Valve market research is used typically as an outside opinion. By contrast, the financial statement is integral to business strategy. This statement gives the cost and revenue details. If it is a major league baseball team, the details include the cost of cutting the outfield grass and the price of the beer.
By Bob McIlvaine, the McIlvaine Company
In the last two decades, major league baseball has incorporated the same level of detail into the performance of the players, the competition and any fact or factor which can influence success. The third base coach no longer just relies on his experience to signal a steal, but on mountains of facts and factors relative to the success potential. Facts involving the pitcher, catcher, and runner are tabulated and factors are created to guide the best decision. The number of baseball club performance facts and factors can equal those in the financial statements. Valve manufactures can obtain similar benefits from comprehensive use of facts and factors.
Here is an example:
A large valve company contracted for an analysis of pipeline valves. The scope included
• 80 countries and sub regions
• Ball valves only
• Trunnion and floating segmented
• 10 different sizes through 36” segmented
• Gas and oil pipelines segmented
This could be done cost-effectively because of the repository of valve facts and factors which have been organized and updated over the years.
In 2021, ball valve revenues in oil and gas were over 30% of the total.
Oil and gas are further split between upstream and mid-stream, which includes the pipelines. The segmentation of the world market into 80 countries and sub regions is generally sufficient to single out any geographical entity with more than 0.5% of the valve market. However, when it comes to oil and gas pipelines, there are small countries with more than 1% of the pipeline market. The analysis of the before must include 5 additional countries. Ball valves are used for both control and isolation, further expanding the number of unique niches. There are performance advantages to trunnion supported balls making separate forecasts of this design useful.
Hurdles when forecasting
The investment in valves is a function of the flow volume and distance. So, the better the oil and gas flow forecast the better the valve forecast.
The price of oil caused by the Russian invasion of Ukraine is changing all the forecasts. Certain technologies which have not been pursued, such as modular LNG plants taking advantage of gas presently flared, now have to be reevaluated.
The Sinopec project to gasify coal in Northern China and pipe gas all over China also is under review. The need to determine flow and distance is symptomatic of the interdependence of all the process and product markets. Each compressor station requires a set of valves. So, the compressor forecasts provide factors for determining the valve revenues. Isolation valves are required to shut off sections of the pipeline and to provide a blow down exit safely to atmosphere.
It is necessary to determine pipe sizes and lengths in order to segment the valves by size. In terms of market size by geographical entity the source identification is necessary. How much will be shale gas, how much shale oil. How much will come from subsea or from oil sands. The longer-term forecasts need to take into account the percentage of energy from oil and gas versus wind, solar, hydro, and nuclear. Will fusion have an impact and when?
Significant amounts of oil and gas are piped to chemical plants, which make plastics and other products. The availability of low-cost gas from the shale reserves in Pennsylvania is creating a whole industrial complex with lots of valves. The demand for oil and gas will be a function of economic developments. The slowdown in China will impact the market.
The projected market share will be a function of competitor technology and strength. Compressor companies such as Baker Hughes are major valve producers. Now, other compressor suppliers such as Atlas Copco and Ingersoll Rand are acquiring valve companies. Some suppliers are expanding vertically, such as Schlumberger. They have expanded into the valves and other equipment necessary to produce synthetic sands for shale fracturing. The evaluation of the process equipment not only is necessary for the forecasts, but it is valuable as a way to identify OEM customers and understand the lowest total cost of ownership.
The facts, factors and forecasts can be used up and down their organization. They can be used by R&D to determine where to spend funds. They can be used by senior management to make acquisitions and determine where to expand. The forecast should be reliable enough to set the target for individual salespeople. Furthermore, structured input from the local salespeople can improve the reliability of the numbers.
A final advantage is the ability to continually adjust forecasts as facts and factors change. Typical market research is not structured. The relative weight of any one fact is impossible to re-evaluate. With this comprehensive approach all facts are identified. Each fact x a factor = a forecast. If a fact changes, the factor and forecast can also change.
To summarize, if facts, factors, and forecasts are obtained for all valve applications, their potential increase in EBITDA is very significant. Major league baseball is a good example of the success of facts, factors, and forecasts. There is one more valid comparison. The analytical approach can lead to complementary products. A baseball team owner can move into a complementary sport or into real estate using the stadium surroundings. The valve company can move into IIOT and supply solutions or into pumps or other complementary products. It already has many of the facts and factors needed for success in adjacent markets.