North America DCS market experienced strong resurgence in 2012: report

North American DCS shipments experienced a strong year-on-year growth rate of almost 18 percent in 2012. According to a new ARC Advisory Group study, “Distributed Control Systems Global Market Research Study”, this rate of DCS growth (which isn’t sustainable over the long term) reflects several factors.

First, the overall recovery of economies in North America has been much better than elsewhere. Second, while volatile, global prices for oil, gas, and other commodities have generally held at a level that can support new production investments. Third, new production technologies in the U.S. and Canada such as horizontal drilling and hydraulic fracturing and continued improvements in the development of oil from tar sands have grown North America’s role as a major oil and gas producer.

This, in turn, has spurred a number of new domestic petrochemical projects aimed at exploiting the current low feedstock prices. Finally, use of new information technologies such as virtualization and collaboration portals enable EPC and end user firms to select staff for global projects from what is essentially a worldwide pool of technical talent, helping overcome local availability constraints.

Disappointing areas in 2012 include Western Europe, which still struggles with recession and high unemployment in many countries. A second macroeconomic factor is the slower economic growth in China and India. The DCS and process automation business has benefitted from the long period of rapid growth in these countries. Should China’s demand for a basic infrastructure and materials slow down further, automation in general and DCS in particular would certainly feel the effect.

The oil refining and petrochemicals industries, several of the largest users of DCS, are experiencing some major changes that already have an impact on the end user base. For several years, independent oil companies (IOCs) have been deemphasizing refining as critical to their business models. At the same time, national oil companies (NOCs) have been growing their refining and petrochemical capacities aggressively.

ARC sees a trend for the IOCs, particularly in Europe, to shut production in their older, less complex refineries that cannot compete with the larger, more modern, and more complex refineries being built in the developing economies. Older refineries and petrochemicals plants in North America have seen a competitive resurgence due to lower prices for locally sourced shale oil & gas.

The resurgence in power generation projects, particularly in gas-fired combined cycle projects, has increased the demand for DCSs. In the developed regions, the emphasis will be on improving unit efficiency, reducing emissions, and improving unit ramp rates (dynamic response). In the future, this type of generation will be interacting with grids containing greater shares of renewable energy (primarily wind and solar PV). As a result, these units will need the ability to quickly adjust their output.

Several countries, China and Germany in particular, are undergoing a shift from coal-fired power generation to nuclear, wind, and solar generation. Germany under the Merkel government’s “Energiewende” (energy transformation) policy will replace base load nuclear generation with wind and combined cycle by 2020 as a result of German reaction to the Fukushima nuclear disaster. In China, official policy has been to switch new electric power projects from coal to nuclear and renewable energy. However due to rapid load growth and industry capacity limits, China’s mix of new plants will take time to reach such a goal.