ihs technology june 2016 · also in the future, the design and operation of rigs and platforms will...

IHS TECHNOLOGY JUNE 2016

Smart technologies impacting industrial market dynamicsHow smart manufacturing is affecting oil and gas, and automotive markets

Industry summary ...................................................................................................................................................................... 3

Overview: IoT in the industrial market ................................................................................................................................... 4

Oil and gas firms explore new, more cost-efficient path with automation .................................................................. 5

Case study: Onshore heavy oil deploys digital technologies to enhance oil-well performance ............................ 7

Automotive will play outsize role in boosting industrial robots market ....................................................................... 9

Industrial robots seen to increasingly replace labor .......................................................................................................10


TABLE OF CONTENTS

Industry summary Today’s manufacturing industry is confronted by a slew of challenges: a decelerating China hobbled by a diminished hunger for imports as it struggles to fuel internal growth; the end of a commodity supercycle, negatively impacting a broad array of manufacturing process sectors and product types; a low oil-price environment that has upended the fortunes of a once-flourishing oil and gas space; and a primordial shift in the structure of final demand away from manufacturing, toward services and knowledge-based industries, altering the very nature of global trade and in the process reducing growth in the flow of goods.

For the industrial automation equipment (IAE) market underpinning much of the world’s highly mechanized trade sectors, this means that the growth drivers of the past can no longer be counted on to do the same today. Vendors, for instance, are shifting focus—away from the mere integration of hardware innovation as part of total solutions, to a more emphatic market differentiation via software or to the increased productivity and efficiency promised by smart manufacturing—in order to help resolve individual and sector-specific needs at a time of tremendous challenge and transition.

Nonetheless, many opportunities for growth exist within the IAE market, worth $199.3 billion last year and projected to grow to $203.2 billion in 2016.

This publication focuses on a couple of representative areas where the dynamics of automation are anticipated to play an increasingly larger role in key production processes for the future. In oil and gas, for instance, automation will be especially important in safety, productivity, remote monitoring, and managing processes. In automotive, smart manufacturing and flexible tools will help auto companies become closer to the customer and shorten production cycles to deal with smaller runs. And in various industries and segments, industrial robots are anticipated to replace human labor.

The ray of hope for growth and advancement represented by these windows of opportunity ties in with the generally more optimistic global economic picture for 2016. IHS predicts the world economy in terms of real GDP to expand by 2.9% this year, up from 2.6% in 2015, and then rising to a projected 3.2% in 2017. This is surely good news for the overall industrial automation market, and the winners will be those fleet-footed players able to capitalize on their historical strengths and also react nimbly—reinventing themselves if needed—to thrive and compete viably in the tangled knot of continuously transforming market conditions.


Smart technologies impacting industrial market dynamicsHow smart manufacturing is affecting oil and gas, and automotive markets

4

Smart Technologies Impacting Industrial Market Dynamics

Overview: IoT in the industrial market Bill Morelli, Director, Internet of Things and ConnectivityIn the industrial market, many of the strategies for more efficient manufacturing and commerce include demand for remote communications, monitoring, and control. This trend is driving the growth of integrated intelligence, sensor networks, asset tracking, internet connectivity, M2M communications, and energy measurement and management.

IHS defines an IoT device as one that is directly IP addressable or tethered to an IP-addressable device. This requires some type of wired or wireless connectivity and some degree of embedded processing. IoT devices vary greatly: IHS has over 350 categories in the IoT model, ranging from industrial IoT to air-quality sensors to smartwatches.

Risks• Longer deployment and higher capital expenditures

• Long replacement cycles drive the need for retrofitting just-in-time production

• Security concerns• Intrusion, data breaches, and cyberattacks• Proprietary data sharing

• Behavioral factors • Constant monitoring• Efficiency vs. job security

• System interoperability and limitations

Opportunities• Increased productivity and cost optimization

• Autonomous production• Supply chain coordination• Just-in-time production• Dynamic asset management

• Inventory and fulfilment management • Real-time price adjustments• Location-based inventory management

• Improved safety• Access control and surveillance• Diagnostics and predictive maintenance• Remote monitoring

Industrial IoT device shipments

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Building Automation Industrial Automation Security Commercial Transport Lighting Test & Measurement Retail Electronics Power & Energy Other Industrial

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Oil and gas firms explore new, more cost-efficient path with automationWith oil prices projected to remain depressed this year, attention is turning to ways in which Internet of Things (IoT) solutions and robots might be deployed to help improve operating conditions in the oil and gas space.

