I was driving home from the office the other night and I couldn’t remember any of the journey. Not a bit of it. How many times have you done that?
I parked up on the drive and it hit me, I didn’t know how I had got there. I realised I had been wrapped up in thinking about so many other things that I clearly hadn’t been concentrating that hard on where I was going.
It got me thinking – how often do we get so immersed in what we’re doing day-to-day, that we don’t take a step back and analyse what’s going on and where we’re going in?
Could you say that about your own company’s operations?
For those with activities in the US, it seems that now is the time to get a clear perspective on the changing dynamics within the market and how to leverage future growth opportunities.
The dynamics and structure of the market are changing. New opportunities are emerging, new challenges are developing, the profitability of traditional processes and supply chains is eroding, while economic and political headwinds continue to swirl.
This will inevitably lead to a re-defining of the gas business and its structure in the region.
A few years ago, while writing a North America analysis for gasworld, I asked, when you’re way out in front, where is there to go?
The US gases market long been the world’s largest industrial gas market, way out in front and currently estimated at a value of around $20bn. Then there’s an additional $5-10bn for equipment sales associated with the industry to consider.
It’s a colossal market. But it’s also a mature one. Economic projections have been limited at best, as the region continues its recovery from the global crisis, and growth has only recently returned to the country’s gases business.
From 2009-2010 the region contracted as most markets went into economic tailspin. In 2011, the upward curve began again as the market strived to get back to where it had been before the crisis – and the industry maximised efficiencies and controlled costs.
And it seems that upward curve continues in 2012, combined with what appears to be an upturn in the US economy in recent quarters. According to reports, the US economy grew at an annualised rate of just under 3% in the third quarter, building on a growth rate of 1.3% in the second quarter. Spending by the federal government, combined with other factors such as the continued rise in consumer spending, strengthening exports, and a timid rebound in homebuilding activity, is thought to have boosted growth.
Robert Powell, of the Economist Intelligence Unit, affirmed the room for optimism in the US market as he addressed delegates at the gasworld conference here in Miami, “It’s not been the most enjoyable year for the world economy. The US economy has lost momentum, and China’s economy has slowed, and when you have this loss of global growth momentum, it’s concerning.”
“We’re not hugely optimistic about 2013, though we do think China’s growth will pick up again. The problem is, these financial crises take a long while to play out. We think the US housing market has bottomed and this will begin to pick up, banks have recapitalised and leveraging is underway – in effect, the consumer is dealing with debt. It’s very much going in the right direction.”
“If we can’t reach a deal on the Fiscal Cliff then things are going to get a bit tricky…if it falls off the Fiscal Cliff then it will shrink by about 0.5% and will be back in recession”
“We’ve got to get a little used to austerity. If we can’t reach a deal on the Fiscal Cliff then things are going to get a bit tricky. We think at the moment, that the US economy will grow by about 2.1% in 2013. But if it falls off the Fiscal Cliff then it will shrink by about 0.5% and will be back in recession.”
“But if we manage to avoid that and get something together,” he explained, “we think the US is exceptionally well placed for future growth. Flat US wages have made the country more competitive; wages haven’t really changed in the US since the 1980s which is not great for the middle classes, but it is a great competitive strength for the US economy. The other factor that is making the US so competitive is the energy story, which you all know about very well.”
“There is tremendous opportunity going forward in petrochemicals, fertilisers, even steel and aluminium and we think this is going to have a tremendous effect on the US economy.”
Growth has also returned in the US gases business. Spiritus Group’s John Raquet confirmed,“The North America market was valued at around $20bn in 2011, and it’s been growing at about 12% per year since 2000. How’s that split made up? Well not surprisingly the US makes up around 80% of the market. With Canada accounting for around 10% and the remainder is composed of Mexico and the Caribbean.”
“The US is a $16.5bn market, with six major gas companies, 3-5 smaller gas companies and 1000+ gas distributors and a number of major leading OEM’s.”
“In 2013 we expect a slow start, but North American growth will continue - there’s no doubt about that and the signals are there.”
As we sit here in the ‘Sunshine State’ of Florida that same questions appear to resonate:
The market faces a number of challenges, from the changing dynamics in its very structure, to realising its growth opportunities.
Historically the region has been dominated by the major gas producers, as they managed both the big onsites and the bulk business. Distributors, meanwhile, have concerned themselves with other supply methods. However, distributors are continually finding inefficiencies in the supply chain and rising distribution costs, combined with a hike in production costs, means we are now seeing distributors moving out of the welding and equipment businesses – and into the gas producers’ sphere, to manufacturer bulk specialty and medical gases.
