High Oil Price to Radically Change the Pollution and Flow Control Markets

According to Robert McIlvaine, President of the McIlvaine Company, “We are going to have to revise more than 200,000 individual revenue forecasts based on this surge in the price of oil to over $60/barrel. Some forecasts will be enlarged and some will be reduced, but all will change.

The new forecasts are based on the belief that oil will remain above $40/barrel over the next 20 years. Due to its interchangeability with oil, the price of natural gas will remain above $5.00/MM Btu in the U.S. despite importation of LNG.

On the negative side, these prices will reduce investment in energy intensive industries in the U.S. and Europe. The flight of heavy manufacturing to Asia will be accelerated due to the high oil and gas prices. This means that suppliers of pollution and flow control equipment to the pulp and paper, steel, mining, chemical, and cement industries will have to reduce their forecasts in these markets.

The impact on the economy as a whole will be negative if no major initiative to develop synthetic fuels is undertaken. This, in turn, will affect all the purchasers of pollution and flow control products and services.

There is a positive side which would actually make the high oil prices a growth spur rather than an impediment. All the Administration has to do is to guarantee that it would purchase any oil made from coal or oil shale for $40/barrel (if the supplier could not otherwise receive a higher price).

This simple guarantee would be the catalyst for one of the biggest spurts in capital investment in the history of the world. Plants which convert coal to oil such as the Sasol plant in South Africa require huge amounts of steel for the equipment and support structures. Valve and pump requirements are considerably more than those needed in conventional refineries.

The investments in air and water pollution control will be very large. In addition filters will play a major role in processing coal liquids to remove the impurities.

There are two main routes to converting coal to liquids. One is indirect and the other direct. Indirect liquefaction is a two step process. Coal gasification is followed by a gas to liquids process. This is the design used by Sasol. GE is now a major supplier of coal gasification plants.

Direct liquefaction involves hydrogenating coal slurries and then filtering the liquid to extract the impurities. This process is potentially less expensive but is not proven with the experience enjoyed by the indirect process.

Estimates of the cost of producing oil from coal vary. But the range is between $25-$40/barrel. Therefore, a guaranteed price of $40/barrel would be a very good trigger for the needed investment.

If world oil production has peaked or is about to peak, then the only real factor in keeping prices down will be synthetic oil. A large synthetic oil industry would ultimately set the price ceiling whether the oil is natural or synthetic.

The impact on the pollution and flow control industries would be very substantial and very positive. Not only would it create a new industry segment, but it would result in the return of heavy industry to the high energy cost countries.

The potential impact of the high oil prices and the potential for a synfuels industry are analyzed for each of the pollution and flow control markets covered by McIlvaine market reports.