Isolation and control valves must be designed appropriately

Pandemic hitting hard on severe service segment

The world valve market is going to shrink in 2020 and will not return to 2019 levels for several years. The impact and ripple effects of COVID-19 will be substantial, especially for severe service applications. Many aspects are difficult to predict now. Therefore, market forecasts will need to be updated continuously.
^ Isolation and control valves must be designed appropriately

Article By Bob McIlvaine

There are many difficult applications for valves. High temperatures, abrasive solids, corrosive fluids, and rapid cycling are just some of the conditions which challenge the industry. Both isolation and control valves must be designed appropriately. The valve industry has referred to these applications as “Severe Service.” This segment of the market will be impacted to even a greater degree than the market as whole because of its relatively large market share in oil and gas and other applications which are being hardest hit.

On the other hand, severe service is part of a high-performance segment which includes valves in critical services. So, some critical service Pandemic hitting hard on severe service segment valve segments will be growing. Specifically, this includes valves for pharmaceutical applications to deal with COVID-19. This includes vaccines, therapies, and reagents for test kits. Unique butterfly valves with mating flanges allow these pharmaceutical operations to take place without exposure of the product to the environment. The product moves from one process to another after the two valves are engaged and opened.

Market resurgence

The oil and gas industry accounts for a large part of the severe service market. With demand falling and the pricing policies of Russia and Saudi Arabia, the activity in the shale regions of the U.S will be sharply curtailed. However, in a few years when oil demand reaches 2019 levels, there will be a big surge in oil and gas extraction. In this case, the U.S. will again become the leading producer. For this year though, oil and gas exploration and production companies, or E&Ps, are slated to lose $1 trillion in revenues in 2020, according to various analysts.

The E&P industry, which includes oil majors, made USD 2.47 trillion in revenues globally in 2019. But this year it’s projected to bring in USD 1.47 trillion, reflecting a 40 per cent decline year-on-year. Returns for 2021 are now also projected lower, at $1.79 trillion compared to a forecast of USD 2.52 trillion before the pandemic.

Automation and digitalisation

Large oil majors such as ExxonMobil initially slashed 2020 capital spending budgets by 30 percent or more and with the falling prices are continuing with further cuts. Many smaller oil companies are expected to seek bankruptcy protection in the coming months after having spent years borrowing billions of dollars to extract and move crude.

 Percent of the 2019 Market Held by Each Industry
 Industry  2019  2020  2021  2022
 Chemical  10 10 
 Food  3
 Metals  5
 Mining  1
 Oil & Gas extraction  11
 Oil and gas transmission  8
 Other Industries  5
 Petrochemicals  8
 Pharmaceutical  5
 Power  10
 Pulp & Paper  7  6
 Refining  12 11  10  12 
 Wastewater   9 10  10  11 
 Water   6
 Total   100 91  88  102 

Oil companies generally employ service companies to do their drilling and fracking, and so the downturn is particularly painful for those businesses (Halliburton, Baker Hughes and Schlumberger). Service companies already have reacted and slashed payrolls and budgets.

There is also good news for companies that are active in automation and digitalisation. Investments in automation will accelerate in coming years due to the high cost of labor. The cost per labor hour will rise substantially due to coronavirus prevention and healthcare costs. These automated systems will require substantial numbers of valves. Also, existing manual valves will be automated.

Safety protocol

For the three-year period 2019-2022, valve revenues have been forecasted using a relative metric. World valve sales in 2019 are represented as 100 percent. All other numbers are percentages of this 2019 total.(1) There are many variables which will continue to impact the forecasts. Only time will tell whether COVID-19 returns in the fall of 2020.

The economy will be greatly impacted by the willingness of people to return to work .Their perception of risk is an important factor. The discovery that COVID 19 like cigarette smoke travels through the air for long distances and penetrates inefficient masks makes the safety issue much more challenging. McIlvaine is helping to create a protocol (see box text) to allow industry to safely return to work.(2) If this is successful and or a vaccine is quickly created and produced, the impact of the virus will not be so severe.

1. Valves: World Markets published by the McIlvaine Company

2. Coronavirus Technology Solutions published by the McIlvaine Company


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