2008 Business Commentary
Through the third quarter of 2008, business has been strong in most of our core market sectors, with greater than 35 percent organic bookings growth year over year. Our success can be attributed to several factors. Chief among them, of course, is global investment in the oil and gas industry. Additionally, our company executed many important infrastructure and continuous improvement initiatives throughout the last several years that allowed us to capitalize on this strong demand.
We can also attribute our good results to our improved focus on the end user. By expanding our technical services and support infrastructure in key customer clusters, we are better leveraging our huge installed base while also securing important aftermarket service agreements with key customers.
Lastly, we continue to see strong demand for our products and services in our other core segments, including power generation, chemical and water resources. Much of this growth is attributable to infrastructure expansions and upgrades in emerging markets such as China and India.
Expectations for 2009
While the short term demand for oil has declined recently due to the global credit crisis and associated general market uncertainty, we believe that certain catalysts will lead to a sustainable high level of global, long-term demand for oil and gas. Our global customers continue to announce new investments related to refurbishments, upgrades and new production capabilities based on long-term projections.
We expect continued, overall strength in infrastructure spending, driven by several factors that include the need to add new or upgrade aging infrastructure; projected growth in demand for potable water; and energy security. This should result in significant project and aftermarket opportunities for all segments of our pump business.
The chemical industry continues to show strength in developing markets as evidenced by the demand for polymer-based materials, petrochemical products and biochemicals. In the water industry, we see significant growth and opportunities in desalination, water transmission, water/wastewater treatment, irrigation, flood control and drainage. With demand for power growing in many regions of the world, particularly in Asia, we expect to see continued investment in nuclear power facilities, geothermal technology and integrated gasification combined cycle plants (IGCC).
Critical Issues
A critical issue facing not only our markets but also the world is the reliable and economical supply of traditional and alternative energy sources.
The International Energy Agency (IEA) projects global energy demand will continue to grow 1.6 percent a year on average through 2030-a total increase of more than 40 percent. To achieve necessary production rates, the world will have to invest $26.3 trillion by 2030, or more than $1 trillion a year, according to the IEA.
On a related issue, the IEA also projects the world's electric energy requirements will double to 30 terawatts by 2030. Today, 80 percent of electricity is generated by fossil fuels. In 2030, fossil fuels will account for 77 percent of electricity generation. To achieve even this slight reduction, the alternative energy market will have to grow significantly. Along with a resurgent nuclear industry, clean coal technologies, biomass, concentrated solar power, geothermal and even nascent ocean thermal energy conversion technologies will have to develop generating capacity that approaches present public utility power station capability.
Business and Technology Trends
I was recently struck by several articles describing how production companies are looking to control labor costs by relying more and more on unmanned rigs and wells. One article in Hydrocarbon Processing described how BP runs several oil rig power generator turbines in the Gulf of Mexico from an office in California to save money. In the past, one person could monitor 40 engines; today that person can monitor 4,000 engines.
We see an extension of this trend to refineries, petrochemical and chemical plants, power generation and other process plants. The advent of wireless data acquisition and communication integrated with the Internet is making remote monitoring and control both technically and economically feasible. This integration of technologies is helping pump users maximize their investments in terms of performance, output, energy consumption, maintenance expense, etc. In other words, they now have reliable technology to minimize total life cycle costs.
An existing trend gaining momentum is the extension of downstream services. More and more pump users are recognizing that formal partnerships with pump manufacturers have many bottom line benefits. These include the maximization of pump performance and plant output with the minimization of maintenance-related costs and process interruption.