The current low price of oil is only one factor in the overall gloomy state of affairs for the energy industry. Excess capacity and supply is another issue, compounded by Iran’s re-entry into the global oil market after sanctions were lifted against the country. The United States, the swing producer at present, will also need to slash oil production, especially as OPEC countries like Saudi Arabia are not choosing to cut output.

While focus during times of high oil prices is on exploration and expansion of production, companies shift to efficiency and cost reduction when navigating a financially restricted environment.

One solution may be the introduction of digital technologies, such as upgrading facilities to the digital oil field of the future, or DOFF (see related case study on p8). This is a way not only to significantly reduce costs quickly but also to set up a company for success as oil prices recover.

The introduction of solutions such as greater connectivity and advanced analytics, along with other technologies like drones (e.g., for flare stack maintenance), can help dramatically cut overhead in operating expenditures within a year or less, reduce energy waste and costs, and improve the visibility and maintenance of assets. And for companies operating in survival mode, it is even more critical to target efforts around workforce and portfolio rationalization in order to reduce budgets.

Designing facilities with an eye toward high levels of de-manning can likewise prove tremendously useful, helping to bring down costly capital expenditures from the outset.

Automation’s rising importance in remote monitoring and predictive maintenance For companies involved in the drilling, exploration, and production of oil and gas in many parts of the world, the adoption of IoT-based solutions is increasingly urgent, especially in light of the industry’s current need to cut costs in order to survive the low-oil-price crisis while still hoping to remain competitive as the industry recovers.

Here is where new technologies and models can help significantly. Taking advantage of greater device connectivity as well as improved data aggregation and analytics, smart and automated solutions can provide increased support to existing infrastructure and boost cost-cutting initiatives, such as remote monitoring and predictive maintenance.

In remote monitoring, automation is deployed instead of manpower so that staff at offshore facilities can be reduced and facilities effectively de-manned. Overall, fewer people offshore along with remote monitoring reduces labor costs, dramatically lowers operating expenses, minimizes worker exposure to dirty and often-dangerous conditions, and bolsters safety.

In predictive maintenance, important information on the performance of an asset, such as a valve or pump, is collected to enable visibility and understanding on the imminence of equipment failure. With its proactive approach in deploying manpower only when warranted by impending asset or equipment failure, predictive maintenance is much more valuable than the reactive stance typified by preventive maintenance, in which staff waste time and contribute to higher costs through routine, unnecessary monitoring, the replacement of non-faulty equipment, and the need to maintain higher levels of inventory. Eventually, as analytics improve, the goal is to advance to prescriptive maintenance, or the ability to adjust the performance of an asset to elongate its life to fit into a service program.

The introduction of solutions such as greater connectivity and advanced analytics, along with other technologies like drones, can help dramatically cut overhead in operating expenditures within a year or less, reduce energy waste and costs, and improve the visibility and maintenance of assets.

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A propitious future through augmented reality and roboticsBoth remote monitoring and predictive maintenance are examples of forward-looking technologies that while not yet widespread, are closer to being fully and more easily implemented in the oil and gas space. However, other technologies, such as augmented reality and robotics, also are promising in the long term.

Working with augmented-reality eyeglasses, for example, engineers may be able to greatly improve work efficiency and visualization, in much the same way that a display on a printer gives guidance on resolving a fault. Meanwhile, robots of all kinds—industrial, articulated, or drones and other similar service-type examples—can step in where human efforts would ordinarily fail, vastly stretching the bounds of physical strength, force, and exertion past normal human limits and capacity.

Unlike remote monitoring and predictive maintenance, however, technologies like augmented reality and robotics will require longer time frames to evolve for their benefits to become more completely realized and available.

Also in the future, the design and operation of rigs and platforms will be increasingly supported by software developments. This includes the use of design and simulation software that allows creating a digital twin of a planned design, and even provides for the simulation of the process in order to understand the impact that changes in design or operating parameters will have on the end process. Moreover, the use of augmented reality solutions can replace the need for large physical manuals and checklists, replaced by a virtual and interactive product.

