TOUGH TIMES FOR GAS TURBINES

SALES ARE DOWNTRENDING AS THE MARKET VEERS

RELENTLESSLY TOWARD RENEWABLE ENERGY SOURCES

BY DREW ROBB

Every year at the Western Turbine Users Inc. (WTUI) show in the Western U.S., Mark Axford of Axford Consulting delivers a breakdown of the gas turbine (GT) marketplace. He always begins with a light-hearted review of his prediction from last year’s show.

Usually he gets it right, but Axford said, “For 2017, I have never been so wrong. I take no comfort in the fact that GE and Siemens also had a major miss in the forecast.”

Back in March of 2017, he said that U.S. GT orders would be up 10% and worldwide orders would be down about 10%. However, the actual results were U.S. GT orders down 36% and worldwide down 28%. “We are witnessing the continuing collapse of the GT market,” said Axford.

He turned over the stage to Tony Brough, President of Dora Partners. Brough provided specifics from market and data collaborators, Dora Partners research and McCoy Power Reports, which provide a detailed forecast of over 90 gas turbine models. Brough explained that worldwide MW orders for the year were down 29% with unit orders down 17%.

“More worrying is the fact that MW orders since 2012 are down 45% and unit orders are down 60%,” said Brough. “The unit order decline has a stronger impact on future aftermarket growth.

World net electricity generation by fuel, 2018 to 2040 (trillions of kWH). Petroleum in red, nuclear in purple, natural gas in blue, coal in black and renewables in green. Source: EIA

Predictions for worldwide net electricity generation by fuel indicate that natural gas will remain a strong long-term player in the electric energy field. Natural gas is expected to grow by 1.4% per year over the next ten years while coal and petroleum fade.

Renewables, though, are predicted to increase by 3.1% per year in that same period. “The growth areas for natural gas are in Africa and parts of Asia,” said Brough. “If you are a service provider, you need to have people in those areas.”

Brough also analyzed the levelized cost of electricity (LCOE) for the various technologies. He highlighted big LCOE gains for renewables assisted by subsidies. This is causing combined cycle GT plants to lose their price advantage over wind and solar in some cases. “Renewables don’t always beat GTs on LCOE, but its highly situational,” said Brough.

A breakdown of the GT market highlighted both strengths and weaknesses. The 150 MW to 300 MW range has a 46% share of market in terms of capacity. But the 40 MW to 100 MW segment, and the 20 MW to 30 MW segment, are also doing well relative to other parts of the chart.

The OEM picture is more straightforward. GE and Siemens account for more than 80% of capacity and 49% of all units installed. Solar Turbines boasts 41% of units installed. The electric power utility sector dominates all gas turbines deployed (85% of capacity). But oil & gas has almost half the units. Equipment and service providers in the O&G sector enjoy higher prices and greater commitment to specific OEM’s and technologies.

Heavy duty industrial turbines take up 84% of installed MW capacity and 37% of units. Aeroderivatives, on the other hand, account for only 11% of capacity and 19% of units. The Africa and Asia Pacific regions exhibit the highest anticipated growth rates.

But Brough believes aeroderivative technologies will play a major role in serving the O&G sector and key power generation sectors, such as peaking. Within the aeroderivative space, the LM2500 dominates, followed by the LM6000. In 2017, the LM2500 outsold the LM6000 by 15 to 1, in the U.S. On a worldwide basis, the LM2500 grabbed almost 50% of orders in 2017. The LM2500 has a fleet of more than 2,000 units, followed by the LM6000 with more than 1,100. The LMS100 has yet to crack the 100 mark. Despite its age, Brough sees the LM2500 as continuing to perform well, particularly in oil & gas. There is also rising demand for trailer-mounted units, as well as in overhaul and repair. Brough sees the aeroderivative aftermarket potentially worth $2.28 billion per year.

Axford continued the narrative. He said that over 200,000 MW would be added to the U.S. grid between 2018 and 2021. Natural gas will gain by 8,000 MW with wind close behind, then solar. A lot of this market, said Axford, will consist of large-scale combined cycle plants.

“A 500 MW combined cycle plant was considered big a few years ago, but now it’s up to 1,200 MW,” he said. “That upward push is only going to continue.” The trend, then, is away from the traditional stratification of the GT market (small, medium, large and extra-large segments).

Now, said Axford, it is destined to consist mainly of small and extra-large. Competition is intensifying on all fronts. Reciprocating compressor specialist Wartsila received orders of 3,800 MW in 2017. Axford expects the lean years for GT sales to continue. He explained that the structure of wind subsidies has left a backlog of 27,000 MW in wind projects that has to come onto the grid. These projects have already been given federal dollars, so they will be given priority over other types of generation.

The U.S shale industry offers huge reserves of oil. As the price of oil goes varies, production can easily be ramped up or down

Oil & gas gains

All was not glum, though. The price of crude oil has recovered from the $40-50 per barrel range to above $60. The expected trading range for the balance of 2018 is $60-70 per barrel. That bodes well for sales of pipeline compressors, as well as small gas turbine generator sets at oil and gas production facilities.

“The U.S. has become a peaking plant for oil—production stops when the price is down and starts again when it comes back up,” said Axford. “During the course of this year, the U.S. may exceed Russia and Saudi Arabia to become the biggest oil producer in the world.”

U.S. LNG production, too, will surge. The first exports of LNG from the Cheniere facility in the U.S. took place in 2017. There are now two operating LNG export facilities in the U.S. and three more in construction. This drives turbine and compressor orders delivering gas to these facilities. Cheniere LNG, for example, already has 29 LM6000s running. Cheniere’s fleet could grow to as many as 60 units during the next few years.

“U.S. LNG adds up to a lot of power and mechanical drive purchases,” said Axford. Most American LNG is shipped to Asia—mainly to China, as well as Japan, Korea and India. Some LNG also went to Brazil and the UK. Currently, the U.S. comprises 2% of the world LNG market. Qatar owns 30% and Australia 17%. U.S. LNG growth could benefit from development work on the Alaskan LNG project, which offers a short route to Asia. But it will need an 800-mile pipeline and the building of a terminal in Alaska. It remains to be seen how things will transpire in the region, an environmental hotbed.

Axford noted California’s negative prices for power due to a surplus of solar energy during mid-afternoon hours. “As California makes more solar power than can be consumed, it has been paying Oregon and Arizona to take some, especially during the spring” said Axford. “Similarly, Texas often sees the wholesale price of power become negative at night due to a surplus of wind generation."

This raises the issue of energy storage. California has ordered utilities to buy storage and stepped up subsidies for it. It added 500 MW of storage to the mandate during 2017, nearly all lithium ion batteries. Axford focused on the price decline curve for battery technology. Right now, the cost of batteries is $209 per kWh and falling about 20% per year. “The goal is to get it down to $100 per kWH,” said Axford. “If it gets there, that will be the end of peaking gas turbine plants.”

He ended with his customary gas turbine prediction for the coming year: Both U.S. and worldwide GT orders will be down at least 10%.