Growth Machines in the GCC.
Business consulting firm Frost and Sullivan forecasts that the market for rotating machinery in the GCC, comprising compressors, pumps and motors, is set to continue its recent powerful performance
Frost and Sullivan is estimating the Gulf Cooperation Council (GCC) market for rotating machinery comprising compressors, pumps and motors is set to grow at a compound annual growth rate (CAGR) of 7.2% between 2012 and 2017.
The business consulting firm's Industrial Automation and Process Control Practice division's yearly sectoral analysis of the rotating equipment market finds it was worth $2.587bn in 2012.
Growth during that year was 6.5%, which the analysis attributes to investments in sectors such as oil and gas, petrochemical, power and desalination.
"Focus on energy efficiency, increasing participation of private investors, government-backed funding, diversification of the GCC economies from its oil and gas-dependent economy, and increasing investments in infrastructure [will] spur the growth of [the] rotating equipment market in the GCC," it adds.
In 2012, compressors were calculated as making up the largest share of the rotating machinery market, taking 49.3% of total revenues.
In terms of vertical market segmentation, Frost and Sullivan says "the oil and gas industry in the GCC, which typically requires significant volumes of high value and complex rotating equipment systems, contributes significantly to the overall rotating equipment revenues."
The power and desalination (P&D) industry is also expected to witness steady growth in the consumption of rotating equipment.
Meanwhile, continuous expansion of the non-oil and gas sector is expected to translate to the sector growing into a dominant source for rotating equipment installations.
Frost and Sullivan said the geographical segmentation of the rotating machinery market sees the Kingdom of Saudi Arabia (KSA) expected to continue to be the dominant source for business.
However, "massive capacity augmentation and relevant investments in the UAE, Kuwait and Qatar over the next two to three years are expected to result in these countries contributing higher volumes of business."
The growth of the market in the KSA will also be fuelled by the expanding metals industry there, the report said, as well as steady investments in power and water infrastructure, among other industries, "will continue to fuel demand for rotating equipment from the KSA."
Qatar is also expected to see a considerable rise in demand for rotating machinery once the moratorium on the North Field is suspended, which is expected after 2017, with Qatar's Liquefied Natural Gas (LNG) industry, in particular, set to provide a significant opportunity for rotating equipment installation.
Similarly, in Kuwait, the Clean Fuel Project is considered to be a significant opportunity for the rotating equipment market, with the modernised refinery expected to "invest heavily in the procurement of energy efficient rotating equipment," accordng to the report.
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From an end-user perspective, one-stop solution providers are forecast to be the vendors of choice as customers seek to avoid issues arising out of handling multiple suppliers.
Frost and Sullivan adds: "End-users are shifting towards adoption of high-capacity motors, pumps and compressors, replacing the existing train of rotating equipment to optimise their operational costs."
The business consulting firm's competitive analysis in the market found that high price sensitivity coupled with the increase in the cost of raw materials has resulted in severe pressure on margins of rotating equipment suppliers.
"As a result, suppliers are expected to increase focus on extending aftermarket services, including continuous service and extended warranty," it adds.
It advises that offering timely and high-quality services is important while having a local presence, a sales and service setup is crucial.
The report added that the market is also being affected by an increasing number of Korean and Chinese engineering, procurement and construction (EPC) contractors who are paving the way for electric motor suppliers from countries local to these contractors, which has intensified competition and increased the bargaining power of end-users.
With regard to the impact of technology on the market, Frost and Sullivan says that "remote asset management and high-speed direct drive are emerging as key technologies."
A significant increase in the adoption of waste heat and recovery systems in compressor stations will minimise energy loss due to heat dissipation.
"Reliability, customability, and energy efficiency are key differentiating factors," it says.
Further developments in process requirements, involving accurate speed and control, is expected to enable the replacement of steam and gas turbines by electric motors with adjustable speed drives.
As for the potential of an economic impact on the market, Frost and Sullivan says that "the GCC faces a lower risk from instability in international economies due to its limited dependency on foreign investors."
The report's market outlook to 2020 sees increasing consolidation by large multinationals forcing smaller suppliers out of the market, "unless they specialise in niche markets".
Also, increasing investment in oil and gas exploration, specifically in Saudi Arabia and Qatar, will create opportunities for installation of compressors and pumps, with subsequent downstream investments contributing to the increased usage of these equipments.
Apart from enhancing manufacturing capability, suppliers of pumps and compressors are expected to strengthen their distribution network both locally and globally to meet end-users' requirements for shorter lead times.
In the motors market, manufacturers are expected to shift their focus towards higher power rating low voltage (LV) motors and medium voltage (MV) motors. This is attributed to the intense competition in the GCC market limiting their profit margins and share.
The report also says that initiatives on promoting localisation and local procurement will encourage multinational suppliers to establish a stronger local setup in the GCC.
Frost and Sullivan forsees refurbishment of obsolete process plants boosting the demand for higher capacity LV and MV motors.
Local government initiatives on energy efficient equipment and carbon emission control are also expected to "throttle demand for energy-efficient motors in the GCC."
Concluding, Frost and Sullivan says that beyond greenfield opportunities, advancing technology in the rotating machinery industry will create opportunities for retrofit.
"This would include modification of existing equipment to enable monitoring, enhance recovery of oil and gas, and optimum drive solutions among others," according to the report.
"Also, suppliers need to move up the value chain from transactional to consultative selling, differentiating themselves to take advantage of the booming market," it adds.
40% Percentage of rotating machinery in the GCC market made up from pumps
7.2% Estimated compound annual growth rate of GCC rotating machinery market to 2017
$2.59bn Estimated value of GCC rotating machinery market in 2012
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