This will inevitably lead to a re-defining of the gas business structure in the region and gasworld believes that by 2020 we will be looking at a very different set-up in the US. There are also a number of other challenges and opportunities ahead in the region. So what will the North American market look like in eight years’ time?
Raquet believes that a number of core issues and challenges of added-value will need to be addressed between now and 2020, with a need to upgrade and invest in plant infrastructure, getting the most out of the merchant market, and realising the added-value potential in the bulk business.
“All of the majors appear to have been focused on re-structuring in Europe – have they taken their eyes off the US market?” he questioned. “We believe that the major players will have to refocus on the US and where this market is going.”
Just one example of a growth opportunity for the US is the shale gas phenomenon. The shale gas glut in North America could have a two-fold effect, driving both LNG as an export product and a demand for cryogenic storage equipment.
Shale gas exploration is big business right now in the US, with as yet untapped resources offering strong potential for the future. As well as meeting domestic energy demands, this source of natural gas also holds promise from an export perspective. But before it can be exported, natural gas must be sent to a liquefaction plant, where it is turned into liquefied natural gas (LNG). Further, to ship this commodity you need the necessary export terminals, with each proposed LNG terminal representing a multi-billion dollar investment in the American economy.
Both of these aspects require the expertise and technology of the gas and equipment industry. In addition, the advent of this as a fuel source is, in turn, leading to a strong demand for cryogenic storage equipment for liquefied natural gas (LNG) across the globe and especially in the US.
“We believe the industrial gas players will play a major role in the formative years of this industry. Who knows most about cryogenics and gases – the industrial gases industry”
Here in Miami, Florida, Cosmodyne’s Joseph Pak spoke passionately about the prospects of shale gas and what this could mean for the gas and equipment community. He described, “What’s really exciting is that we [North America] have an abundance of shale gas and we are now talking about exporting natural gas to global markets. We have around 2,203 trillion cubic feet (Tcf) of natural gas that is technically recoverable – we have enough gas to use for the next 150 years.”
“But what does that mean? Well the potential for this market is huge. There is a very wide gap between the potential demand and the supply, currently in the US there is around 70 plants, 59 of which are peak shaving plants, so for the merchant market the total supply is very little. This is why we’re excited, there is such a gap between the potential demand the supply – and we need to bridge that gap. Bridging the gap is an exciting opportunity.”
“With all the excitement,” he added, “we believe the industrial gas players will play a major role in the formative years of this industry. Who knows most about cryogenics and gases – the industrial gases industry.”
Significant concerns also exist around the impact of shale gas, particularly on the environment, and the need for transparency and management of risks. The industrial gas and equipment industry will need to rise to all of these these challenges and seize the growth opportunities that the shale gas boom affords. But the feeling is that this is not only an opportunity for significant growth for the gases industry, it can also evolve and enhance the technology deployed within the industrial gases industry, as Cosmodyne’s Pak explained.
“There will be improved reliability and improved manufacturing processes for faster delivery times and increased production capacity – and a lot of these developments will not only benefit the LNG sector but also the industrial gases business. All of this work that we have been doing with LNG, we will be transferring to industrial gas too.”
A spirit of innovation
At the heart of a vision to 2020, innovation and adaptability will likely be key.
When I met up with Air Liquide’s Olivier Delabroy recently, Vice-President of R&D for the group, I asked whether innovation and R&D could be the stimulus for growth in mature markets like the US and Western Europe.
He underlined the importance of exploring the strengths of each country and leveraging them as appropriate.
“Absolutely, let’s not forget the mature countries. Mature economies such as Europe have no choice but to innovate and to establish their own sustainable competitiveness.”
“Innovation will happen,” he said, “we cannot do everything everywhere, so what we have to do is capture any opportunities that we can leverage. Of course it is difficult, it is complex, but research ecosystems will be analysed and leveraged, new industrial sectors will emerge and we will make it happen. I am confident.”
Innovation will be just one part of the equation thogh, it seems. In fact, with a 2020 vision in mind, part of the challenge will be to revisit what the industry already knows; to look at business models and their sustainability, operational efficiencies, and realising the growth opportunities through existing technologies and expertise. That has very much been the message both from the conference here in Biscayne Bay, but also from the chatter I’ve heard behind the scenes.
North America has been through a tough time in recent years economically, but a bright and prosperous future looms large on the horizon - if the challenges to 2020 can be overcome.