An intermediate technology—one already in place but still representing untapped potential—is 3-D printing. The three-dimensional printing of objects can be of immeasurable value in the oil and gas space. One benefit is the localized production of parts, saving on shipping costs and shortening delays in getting access to parts. Another benefit is the printing of components headed for obsolescence, an enormous concern in the energy industry given the presence of aging wellheads and similar assets, where irreplaceable but essential pieces are no longer being manufactured or have been permanently retired. Here 3-D printing can help fill the gap and resolve otherwise impossible issues of replacement and provenance.

…as analytics improve, the goal is to advance to prescriptive maintenance, or the ability to adjust the performance of an asset to elongate its life to fit into a service program.

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DOFF can help reduce operating expense, manage unforeseen production troubles, and improve cash flow.

Case study: Onshore heavy oil deploys digital technologies to enhance oil-well performance

The situationA US-based company engaged in onshore heavy oil exploration faced a number of challenges, including rising costs and an overwhelmed engineering workforce. The firm operated some 9,900 wells covering a 22-sq.m. (57-sq.km.) expanse, collectively producing over 70,000 barrels of oil a day.

Despite a robust supervisory control and data acquisition (SCADA) systems in place, the exhausted engineers—each was assigned 1,200 wells—were consumed by reactive work, inspecting wellheads or similar equipment in wasteful, unproductive fashion. As a result, there was little time left to pursue proactive optimization or explore the new computer-based technologies making up what is known as the Digital Oil Field of the Future (DOFF), a term first coined by IHS Energy now widely employed in the oil and gas industry.

DOFF technologies represent best practices for developing and deploying solutions that combine real-time asset data, enhanced analytical tools, and remote operating procedures to transform upstream oil and gas asset development and management. In practical terms, DOFF can help reduce operating expense, manage unforeseen production troubles, and improve cash flow—all critical considerations for oil and gas companies battling today’s low oil-price environment.

The solutionThe company sought to move away from manual selection of steam injection and additional drilling. It hoped instead to adopt an automated, statistical approach utilizing artificial intelligence.

• Leverage massive data volumes the firm acquired across a vast infrastructure (wells, tiltmeters, etc.) and throughout high-frequency activities (e.g., cyclic steam stimulations, workovers).

• Automate analysis and decision-making to capture—and then maximize—a large portfolio of relatively low-producing opportunities, while avoiding time-consuming analysis, such as the physical-chemical reservoir process simulation normally used to predict the flow of fluids.

• Facilitate coordinated and collaborative workflows across multiple, interdependent functional groups.

As the company shifted to an AI system, it utilized DOFF technologies including automated data handling, integrated mechanisms, and advanced analytics. The company divided its field oil wells into two: one-half deployed DOFF; the other half continued to rely on traditional means.

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The resultsBy implementing DOFF technologies toward an integrated platform, the company successfully realized gains on two important fronts, attaining the following:

Overall, the company achieved competitive differentiation among its peers through operational improvement, via the effective application of DOFF technologies. Its I.T. capabilities are also aligned with the company’s DOFF aspirations.

Today the firm serves as a center of excellence for supporting global oil production activities, having rolled out the new methodology and program to its other operators, including those located in the Middle East.

And befitting its new-found edge in operations with a happy conclusion, the company’s engineers are no longer overworked or stressed to the point of exhaustion, leaving them much more agile and efficient toward optimization and other forward-looking initiatives.

• Higher levels of heavy oil production, marked by an 8-10% increase in the assets deploying DOFF technologies.

• This resulted in more oil being extracted but without a corresponding rise in costs.

• Greater efficiency in operations, requiring just 3 units of steam per 1 unit of oil, compared to a regional ratio of 5:1, thereby cutting down operational expenditures.

Individual initiativeCyclic steam candidate selector

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Automotive will play outsize role in boosting industrial robots market Jan Zhang, Senior Manager, Manufacturing TechnologyThe automotive industry during the next few years will continue to account for a large portion of the global industrial robot market, as cars lead in the development overall of robotic solutions toward factory automation and smart manufacturing.

Automotive represented 38.5% of worldwide industrial robot revenue in 2015, and the auto industry’s share by 2020 will still be more than a quarter of the total, at 22%, IHS projections show, even as other industrial sectors besides automotive start incorporating more robots for use.

While industrial robots currently form a small part of the complete smart factory, the machines will assume greater importance in smart factory settings by 2020. Compared to other slower-developing manufacturing technologies, robots will be at the forefront of intelligent manufacturing as improved connectivity and sensing capabilities are added to the machines.

