January 2012 Issue
Firing Line Report: Ocean Industry Weathers a Tumultuous Year
By Chris Knight
Sea Technology magazine
Uneventful, 2011 was not. The world witnessed financial turmoil across the European Union; political upheavals in Egypt, Libya, Tunisia and other Arab nations; an earthquake, tsunami and nuclear meltdown in Japan; and congressional deadlock in the United States that caused a near-default on government debt and may eventually result in U.S. defense spending cuts of $1 trillion beginning in 2013.
As it has for the past 29 years, Sea Technology magazine invited readers to answer questions for our Firing Line report. The anonymous online survey asks companies about sales in 2011, areas of growth and concern, and their company’s expectations in the coming years.
Of greatest consequence to those in the ocean industry has been sluggish growth in the United States and Europe, as countries continued to struggle with growing levels of government debt, low consumer demand and skittish financial markets. One survey respondent summed it up nicely, saying, “When America sneezes the world catches a cold!”
Active Product Categories
Of those answering the survey, the majority reported seeing a higher volumes of sales in 2011. A number of product areas were reported as being more active in 2011, including underwater vehicles, sensing/measurement systems, laboratory equipment, mapping/survey systems, GPS and DPGS navigation systems, flotation systems, fiber-optic systems, electrical equipment, communications and telemetry, and acoustic sensor systems.
Source of Orders
The military continues to be the leading source of orders in the ocean market, survey respondents reported. If cuts in the U.S. military go through as planned—$1 trillion in cuts over 10 years if the supercommittee fails to reach a compromise—this could be cause for concern as programs are trimmed or canceled. Chief of Naval Operations Adm. Jonathan Greenert, who succeeded retiring Adm. Gary Roughead in 2011, warned that such cuts “could have a severe and irreversible impact on the Navy’s future.”
It is unclear just how the U.S. Navy would trim its budget should the harshest of the Pentagon cuts go through. The Center for Strategic and Budgetary Assessments, a nonprofit public policy institute, estimates the base budget in fiscal year 2013 would fall from $530 billion to $472 billion, but early indications show that pain would be deep.
For example, the Navy’s top officials testified in July that the Navy was considering whether to scrap the Gerald R. Ford-class aircraft carriers, potentially savings billions of dollars. Though the Navy ended up including the carriers in its six-year spending plan, such drastic measures are an indication of what could come.
The offshore oil and gas market, which respondents continue to report as a large source of orders, is more of a bright spot, with the price of oil hovering around $100 a barrel and a hastening permitting pace by BOEMRE and its successor, the Bureau of Ocean Energy Management.
A major question for the industry continues to be offshore development in the warming Arctic, a region with huge untapped reserves of oil and natural gas but also major technical, logistical and environmental challenges. In the OCS leasing plan, the Department of the Interior included lease sales in the Beaufort and Chukchi seas, but only later in the five-year period, which will allow for further study and review. Russia, on the other hand, continues full steam ahead to develop the Arctic through government-owned Rosneft, which partnered with Exxon Mobil after a deal with BP fell through. The past year has also seen major activity by Russia, Canada and other arctic nations to complete their surveys of the continental shelf, all in preparation to make claims to the U.N. Commission on the Limits of the Continental Shelf in 2012.
Survey respondents reported that academic groups, research institutions and government civilian agencies were all in the middle of the pack when it came to orders. All of these groups seem destined to feel the crunch of lower budgets as nations struggle to control rising debts.
Adding yet more uncertainty to this market will be the 2012 elections in the United States, where the House, the Senate and the presidency are all up for grabs. The majority of Republican candidates have insisted on a program of spending cuts across the government to reduce the deficit. Remaining to be seen are how large those cuts could be, whether they would affect the ocean industry, and whether Republicans will have the votes to pass them. Meanwhile, Democrats continue to push for higher revenues, some of which would dismantle tax breaks for the oil industry.
Despite rising calls for austerity in U.S. and European governments, survey respondents continued to cite governments as an area with the greatest potential for growth.
Looking to 2012
What the next year could bring is anyone’s guess, though respondents to the Firing Line survey reported they were optimistic that sales would be higher. Like nearly every other industry, the ocean market continues to feel the impacts of the worldwide economic turmoil, but according to studies released at the end of 2011, the U.S. economy has thankfully dodged the potential of a double-dip recession. That leaves just one more economic landmine to dodge in 2012: the potential default of a number of countries in the European Union and a loss in confidence in the viability of the euro.