The Gas Turbine Market Powers Ahead
by Tony D'Altorio, Investment U Research
Tuesday, June 7, 2011
The gas turbine market may be beginning a new trend... a long-term shift towards generating power through natural gas.
Gas turbine demand is on the rise, much to some of the world's biggest industrial businesses' satisfaction. Companies like General Electric (NYSE: GE) and Siemens AG (NYSE: SI) are noting increased sales of the heavy-duty equipment used to turn natural gas into electricity.
Those results come from three convergent trends:
- New, cheaper methods of extracting natural gas;
- Fast-growing power needs in emerging markets;
- And concerns about nuclear energy in the wake of the disaster in Japan.
As a result, most industry insiders and outsiders alike expect the gas turbine market to grow nicely over the mid term.
Gas Turbine Growth and Power Generation
Credit Suisse, for one, expects gas power plants to make up about a quarter of all power generation capacity additions in the next five years. It believes this will boost gas turbine orders by 50 percent to about 63,000 megawatts.
That increase will be especially welcome, after it dropped 34 percent in 2008 to 2010.
That would up the commodity from 22 percent of the global power generation mix to 27 percent.
In the United States specifically, Siemens CEO Peter Loscher says he is "bullish on gas." He partially attributes that to the country's regulatory climate.
Loscher notes that over the next 10 to 15 years, a third of U.S. coal-fired power plants will close due to environmental restrictions. And any replacing facilities will likely be powered by cheap natural gas.
Siemens says it supplied all of the 20 or so turbines most recently sold in the United States. It's currently building a plant to manufacture more in Charlotte, N.C.
World's Largest Gas Turbine Producer - Sees Sector Growth Ahead
General Electric, the world's largest gas turbine producer, sees growth ahead, as well. Its CEO, Jeff Immelt, says the world is beginning a "natural gas power generation cycle."
He credits mostly large emerging markets for this new trend. But he also sees demand returning to the languid U.S. market, which makes up a fifth of overall global demand.
The company's vice-chairman in charge of its energy business, John Krenicki, agrees. He says GE is "looking at a 25-year, very bullish market" and is making acquisitions and investments to profit from just that.
In fact, it aimed much of its recent $11-billion energy shopping spree at natural gas production, transmission and power generation.
The Future of The Gas Turbine Market
Krenicki may have gone overboard with his "25-year" bull market prediction. But the gas turbine market looks positive for the next several years all the same.
Perhaps the most positive factor favoring that outcome is price. Natural gas remains cheap as simultaneous supplies come on-stream around the world, thanks to new extraction methods.
Low gas prices allow companies to build new gas-fired plants, generating electricity for about six cents per kilowatt-hour. That compares to new coal-fired plants, which consultancy firm Navigant reports would cost 7.5 cents for new coal-fired power plants.
As long as this price dynamic stays in place, the gas turbine market will keep firing on all cylinders.