The industrial robots market amounted to $9.8 billion in 2015, and IHS anticipates a solid five-year compound annual growth rate of 18.9% until 2020, by which time the industrial robots space will be worth at least $23.2 billion.

Two big markets: Germany and ChinaIn Germany, automotive is a major driver of industrial robot sales. Manufacturing costs in the country have always been high, and auto makers are also feeling margins tighten as wages rise and unions gain greater power. And while premium car manufacturers such as BMW and Volkswagen have been traditionally strong in their field, the increased sub-segmentation and downsizing of vehicle sizes mean that brands have to fend off greater competition and face prospects of lower profitability.

Such threats are pushing auto manufacturers in Germany to move more deeply into smart manufacturing models in order to cut down overall costs, improve product efficiency, and maintain competitiveness.

In China, previously low manufacturing wages have risen to the point that the country has become less attractive as a strategic sourcing destination. Moreover, labor shortages continue to be a problem for manufacturing facilities, with high turnover leading to an unstable manufacturing process as well as reduced manufacturing productivity and quality. To this end, robots will become an essential part of Chinese manufacturing, replacing their human counterparts especially in dull, dangerous, and dirty job situations. Advanced manufacturing techniques could also boost productivity and support reshoring efforts.

Overall, the automotive industry in China was the largest market for industrial robots, accounting for 36.7% of total industrial robot revenue in 2014. By 2019, automotive share will continue to be substantial, estimated at 29.6%. But with investment in the industry slowing down and the domestic China market saturating, revenue for industrial robots deployed in the Chinese automotive space is headed for just moderate growth, projected at a five-year compound annual growth rate of 23.4% from 2014 to 2019.

Even so, large investments continue to flow into robots for manufacturing in China. Government initiatives, such as the China Manufacturing 2025 Technology Roadmap and China’s 13th Five-Year Plan, classify the industrial robots sector as a key area of investment.

IHS anticipates a solid five-year compound annual growth rate of 18.9% until 2020, by which time the industrial robots space will be worth at least $23.2 billion.


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Industrial robots seen to increasingly replace labor Rolando Campos, Senior Data Analyst, Manufacturing TechnologyToday’s manufacturing global unemployment will fall to its lowest level in 2016, indicating tightening labor markets around the world. An aging workforce, especially among advanced economies, is also shrinking the supply of available workers.

Meanwhile, the cost of industrial robots continues to fall and their capabilities keep growing in the face of plateauing or rising labor costs. Automotive is the largest sector making use of industrial robots, accounting for 38.5% of the total industrial robots market and worth $3.8 billion in 2015. But because automotive is already one of the most highly penetrated applications for robotics, the automotive space is predicted to be the slowest-growing area for industrial robotics in the years ahead.

The industries and applications most likely to see robots replace labor are those where work is repetitive and technology has recently advanced to the point that robots are able to do work with a greater degree and margin of safety, accuracy, and cost-effectiveness. These areas, IHS predicts, will be consumer electronics, general electronics, and food and beverage, with each exceeding 27% in compound annual growth rate for revenue from 2015 to 2020. Articulated robots will continue to dominate the market in absolute terms, claiming about two-thirds of global revenue, but collaborative robots and dual-arm robots will grow fastest, IHS projects.

Fig. 1: Highest growth countries for industrial robots vs. light vehicle production CAGR from 2015 to 2020

© 2016 IHS Source: IHS

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Industrial robots - revenue Light vehicle production - units

Figure 1 shows the five fastest-growing countries for global industrial robot revenue, ranged against light-vehicle production growth that IHS predicts will represent nearly half of global industrial robot sales in 2020.

Fig. 2: Salaries vs. breakeven curves (salary minus cost of robot in each country)

© 2016 IHS Source: IHS

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India Russian Federation Mexico Thailand China India Breakeven Russian Federation Breakeven Mexico Breakeven Thailand Breakeven

NotesSalary = 24 hours x 360 days (assuming 5 days downtime per robot)

Figure 2 shows that by about 2019, industrial robots will cost on average less than the salary of a manufacturing employee in each of the countries in Figure 1. In China, the breakeven cost for producing robots measured against their productivity was reached even before 2015, as shown by the diamond-marked line indicating robots had become less expensive compared to the annual salary of a Chinese manufacturing worker.

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ihs technology june 2016 · also in the future, the design and operation of rigs and platforms will...

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