Black & Veatch expects sustained growth across global energy markets in 2014 with several ongoing themes continuing. Key market drivers supporting power infrastructure spend remain the same, centering on emerging market growth, regulations (including clean air and water), aging infrastructure, and the advancement of unconventional gas technologies. Competition will continue globally as engineering and construction companies grow backlog in traditional markets and with global expansion.
The U.S. Outlook Is Improving
In the United States, modest demand for new generation capacity will primarily be met with natural gas and solar photovoltaic generation given regulations, renewable portfolio standards, and other market dynamics. U.S. transmission market investment will be strong at nearly $200 billion from 2014 to 2023. The continued upgrade and expansion of existing infrastructure, presence of renewable resources, and Federal Energy Regulatory Commission Order 1000 are key contributors to sustained growth.
Opportunities to support clients in their efforts to improve reliability and efficiency, as well as upgrade facilities and expand the use of renewables/distributed generation—all while keeping costs competitive—will be significant. The air quality control retrofit market will be driven by owners’ decisions to upgrade assets or retire them altogether.
Industry observers anticipate that 2014 will bring improved economic growth in the U.S. as well as a collision between coal-fired plant shutdowns and system-supply reliability. Several years of weak overall demand growth, hindered by the slow pace of economic recovery, have held reserve margins in check. Without GDP recovery, margin overhang will persist through 2020 in most regions of the U.S., except the Electric Reliability Council of Texas.
Projections of exactly how many gigawatts of coal-fired capacity will come offline through 2020 in the U.S. vary, but one thing is certain: The economics associated with continuing to operate coal assets and upgrades to preserve life will remain in focus. A large-scale shift away from coal to natural gas and renewables will require solutions ranging from new pipeline and transmission development to energy storage and increased use of on-site liquefied natural gas (LNG) storage to ensure system reliability.
Globally, there are several factors shaping the 2014 power outlook. While estimates vary, roughly $12 trillion will be spent on power infrastructure around the world from 2014 to 2020, according to IHS Global Insight. Worldwide, we are witnessing the largest economic transformation ever seen as the population of cities in emerging markets expands and incomes rise—producing a sizeable wave of middle-class consumers with spending power. As such, rapid urbanization will be the biggest worldwide driver of infrastructure spending over the next several decades as urban populations expand by 1.5 billion, to 60% of the world’s population.
On the demand side, the tsunami-related Fukushima Daiichi event in March 2011 continues to impact the future of many nations’ energy mixes. From Germany to Japan, nuclear power remains under scrutiny. Although safeguard efforts continue at many existing U.S. facilities for Nuclear Regulatory Commission compliance, new build programs are proceeding with caution in the U.S. and elsewhere. Economics-based retirements are also a consideration.
Gas, as a cleaner alternative to coal and oil, and more suited to baseload power generation than renewables, likely has the most potential for sustained long-term growth. Worldwide interest in reducing greenhouse gas emissions and improving air quality, as well as global efforts to increase fuel diversity, will drive continued investments in exploration, LNG import terminals, and supply contracts. Gas-rich regions, the countries that produce gas cheaply, prefer to sell it at high value rather than generate electricity with it. Therefore, gas processing and LNG export projects represent a strong market opportunity as gas moves from those who have it to those who need it.
In addition, $3.50 to $4.00 per MMBtu for U.S. shale gas means domestic project opportunities in gas processing, floating LNG/LNG storage, ammonia processing, and continued growth in the transportation LNG market.
Yet, natural gas alone will not meet the world’s power generation needs, particularly in developing regions experiencing load growth ranges from 3% to 5% and more. As such, significant new generation opportunities, primarily low-cost coal fuel, will be sought near term. These new capacity opportunities also carry follow-on opportunities to expand power delivery services in transmission, distribution, and grid stability.
In addition to project work, two other trends to monitor in 2014 include the pace of personnel retirements across the energy industry and continuing skills and knowledge transfer (SKT) efforts. A large number of workers in developed regions are at or nearing retirement age, and their departure will mean experience gaps in many critical positions. Conversely, developing regions are furthering SKT programs to grow the pipeline of technically trained, indigenous workers, thereby reducing expat dependence.
Whatever 2014 may bring, Black & Veatch is optimistic about the global power industry and the company’s future. Planning and implementing the world’s most complex infrastructure projects and managing the significant realignment of resources and infrastructure needs will create opportunities for engineering and construction firms capable of providing sustainable energy solutions. ■
— Dean Oskvig is president and CEO of Black & Veatch’s Energy Business.