It has been a tough couple of years in the desal market. The end of the major build-outs in Algeria, Spain and Australia coincided with the global financial crisis.
Next month, GWI publishes Desalination Markets 2010 – the first major update of its global desalination market forecast since 2006. During that time, the market has seen the extremes of rapid growth and catastrophic collapse. The growth was driven by major programmes in Spain, Algeria and Australia, as well as by frenetic activity in the Gulf region in general, and Dubai in particular r. It is the combination of the completion of these major build-outs – and the global financial crisis, with its impact on real estate growth worldwide – which caused the collapse.
Glancing forward, there looks set to be a major change in which countries offer the best market opportunities. Although Australia and India retain their market rankings when comparing the value of capital expenditure in the four-year period from 2010 to 2013 against capex during 2006 to 2009 (see table, below), every other country in the top 20 changes its position. The biggest fallers are the UAE, Spain, and Algeria. The biggest gainers are the US, Israel (which is mid-way through a major build-out), Kuwait and Libya. New entrants to the top 20 markets include Morocco, Chile and Jordan.
The forecast is based in part on an analysis of the 300 projects GWI tracks each month in Desalination Tracker, and in part on information on supply and demand for water in each country. The timing of major projects requires significant guesswork: for example, our current assumption is that the US will start to get serious about large-scale desalination in 2012. This would, however, require a revival of the housing market in California, as well as a return to the drier conditions the state experienced until the end of last year.
We also have to take a view on the speed at which new desalination markets evolve. Libya, for example, is expected to build out over 2 million m3/d of capacity between now and the end of 2016, but no one knows how long it will take to develop the successful delivery model for this capacity. We have assumed that the magic year will be 2012.
The forecast is completed by marrying up the capacity forecast with the DesalData cost calculator to put a dollar value on the expected market spend. If you compare the value of the market over the past four years (to the end of 2009) with the expected value of the market over the next four years (to the end of 2013), the increase in total capital expenditure is expected to be 40%. This corresponds to an average annual growth rate of 10%, which is in line with the long-term average growth rate in the market.
Looking forward, it is clear that membrane desalination is going to continue to pull away from thermal desalination. Although multi-stage flash and multi-effect distillation represented around 26% of the market during the period 2000-2009, their market share is expected to amount to around 9% in the period 2010-2016. This reflects two factors. First, the desalination market outside the Gulf is expected to grow faster than the desalination market in the Gulf region, where thermal desalination is more frequently used. Second, membrane desalination is making in-roads into the Gulf market – a trend which is likely to accelerate with the move towards independent water and power projects in Kuwait and Dubai, as well as greater consciousness about energy efficiency.
The new forecast itemises how capital expenditure breaks down between the different lines of supply (see doughnut above) and forecasts how each element of expenditure will grow over the period to the end of 2016. The forecast does not, however, take into account the timing of orders and the recognition of revenue. Typically, once a plant is contracted, the EPC (engineering, procurement and construction) contractor will place orders with equipment suppliers, but the equipment suppliers will not actually recognise revenue until the equipment is delivered. Our forecast is based on the expected contract date of projects, which may be a year or so ahead of the date on which suppliers book revenues. This is illustrated in the chart on the left, which shows the energy recovery device market. ERI continued to show growth in 2008, even though the overall market was going down, because of the spike in orders for desal plants in 2007. 2010 should show some growth for ERI as a result of the acquisition of Pump Engineering (which has the contract for the 500,000m3/d Mactaa project in Algeria).
The big unknown in the market is the impact of new technology. The last three years have seen a massive burst of investment in the development of new desal technologies, spurred on in part by the outlook for the market, and in part by the growth of the “greentech” investment sector. The table below illustrates some of the new technologies reviewed over the past three years by our sister publication, Water Desalination Report. Editor Tom Pankratz gives a Coefficient of Desalination Reality (CDR) to each technology. Many of these new technologies are apparently leading nowhere. Others, such as those developed by Voltea or Klaren, have strong prospects, but not necessarily in mainstream large-scale municipal desalination.
Overall, our analysis is that three areas of new technology are likely to be the focus of commercialisation over the next four years. These are: improved membrane technology (bothnano-engineered and biomimetic), forward osmosis, and membrane distillation. Improved membranes are very much a continuation of the kind of technology development we have seen over the past 45 years in desalination. Forward osmosis and membrane distillation represent new paradigms. They face two challenges: one is overcoming the innate conservatism of water customers, and the other is finding a business model which fits in which the existing market. Currently, desalination is a “plant” business rather than a “systems” business. EPC contractors offer a complete solution, from intakes to post-treatment. The new technology companies can’t do that: they have the solution to one of the processes involved in a desalination plant, but to deliver the whole thing, they will need to work with partners who are experienced in the old ways. It will be a challenge.
Source: Global Water Intelligence, Volume 11 / Issue 7 / July 2010