After experiencing its worst year in 2015 since the great recession in 2008, the market for distributed control systems (DCS) is expected to drop again for 2016 before slowly bouncing back in the following years, according to a new study by ARC Advisory Group. The five-year market analysis, “DCS Global Market Research," presents forecasts for DCS technology through 2020.
After this year’s expected plunge, the good news is only a tiny DCS market decrease is expected in 2017, and then incremental but slightly accelerating gains will occur during 2018-20. These gains will bring the DCS market close to its 2012 level, though not as high as it was in 2013-14.
ARC adds that all these economic trends are also being impacted by recent advances in DCS and related technologies, which are freeing them from traditionally fixed and dedicated roles in many applications. These advances include the rise of configurable and characterizable I/O; open-systems initiatives by ExxonMobil, Saudi Aramco and others; and greater participation by process applications in the Industrial Internet of Things (IIoT).
More specifically, ARC’s analysts report that depressed oil prices combined with radical capital spending cuts in the upstream sector were exacerbated by a downturn in the market for conventional, central-station, usually coal-fired power generation in favor of renewable power sources such as wind. On an industry basis, power generation and upstream oil and gas are the two largest consumers of DCSs, so double-digit declines in these industries will continue to have a big impact on the global market.
Beyond reducing capital expenditures (CapEx) by an average of 15-20% in 2015, the study finds many major oil and gas owner-operators are announcing average CapEx reductions of 20-25% in 2016. Some independent E&P firms are cutting even deeper, with some budget cuts reaching over 60%, while industry-wide, layoffs have exceeded 300,000 and counting.
Meanwhile, not all sub-sectors of the DCS market as it relates to oil and gas will decline, according to ARC. It still sees activity in certain segments of both the gas market and the midstream sector, which is heavily focused on transportation and storage. Also, spending in the downstream sector is expected to remain healthy with many large projects in sectors such as ethylene still on the books or in progress.
On a regional basis, while North America has been impacted most by the oil and gas downturn, the greatest DCS market drops occurred in Western Europe and Latin America, while all regional markets experienced declines. Even China’s automation market, which had been experiencing double-digit growth, declined during 2014-15.