During the recent meeting of the European Congress of the Valves and Taps Industry (CEIR) in Lyon, France, the 55 representatives from 11 different European nations discussed issues that closely mirror topics of concern to the valve community in the United States and Canada. VMA President Bill Sandler was on hand to represent the Valve Manufacturers Association, and noted, “The oil crisis was definitely on the minds of attendees, but the general industry slowdown, the EU’s machine directives and regulations affecting water quality were also of particular interest.”
The Oil and Gas Crisis
In 2015, world oil consumption increased around the world even in OECD (Organisation for Economic Co-operation and Development) countries. Despite this, production gains far exceed consumption gains, leading to a world surplus of 2 million barrels/day (M bbl/d).
According to presenters Bruno Floris and Jean-Charles Guilhem of BSF Energy Consulting, this has happened due to many factors, including the U.S. shale oil production boom. In 2014, the U.S. became the number one oil producer, overtaking Saudi Arabia and Russia. Its production increased 44% between 2010 and 2014, representing 85 to 90% of global production increase; growth continued until mid-2015 when production decreased year-over-year by the end of the last quarter, due in large part to the crash in oil prices.
Another factor is Saudi Arabia’s market share strategy. In November 2014, Saudi Arabia decided to protect its market share in the face of swelling U.S. crude output, and in 2015 increased its own output to a 30-year high of 10.5 M bbl/d, which effectively started a price war. Besides putting U.S. and Canadian oil production at risk, it stopped the development of offshore projects. Another challenge for oil prices is coming in the form of Iran’s return to the oil market. Also, new U.S. projects expected to be online between 2015 and 2019 could put another 9 M bbl/d in the production stream—approximately 10% of world oil consumption.
The one force pushing oil a bit higher is the fact that mature fields are less productive and the low investment returns at this time discourage exploration for new production. According to Guilhem and Floris, the current oil crisis is similar to that which occurred in 1986; based on that experience, the market should stabilize by 2018.
Guilhem and Floris summarized what to expect in the market in one word: Dichotomy. Large stand-alone upstream projects will be postponed and 20% of independent companies will be exposed for acquisition or consolidation. There will be a new business model whereby upstream and downstream will be integrated.
The EIA estimates the market can rebalance itself by the first quarter of 2018, but that does not mean oil prices back at $100. There will also be a geographical split in international oil companies: North Sea, South America, Africa and Australia are being hurt by spiraling costs and local regulation while North America, the Middle East and Asia continue to be active and fueling economic upturn.
The most active hubs for engineering companies should be in North America (U.S.), Europe (UK, France, Italy, Spain), the Middle East (Abu Dhabi, Saudi Arabia) and Asia (China, Japan, Malaysia, South Korea). The most active applications likely will be offshore and onshore gas: LNG and FLNG. Guilhem and Floris also expect refineries, petrochemicals, fertilizers, pipelines and water treatment to be growing sectors and therefore healthy markets for the valve industry.
The Chemical Market
According to a presentation by E. Eckert of Solway, the market for industrial valves will be just under $61 billion/year for 2015 with globe and ball valve revenues accounting for more than $12 billion. Eckert projected that world demand for industrial valves will rise 4.3 % annually through 2019 to $98.5 billion. He pointed out the market is essentially dominated by ball and globe valve technology with Asia being the main market with the most growth between 2010 and 2015. Four main industries in the market are oil and gas, refining, power and chemical production. Chemical production accounts for 11% of the annual valve spend and requires the most complex technologies. According to Eckert, the top 10 valve manufacturers supply 20% of the market, and some big distributors, mainly in the U.S., dominate the supply chain.
Eckert stressed that valve manufacturers and end users must increasingly take a total cost of ownership (TCO) approach to valve choice and stressed that the technological capabilities of the supplier are key. He believes there must be a transfer of lifecycle management to vendors, knowledge management (training), support from vendors in the form of hotlines, web access and intervention, as well as spare part monitoring and a deep understanding of cost drivers. A thorough knowledge of all of the specifications required in all zones or countries and partnering with users to implement long-term improvement plans will also determine the ongoing success of a vendor.
According to Eckert, it is also imperative that all of the risks—product, supplier, geopolitical and environmental as well as transportation—be considered when framing agreements for supply and re-stocking of these products.
The Machinery Directive
According to a publication on the European Union’s website, the Machinery Directive “has the dual aim of harmonizing the health and safety requirements applicable to machinery on the basis of a high level of protection of health and safety, while ensuring the free circulation of machinery on the EU market.” The latest version was supposed to clarify and consolidate the provisions of the Directive with the aim of improving its practical application.
However, in his presentation at the meeting, Julien Chalet, secretary of the CEIR technical commissions, asserted that rather than clarifying the definition, the wording of the directive can be subject to interpretation, and a complex link with the Pressure Equipment Directive could lead to dramatic loopholes.
Chalet said that a clear position paper is necessary to simply and cost efficiently provide legal security for valve manufacturers, ensure the security of workers and installations, and uniformity throughout Europe while assuring customers’ satisfaction with the products.
According to Chalet, CEIR’s position is that valves are not machines or partly completed machines except in the case of exceptions—valves with counterweights and penstock valves. CEIR also asserts that actuators are not partly completed machines.
While there is some disagreement with another organization (VDMA) in Europe about the classifications, a recent meeting resulted in a compromise to clarify them. For all actuated valves covered by the Pressure Equipment Directive, European valve manufacturers committed to carry out risk assessment and take measures to reduce these risks according to MD Annex 1. Other articles of the MD do not apply and there is to be a CE marking under PED, except for valves under article 4.3 of PED.
Chalet expects an updated CEIR position paper to be published by the end of 2016, and it will be circulated to the European Commission Machinery working group.
And a Word from VMA
VMA President Bill Sandler also made a presentation to CEIR attendees in which he described VMA’s Valve Careers Initiative, started by the association in 2015 to assist members as they work to locate, hire, train and maintain a new generation of workers. Sandler also showed two new VMA videos created to help promote the valve industry and the wealth of jobs it offers to those seeking well-paying careers.