March 2017 - McIlvaine Insights 6

Coal will continue to be used at only a slightly lower rate in the U.S. if the Clean Power plan is nullified. But new coal plants are unlikely due to a 60 year shale gas supply and no guarantee that Republicans will hold sway for the long term.

Thursday is the Valve IIoT webinar followed a week later by the IIoT in Oil and gas. See the schedule at Weekly IIoT Webinars

Suez has acquired GE Water to pursue the 95 billion Euro industrial market which Suez believes is bigger than the municipal market it now serves. This acquisition will pave the way for Suez to become a major player in IIoT and Remote O&M. Suez opened a monitoring center in France which provides intelligent management solutions for sanitation as well as water facilities around the world. In Chile Suez operates 40% of the municipal wastewater facilities. Will Suez leverage IIoT to make a big move in the industrial arena?

Decision guides for high performance valves are now being compiled on a collaborative basis. It is part of the Mcilvaine effort to empower IIoT with IIoW (Wisdom). Valves for severe, critical, or unique service in oil and gas and power are being analyzed. High Performance Valves and IIoT

The digital rapidity of IIoT has to be duplicated in IIoW. One route is to record your sales power point presentations and make them accessible. InterwebviewsT

The oil and gas market opportunity for IIoT & Remote O&M will rise to $168 billion in 2030. $110 billion will be onsite expenditures by the oil and gas companies but $58 billion will be for remote monitoring and support including Software as a Service (SaaS) and data analytics. Data analytics in turn will include IIoW (Industrial Internet of Wisdom). This in turn will foster Sourcing as Service activities.

NAFTA will be the largest segment with oil and gas IIoT & Remote O&M revenues rising from $13 billion in 2016 to $83 billion by 2030.

The NAFTA projections are based on the 2017 EIA reference forecast predictions for energy pricing and consumption. Key assumptions are:

EIA Assumptions for the Year 2040
	Reference	High	Low
Oil Price $/bbl.	109	226	49
N.G. Henry Hub $/million BTU	5	10	3
U.S. GDP % CAGR	2.2	2.6	1.6
Energy Net Trade BTU Quads	2	25	-11

Since July 2016, there has been a 20% increase in oil rig counts. Oil producers have also increased their exports to India. These trends are showing the rejuvenation of U.S. shale oil. The shale oil market is expected to gain momentum from mid-2017.

Tight oil makes the biggest contribution to crude oil production with a 50% growth from 4 million bbl./day now to 6 million bbl./d by 2040.

The oil and gas industry is already ahead of other industries in the use of IIoT. More than half of the oil and gas companies are deploying IIoT-enabled technology for remote monitoring. Asset reliability and energy efficiency round out the top three non-product use cases (LNS Research).

Some of the biggest opportunities will be created by regulations restricting flaring in the U.S. Honeywell and Aereon will collaborate on solutions to help industrial customers boost the safety, efficiency and reliability of their operations by leveraging Honeywell's Industrial Internet of Things (IIOT) ecosystem.

Aereon provides air emissions solutions for the complete oil and gas sector, from the wellhead to the gas station. It offers products for flare systems, enclosed combustion systems, high efficiency thermal oxidizers and vapor/gas recovery units. "Aereon's fundamental strength is its wide array of fit-for-purpose combustion and vapor recovery products supported by in-house expertise to design, manufacture and support its field-installed base," said Mark Zyskowski, Senior Global Vice President, Aereon. "We are pleased to be able to bring our expertise to the IIoT ecosystem that Honeywell is developing to help customers around the globe maximize value from their operations by tapping into the power of the IIoT."

There will be a high ROI from automating remote operations. Well drilling and completion is becoming increasingly complex while the reservoir of field expertise is not growing to keep pace. Automation and monitoring of remote operations leverages the expertise of the industry, decreases on site personnel time and improves safety.

The complete analysis of IIoT & Remote O&M opportunities is provided in LINK TO NO31

Details on the markets and project in oil and gas are found in LINK TO OIL, GAS, REFINING MKTS PROJECTS

$11.5 billion Opportunity for High Performance Valves in IIoT and Remote O&M

The Industrial Internet of Things (IIoT) is a powerful new force shaping the way valves will be purchased. The demand for valve automation and communication of valve health and performance will be driven by IIoT advances. With the rapid reduction in the cost of high quality sensors and the introduction of wireless technology smart valves will be communicating with remote operators on an accelerated basis.

Emerson, Flowserve, Pentair, GE and other valve companies are already pursuing this market and generating revenues of $7 billion. This includes smart valve revenues plus valves sold through IIoT decision makers. Some are third party operators. In other cases, they are corporate entities with many plants and centralized IIoT based valve selection. One important segment is repair part inventory and replacement.

The world industrial valve revenues will grow from $62 billion in 2017 to $88 billion in 2025

World Industrial Valve Revenues $ millions
Segment	2017	2025
Traditional route to market	55	71
New route to market	4	10
New smart revenues	3	7
Total	62	88
IIoT Impacted Market	7	17

The traditional market will grow at 3% per year. However, the new route to market through remote O&M will grow at 13%/yr. as will the additional revenues generated by smarter valves.

World High Performance Valve Revenues $ billions
Segment	2017	2025
Traditional route to market	30	42
New route to market	2	5
New smart revenues	1.5	6.5
Total	33.5	53.5
IIoT Impacted Market	3.5	11.5

High performance valves comprise 55% of the total market today but with IIoT and remote O&M will represent 60% of the market in 2025. High performance valves include those in

If general purpose valves are the foot soldiers of IIoT then high performance valves belong in the armoured division. Their performance is much more critical to the outcome of the battle to improve plant performance.

Not only can valve companies boost Capex revenues for smart valves and Opex revenues for service and parts but they can acquire process data to help them design better valve products for specific applications. This proliferation of information about valve performance will serve as a giant resource of valve white papers. Proof of lowest total cost of ownership will be automatic.

The valve companies who best leverage this process and valve performance knowledge will be the most profitable. Those focused on IIoT will achieve profit gains of 45% in the high-performance segment and 32% overall. While those who miss the boat will suffer profit decreases of 10%.

McIlvaine has coined the term Industrial Internet of Wisdom (IIoW). The rate of progress can be viewed as 1 x IIoT + 2 x IIoW. Transmitting all this data to better manage assets is only 1/3 of the opportunity. 2/3 of the opportunity is the improvement of assets and operations. Valve companies will be the source of Valve IIoW but only if they understand the new market paths.

IIoT promises to revolutionize industry but only if it is accompanied by IIoW (Industrial Internet of Wisdom). Decisive classification of high performance valve applications, designs, and materials is critical to IIoT success. Analysis of performance and comparison of results is important. Mcilvaine has four services to support Valve IIOW.

Valve % Profit in 2025 due to the Impact of IIoT and Remote O&M
	High Performance Segment		Total (general and high performance)
Factor	IIoT focused Valve Companies	Others	IIoT focused Valve Companies	Others
Increased Market Share	15	-15	10	-10
Smart Revenues	10	0	7	0
Increased Base Prices with Better Products	20	0	15	0
Profitability Impact	45	-15	32	-10