01 February 2007
The process automation industry has entered 2007 in its rudest health and, arguably, its most optimistic mood for at least a decade. Almost uniquely in most observers’ living memory, none of the majors is in serious financial difficulty, nor is any rumoured to be in imminent danger of acquisition or, worse still, of being the subject of a distress sale. Moreover, for the second year running market analysts have been having to upgrade their forecasts as market growth outstrips their earlier predictions. In the Spring of 2005, ARC Advisory Group estimated the size of the total process automation market worldwide in 2003 at $50bn and predicted that it would grow at 5.1% compound to reach more than $64bn by 2008. Now, in its latest analysis published in December 2006, it estimates the size of the market at $58bn worldwide in 2005, suggesting that it actually grew at 7.7% compound between 2003 and 2005, and predicts that it will grow at 6.4% compound over the succeeding five years to reach nearly $79bn by 2010. What goes for the market as a whole is even more marked for the bellwether Distributed Control System (DCS) sector. It’s not so many years ago that analysts were arguing that the DCS market was mature and that vendors could in future look for little more than replacing and upgrading existing legacy systems, with the emphasis increasingly on software and services at the expense of declining hardware sales. So back in 2004 ARC predicted that the global DCS market would grow at an average 4% compound in the five years from 2003 to 2008, whereas it in fact grew 6% in the following year alone. As a result last year they upgraded their forecast to one of 4.5% over the five years from 2004 to 2009. In fact, however, as their most recent analysis of the DCS market revealed, the market actually grew at very nearly 9% between 2004 and 2005 to reach some $11bn and ARC has once more upgraded its forecast, this time predicting that the market will grow at an average compound rate of some 7% over the five years from 2005 to reach approaching $16bn by 2010. So what’s happening? Well clearly one driver is the explosion in demand from China, India and the Middle East and, to a lesser extent from Eastern Europe and the former Soviet Union. The Chinese DCS market grew 10% in 2005 and is predicted to accelerate so that its average growth rate over the next five years will be 14% and its value by 2010 some $1.3bn. But it’s worth considering whether some other factors aren’t also at work. One is almost certainly technological change. As long ago as 2002, ARC estimated that some $65bn worth of installed process automation systems were approaching the end of their useful life. That was partly because it was becoming impossible to obtain support, although vendors pride themselves on providing continuity. Indeed Yokogawa, for example, continues to support the original Centum DCS it introduced back in 1976. More important than straight mechanical or electrical obsolescence is the fact that 25 or 30 year old hardware and software is unable itself to support state of the art strategies for increased throughput, improved quality, enhanced productivity, more sophisticated asset management and tighter integration with enterprise level systems. So process manufacturers in the mature markets of Western Europe and North America are being offered a lifeline in terms of new process automation technology which could enable them to compete on more equal terms with their new competitors in the developing world, but they can only exploit it if they upgrade, or more likely completely replace, their legacy control systems. As a result process automation vendors are finding that the vicious circle of pared budgets and deferred investment that has characterised recent years has turned virtuous. And there are a number of other factors contributing to that same trend. Chief of these is the rise in energy costs generally and in oil prices in particular. Although well off its peak of last year, even an oil price of $50 a barrel is sufficient to make viable many exploration and development projects which only a couple of years ago were ruled out on cost grounds and the long term trend is still up rather than down. Moreover the impact is not just on new projects. Many fields which would previously have been regarded as approaching the end of their natural lives are now seeing their lives extended, often through refurbishment or complete replacement of control and safety systems and instrumentation. And what holds true upstream applies equally in the refining sector where shortage of capacity, and the difficulties of adding new capacity in both Western Europe and North America, has caused operators to seek to increase the throughput of existing facilities, again often through more sophisticated control. But high energy prices aren’t the only factor now working in favour of automation vendors. There’s a distinct feeling in the process industries that the cost cutting strategies of the late ’90s have gone quite far enough, if not a little too far. The swingeing criticisms of BP’s operational and management practices in last month’s Baker report into the Texas City accident in the US have brought these issues to a wider audience but refinery and process plant operators themselves had already anticipated many of the criticisms and begun to invest in control system upgrades and new generation safety systems. Indeed BP itself as long ago as January of 2006 had announce that it planned to invest some $1bn over five years in improvements at Texas City which would include installing modern process control systems on major units. A month later it was revealed that it had placed contracts with Emerson Process Management for installation its DeltaV DCS on no less than 18 different production units at Texas City and its two other largest refineries in the US at Whiting, Indiana and Carson, California. But the automation industry hasn’t just been sitting back on its laurels and profiting from its customers’ discomfort. Many observers believe that the biggest single factor affecting process automation investment in the next few years will be the rapid adoption of what has been described as “the most important technology change in process automation since the microprocessor spawned the DCS”. That technology is, of course, wireless and it was entirely appropriate that it was only 10 days into 2007 when Emerson launched the ‘Rest of the World’ 2.4GHz version of the 900MHz ‘Smart Wireless” technology it had introduced in the US in October 2006. Three years of field trials with users such as BP have confirmed that wireless can and does reduce the cost of installation of process field devices by an order of magnitude – from typically $10,000 to $1000 to install a $1000 device - and has “enabled us to do things we simply could not do before,” as David Lafferty of BP’s Chief Technology Office put it. Whether it means vendors selling ten times as many field devices in the future remains to be seen but Emerson is already reporting wireless sales running ahead of its own predictions in the US, despite the unresolved standards issues which, it was feared, might cause users to defer a decision. With Honeywell poised to launch its own realisation of the technology within months and other vendors set to follow suit, wireless is already gathering an unstoppable momentum which promises to make 2007 a memorable year for process automation vendors and users alike.
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