Gas turbine sales remain flat

Megawatt orders down 3%, driven by orders for the biggest large frame turbines, while unit orders are flat despite Covid-19 market risks. Courtesy of Dora Partners

The highlight of the annual Western Turbine Users Inc. (WTUI) show is the report on gas turbine trends by Tony Brough and Mark Axford. Tony Brough, President of Dora Partners, kicked things off by showing the latest trends. MW orders are down 3.2% in 2020 compared to the previous year, while unit orders are up 0.3%. Since 2012, however, MW orders are down 42% and unit orders are down 67%.

“Over the past five years, gas turbine capacity orders have dropped from about 50 GW per year to just less than 40 GW,” he said. “In 2020, the market was unexpectedly good in light of COVID-19, likely due to the fact that the process of contracting and purchasing industrial GT’s is a protracted process that may well have started in 2018 and 2019.”

Looking more closely at aeroderivative turbine trends, Brough commented on the resilience of the LM2500 and LM2500+. The LM2500+ accounted for 30% of the market over the past five years, by far the best selling aeroderivative. The various flavors of LM2500 also boast the largest aeroderivative gas turbine fleets followed by the LM6000.

Although sales could be better, the overhaul and repair market for existing aeroderivative fleets is valued at $2.3 billion per year.

Aero Unit Orders were down 31% (excluding the Russian market) in 2020 With the GE/Baker-Hughes share jumping to 88%. Courtesy of Dora Partners

Outside of Russia, sales of aeroderivatives are dominated by GE/Baker-Hughes. The jump in their share of the market in 2020 was largely driven by Baker-Hughes’ newest unit, the LM9000.

Brough provided an interesting point of comparison of the most recent seven year period compared to the previous seven years (ie, a 14 year total period). In the electric power and utility (EPU) market, there has been a sharp drop in aeroderivative units orders in all regions except the Middle East and Africa. Asia Pacific is down 34%, Europe and North American down 80%, South America down 54%, and Russia down 83%. In oil & gas, the picture is a little different. North America experienced a 174% spike in aero unit orders compared to the earlier seven-year slot. Every other area was down – anywhere from 33% to 84%.

“Only the North American oil & gas industry has seen long-term growth for aeroderivative units,” said Brough. This was mainly due to the need to power fracking sites, as well as for pipeline network expansion.”

During 2020, the worldwide market for aeroderivative gas turbines showed a 14% jump on the previous year, with MW orders up 7%. GE’s worldwide share was 67%. The LM9000 accounted for almost half of all worldwide orders, followed by the LM2500+ at around 30% with the LM6000 and Siemens SGT-A35RB (formerly RB211) sharing third spot. But North American aeroderivative unit orders and MW orders were both down 69% with GE grabbing 100% of U.S. business for the year.

LONG-TERM OUTLOOK

Brough then turned his attention to the long-term outlook for industrial gas turbines. He said to expect wind and solar to grow dramatically over next 20 years. Therefore, it is important to determine what role gas turbines will have, particularly aeroderivative units.

“Gas turbine utilization of hydrogen, methanol, ammonia, and other low-carbon fuels will gradually be introduced over the next 10-25 years, with a mix of these low-carbon fuels and natural gas initially.” he said.

Another big push will be for green hydrogen i.e., produced with only renewable sources. Green hydrogen is viewed as the battery of the future whereby you take excess renewable energy and use it to via electrolysis to produce hydrogen.

“Gas turbines can be retrofitted for hydrogen mixes as well as to work on 100% hydrogen,” said Brough. “But getting the hydrogen to the point of demand is going to be a major challenge and implementation of this green hydrogen vision is going to take a long time.”

He pointed out that the economics currently are hard to justify, but regulatory requirements and government incentives will propel this change over time. To run an LM2500 for a year on 100% green hydrogen would require a massive amount of excess renewable energy. Thus, major technical, fuel delivery infrastructure, and economic hurdles must be overcome in any transition to low carbon fuels.

“There is a future for gas turbines with or without fossil fuels,” said Brough.

AXFORD'S INPUT

Mark Axford, President of Axford Turbine Consultants, took the stage by showing a graphic showing aeroderivative orders being flat for 2020. He expected it to be worse. He outlined the three factors responsible for long-term stagnancy in the markets: regulation, mandates, and subsidies.

In the gas turbine business, the regulations started with pollutants. Limitations on NOx and CO were around 100 ppm when Axford started in the business during the 1970s. But the limits are now as low as 2 PPM in some states (2 PPM typically exceeds the error factor inherent in measurement equipment). Additionally, Axford noted unnecessary limits on ammonia slip, and the requirement to treat CO2 as a pollutant rather than an emission.

As a result, renewable energy is the fastest growing component of U.S. electric supply. The Department of Energy's Energy Information Administration (EIA) now predicts that in 2030, more electricity production will be from renewables than gas. The current 40% share of natural gas will drop to 36% by 2050.

“Solar is now growing so rapidly, it is forecast to be the largest component of renewable energy by 2040, surpassing wind,” said Axford. “But it remains to be seen if this will take place.”

LARGE TURBINES

Axford moved on to the advanced gas turbine market. GE accounts for has 45% of advanced gas turbine MW orders since 2014 worldwide. Mitsubishi Power is in second place, followed by Siemens and Ansaldo. His view on this market will largely be driven by combined cycle plants being used to replace coal and nuclear facilities forced into retirement. But the market for these massive gas turbines is constrained by grid requirements. Many areas don’t have a grid that can support an 800 MW to 1 GW combined cycle plant.

“This is too large for many countries with less developed grids,” said Axford. Meanwhile, the launch of the GE LM9000 aeroderivative gas turbine is off to a good start. Baker Hughes received an order for 20 units for the Novatek Arctic LNG project in Pacific Russia. This includes 12 LM9000s in mechanical drive and another eight gensets.

Axford also noted that Siemens has ended production of its A45 and A65 (formerly Trent) engines due to factors such as cost and difficulty competing. Other engines in trouble include the LM6000 which has seen a sharp drop off of orders over the last decade, and several units with no orders in 2020: the LMS100, FT8 MobilePac, and FT4000.

“The LM6000 has a fleet of more than 1,100 units, but has been getting few orders for some years,” said Axford.

He added that part of the reason for this is competition from the Siemens SGT-800, which now dominates the 50-60 MW segment. Axford said factors such as price and combined cycle performance favor the SGT-800. Another area where GE is losing out is in refurbished LM6000s. ProEnergy has delivered 52 of them over the last few years.

Turning to the electric vehicle (EV) market, Axford views the rise of the EV as good news for gas turbines. “As battery storage is adopted, the market for mid-sized gas turbines will be the big loser,” he said. “But at higher levels of renewables, it could be risky to rely on expensive battery backup so there will a place in the market for gas turbines.”

He largely dismissed the concept of turbines running on 100% hydrogen provided from electrolysis. He said that steam reformation of methane is a far cheaper way to produce blue hydrogen. Further, the pipeline network is not built for hydrogen. Plastic distribution lines would embrittle, and there would need to be extensive rework done on 1,400 compressor stations in the U.S. to deal with hydrogen.

“Carbon capture of natural gas is probably a far more economical path than trying to convert everything to 100% hydrogen,” said Axford.

He ended with some advice for plant managers and a prediction for the year.

“As the supply chain has slowed down considerably, plant managers need to move away from just-in-time models to having parts at each site and suppliers in the home country even if it costs more,” said Axford. “2021 won’t see a recovery: I predict a 10% drop in MW orders.”