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German large-scale plant engineering grows in a volatile market environment

| By Gerald Ondrey

At €24.3 billion, incoming orders booked in Germany by the members of the VDMA Large-scale Plant Engineering Group (AGAB; Frankfurt am Main) in Germany in 2023 were 15.7% higher than in the previous year (2022: €21.0 billion). This figure represents a long-term high and is fed by both large-scale projects for sustainable industrial plants, as well as orders for services and spare parts. “The use of innovative technologies in project handling and the strategic orientation of the companies towards new markets and climate-friendly technologies have made a significant contribution to this growth,” explains Jürgen Nowicki, chairman of AGAB and CEO of Linde Engineering.

Record domestic orders and high orders from industrialized countries

Domestic orders rose by 45.4% in 2023 to a record €9.6 billion (2022: €6.6 billion). In addition to a large number of small and service orders from the energy sector, this boom was triggered by several major orders for climate-neutral steelworks. At €14.8 billion, foreign orders received in 2023 were 2.5% higher than in the previous year (2022: €14.4 billion). As a result, AGAB members have managed to compensate for the loss of the Russian market and declining demand from China and India by acquiring new customers in other regions of the world.

VDMA’s large-scale plant manufacturers were particularly successful in Western Europe and North America in 2023. There, companies booked orders worth €7.7 billion (2022: €7.2 billion). The most important single market was the U.S. with orders of €2.4 billion (2022: €2.2 billion), followed by Italy with €1.1 billion and the U.K. with €860 million. In the U.S. market, investment incentives from the Inflation Reduction Act had a positive impact on demand. Nowicki: “The figures show that our members have succeeded in compensating for the weakness of previously important markets in a short period of time. The key to this is agility: Plant manufacturers have set up their organizations in such a way that they can act flexibly in volatile markets.”

Transition technologies CCS and CCU are gaining acceptance

In the current market environment, opportunities for the industry are opening up primarily due to the increasing demand for sustainable production facilities. At the same time, transitional technologies in which carbon dioxide is captured and stored (CCS = carbon capture and storage) or used for other purposes (CCU = carbon capture and utilization) are gaining acceptance, especially in the U.S. and Europe. Germany, for example, has readjusted its previous position in a remarkable decision and now wants to enable the use of CCS and CCU. The focus for the use of the technology will be on emissions that are difficult to avoid, for example in the steel or cement industries. “Behind this change of mind is the realization that the transition to a climate-neutral industry cannot succeed only gradually through a mix of green and fossil fuels with integrated CO2 storage. Otherwise, both the competitiveness of Europe as an industrial location and the ambitious climate targets for 2050 would be at risk,” explains Nowicki.

Large-scale plant engineering uses the potential of artificial intelligence

Artificial intelligence (AI) is currently capturing the imagination of many companies. Large-scale plant engineering is also working intensively on this technology and is testing different scenarios to increase productivity. Nowicki: “Considerable progress has already been made through the use of AI in the programming of systems and in software development.” The members of AGAB observe the dynamic development and deal with new fields of application of AI, for example in the area of purchasing and engineering. “In the future, the technology promises significant leaps in productivity for plant engineering by supporting engineers in carrying out complex planning tasks,” adds the AGAB chairman.

Large-scale plant engineering welcomes modernization of the OECD consensus

The project business of VDMA large-scale plant construction is dependent on reliable and practicable political framework conditions. In the area of state- sponsored export financing, however, there is only a limited level playing field for companies from OECD countries in global competition. “We therefore welcome the modernization of the OECD Consensus implemented last year. Admittedly, the scope could not be extended to include development cooperation or investment guarantees. However, the rules are now more flexible and better suited to offer more competitive conditions compared to non-OECD competitors such as China,” says Dr. Harald Weber, managing director of AGAB, commenting on the reform.

VDMA calls for deepening of the European market

Large-scale plant engineering, whose technologies can make a decisive contribution to Europe’s path to a climate-neutral future, joins the demands of European business associations to further deepen the internal market. “The dynamism of European integration must be renewed,” says Weber, especially with regard to the existing obstacles to the posting of workers within Europe, referring to the paper signed by the VDMA.

Higher sales expected in the current year

Most AGAB members expect sales to remain constant or increase in 2024 and are also optimistic about order intake. This confidence is fueled by the fact that VDMA large-scale plant engineering can offer its customers innovative solutions for clean energy generation and the decarbonization of industrial processes. In addition, there is enormous potential of the service business as well as engineering technologies such as artificial intelligence. “The prospects for large-scale plant engineering are promising, as the industrial sector has a key role to play in achieving the 1.5-degree target. This opens up growth prospects, whereby climate neutrality is the common goal of all AGAB members,” is the encouraging conclusion of Nowicki.