DCS market undergoing major changes, according to report
ARC Advisory Group's research indicates that the distributed control system (DCS) market is expected to recover after a poor 2015, but how it grows and changes will depend on how much the DCS changes to adapt to an evolving market.
According to research by ARC Advisory Group, the distributed control system (DCS) market experienced its worst year in 2015 since the great economic crash of 2008. Plunging oil prices combined with radical cuts in capital spending in the upstream sector were exacerbated by a downturn in the market for conventional central station power generation in favor of renewable power. On an industry basis, power generation and upstream oil & gas are the two largest DCS consumers, which means double-digit declines in these industries will have a big impact on the global market.
Most process industries are affected by the oil and gas industry, and as a result most industries witnessed declines in 2015 when the industry took a tumble. Investments in the downstream sector, such as refining and petrochemicals, began to improve in 2015, and ARC predicts the industry will go into recovery mode for 2016 and beyond, barring any unforeseen geopolitical turmoil.
In electric power generation, the industry is experiencing a general shift away from conventional coal-fired generation toward renewables and combined-cycle gas-fired plants. Aging coal plants are being retired rather than retrofitted. The spotty future of new nuclear plants is also restricting the DCS project pipeline, although some suppliers are doing quite well in the nuclear sector right now. Renewable generating plants, such as wind farms, are more modular in nature and do not require traditional DCSs that are found in central station power generation.
Most major owner-operators in the integrated oil and gas industry reduced capital expenditures significantly in 2015. This downturn continues and in some ways has intensified in 2016, with many operators announcing average capital expenditure (CapEx) reductions in the range of 20 to 25% in 2016, as opposed to the 15 to 20% in 2015. Some independent exploration and production (E&P) firms are cutting even deeper, with some budget cuts reaching over 60%. Industry-wide, layoffs have exceeded 300,000 as companies look to drive down costs in an attempt to protect margins and dividends.
Not all subsectors of the oil and gas market will decline. ARC is still seeing activity in certain segments of both the gas market and the midstream sector, which is heavily focused on transportation and storage. Spending in the downstream sector will remain healthy, with many large projects in sectors such as ethylene still on the books or in progress.
On a regional basis, the North America market was affected most by the downturn in the oil and gas industry, but the biggest declines in the market happened in Western Europe and Latin America. All regional markets, however, experienced declines. Even China's automation market, which had been experiencing double-digit growth, declined between 2014 and 2015. This is clearly a downturn that will take some time to overcome.
Technology trends also come into play.
Until recently, the DCS had changed very little at its core from the systems that were first introduced in the 1970s. Breakthroughs in DCS product design and function were incremental, not revolutionary. Over the past several years, however, the market has undergone several changes that really signal the end of the largely proprietary, monolithic DCS.
Despite their name, "distributed" control systems, they typically consolidate a large number of control loops within a common DCS controller. Furthermore, a traditional input/output (I/O) is fixed and not configurable, so any project must factor in extra I/Os to account for project changes. The traditional DCS consists of proprietary control network protocols and proprietary controllers that ultimately exist within a proprietary software environment. Traditional DCS I/O is also closely coupled to the controllers. However, all of this is changing rapidly.
The need for so many DCS I/Os is largely due to the proliferation of analog field devices. Input signals from 4 to 20mA or HART field devices must be conditioned and so must the associated controller outputs. The proliferation of digital networks at the field level will change the role and the demand for I/O in the control system. In the meantime, the demand for I/Os remain strong, so there is no reason that I/O should be fixed. Users now have configurable and characterizable I/O and standard cabinets that can greatly reduce both time to project completion and automation-related costs.
While the nature of the physical I/O, control networks, and field networks is changing, other technologies like the Industrial Internet of Things (IIoT) are coming along that are pushing change even faster. IIoT consists of sensors and edge devices, internet technology, the Cloud, and analytics capabilities. These aspects of IIoT are already having a huge impact on both asset management and operations management applications.
Recent open systems initiatives spearheaded by major DCS end user companies such as ExxonMobil and Saudi Aramco, will also have an impact on the DCS market moving forward.
While automation suppliers are finding the current market environment challenging at best, ARC's reports suggests the current downturn provides an opportunity for automation end users to assess the current value provided by their installed automation systems. Often, relatively small investments can yield significant incremental business value.
ARC Advisory Group
- Edited by Chris Vavra, production editor, Control Engineering, CFE Media, firstname.lastname@example.org.
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