The hydraulic fracturing pump market is one of the Most Profitable Markets (MPM) for pump suppliers. It is large and will grow at close to double digit rates in the next few years. The application is extremely challenging. This creates a situation where a better designed pump can be sold at a much higher price. The repair part market is bigger than the new equipment market. So this creates a large combined market.
There are a few major purchasers each of whom will spend more than $50 million per year on pump hardware, repairs and services. This makes direct sales possible. Without sales commissions or distributor markup the gross profit will be higher.
It is recommended that pump companies invest in very detailed market forecasting which is focused on increasing profits and not just revenues. This forecast can be described as the "Most Profitable Market" (MPM). The $70 billion industrial pump market is the Total Available Market (TAM).
The Serviceable Obtainable Market (SOM) is the market which can be addressed with the lowest priced product at even small unit margins. The Most Profitable Market (MPM) is the one for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
Hydraulic fracturing offers a large and fast growing MPM for pump manufacturers. New developments in the last month will cause a large increase in fracking pump sales. It now is a good bet that the U.S. could be producing 25 million bbl/day of liquids by 2025. The oil companies are saying that OPEC and IEA s more pessimistic forecasts are wrong. They are setting their capital budgets on this premise.
Picture: McIlvaine Company
Source: McIlvaine Company