iran nuclear agreement is just one example. The plunging economy in China is another. However, the most significant development recently is the plunge in oil prices to $40/barrel.

The industrial valve market is led by oil and gas which represents 15 percent of the present market. However water and wastewater, power, refining, petrochemical and other industries account for 85 percent of the market. The impact of future oil prices on the market can be best predicted by estimating the impact on the individual segments.

Oil and gas can be divided into two segments. The aftermarket and routine purchases for small projects represent two-thirds of the total or 10 percent of the present total pump market. The longer term large project revenues represent only 5 percent of the current market. If the price of oil were to continue to remain at $40/barrel through 2019, revenues in this segment would shrink over the period.

The chart shows percentages of the present 2015 market for the year 2019. At $40/barrel oil the long range valve product revenue from the oil and gas large project segment would shrink by 60 percent from 5 percent of the current market in 2015 to an amount in 2019 which is equivalent to 2 percent of the 2015 market. On the other hand, the oil and gas aftermarket and market for small projects would grow slightly during the four year period. In fact, the market for pipeline valves will be positively impacted as low cost oil and gas needs to be moved to more places.

The petrochemical market will grow faster at $40 oil. Municipal water and wastewater will be unaffected by the fluctuation in oil prices. Lower prices will result in more gasoline being consumed and more oil being refined. The power market will be impacted by greater use of gas turbine combined cycle power plants but total revenues for valves in the power industry will not be impacted greatly by fluctuating oil prices.

McIlvaine will continue to assess the likely changes in oil prices based on the following factors:

o Hydraulic fracturing break-even point is $30 to $50/barrel equivalent based on improved management practices and the extraction of more product from existing wells.

o Bechtel experience with coal seam gas to LNG in Australia indicates lower break- even costs than subsea extraction.

o The slowdown in China could impact demand as could economic problems in Greece and other countries.

o Saudi Arabia could choose to restrict production. In many ways the situation is analogous to the gold in Ft. Knox. You could sell it at any price and generate positive cash flow. However, it is a precious and finite resource which is important to future generations.

o Market driven companies will typically be reactive rather than proactive and will only increase drilling after oil prices rise to a level to make drilling profitable.

Some of these developments are more predictable than others. The low oil prices lead to lower extraction activity which eventually leads to shortages and higher prices. On the other hand, wars, oil spills and earthquakes cannot be easily predicted. As a result, there will be the need for continuous changes in the forecasts to take into account the surprises.

§ Prophecy provides Updates on its Chandgana Coal-fired Power Plant and Ulaan Ovoo Mining Project in Mongolia

§ TEPCO moving forward with 2 x 500 MW IGCC Facilities in Fukishima Prefecture

§ ECUST-ICCT provides Gasification Technology and is actively developing Novel Technologies

§ Connecticut DEEP schedules Hearing to approve Air Permits for CPV Towantic Energy

§ Watts Bar Unit 2 is Substantially Complete; TVA Requests Issuance of License

§ BWXT Subsidiary awarded Design and Manufacturing Contracts for HPR1000 Nuclear Power Plant in Guangxi, China

§ Approval by Georgia Public Service Commission of $169 Million Capital and Construction Costs submitted as part of 12^th Vogtle Construction Monitoring Report

§ Investment in Coal-Fired Power Plants will exceed Other Energy Sectors in 2016

§ Total Solutions Hot Topic Hour (August 20) confirms the Trend toward Greater Outsourcing

McIlvaine webinars offer the opportunity to view the latest presentations and join discussions while sitting at your desk. Hot Topic Hours cater to the end users as well as suppliers while the Market Updates cater to the suppliers and investors. Since McIlvaine records and provides streaming media access to these webinars there is a treasure trove of value only a click away. McIlvaine webinars are free to certain McIlvaine service subscribers. There is a charge for others. Hot Topic Hours are free to owner/operators. Sponsored webinars provide insights to particular products and services. They are free. Recordings can be immediately viewed from the list provided below.

DATE	UPCOMING HOT TOPIC HOUR	UPCOMING MARKET UPDATES
Sept. 10, 2015	Power Plant Pumps A decision guide for pump selection for intake, cooling, ultrapure water, steam and wastewater from coal and gas turbine power plants. More information
Sept. 11, 2015		Valve Market Forecast Changes The oil prices and Chinese economy will be two of the drivers evaluated as the basis for adjustments in the 2016-21 forecasts for industrial valves. More information
Sept. 24, 2015	Power Plant Water Monitoring A decision guide for selection of monitoring equipment for intake water, cooling, ultrapure water steam and wastewater form coal and gas turbine power plants. More information
Sept. 25, 2015		Pump Market Forecast Changes The oil prices and Chinese economy will be two of the drivers evaluated as the basis for adjustments in the 2016-21 forecasts for pumps. More information
October 1, 2015	Power Plant Water Treatment Chemicals A decision guide for selection of chemicals to treat intake water, cooling, ultrapure water steam and wastewater form coal and gas turbine power plants. More information
October 2, 2015		Fabric Filter Market Forecast Changes New technology such as ceramic catalytic filter elements, the Chinese economic slowdown, oil prices and other factors will be explained in terms of their impact on the 2015-21 market for fabric filters, bags, media, and fibers. More information
October 22, 2015	Precipitator Improvements Decision guide to dry, hybrid and wet electrostatic precipitators for solid fuel combustion, refining and other industries. Focus will be on improvements to the electricals and components. More information
November 12, 2015	Dry Scrubbing Expansion of the dry scrubber decision guide for power plants, incinerators, and other applications involving SDA, CFB, and DSI. More information
December 3, 2015	NO_x Reduction Decision guide to selection of SCR and SCR systems, ammonia injection, reagents, catalysts for power plants refineries, incinerators, chemical plants and other applications. More information