The Axford Report: US gas-turbine orders exceed expectations in 2015, predicted to decline in 2016

Axford

            Axford

Mark Axford, the Houston-based consultant considered by many to be the leading independent expert on gas-turbine (GT) markets, predicted at last year’s meeting of the Western Turbine Users Inc (WTUI, Long Beach, Calif, March 15-18, 2015) that US orders for GTs would decrease by 10% (capacity basis) in 2015 compared to 2014; he also predicted that worldwide orders would increase by 10%.

The actual numbers, announced by Axford at the 2016 conference (Palm Springs, Calif, March 20-23), showed the US market exceeded expectations in 2015 with orders up by approximately 6%; worldwide, orders essentially were what the consultant had predicted. The US “fraction of the action” was about one-fifth of the global book.

For 2016, the consultant expects both US and worldwide orders to decrease by 10%. 

Globally in 2015, GE and Siemens took about 80% of the gas-turbine market. Mitsubishi-Hitachi was a distant third; Alstom received no orders. Egypt played a major role in Siemens’ success with 2015 orders for eight combined cycles and seven simple-cycle units totaling nearly 5800 MW of capacity.

Recall that GE benefitted significantly in 2014 from Egypt’s order for 20 TM2500s and 14 LM6000s (total of about 3000 MW) and in 2013 from Algeria’s order for more than 7500 MW of GT capacity.

Axford breaks out the aero stats for WTUI attendees. In North America, 2015 aero  orders totaled more than 3000 MW, he told the group, with 93% of the order book going to GE—half of that for service in the oil and gas industry (horsepower of mechanical-drive units was converted to megawatts for the purposes of this analysis). Worldwide, aero orders in 2015 totaled nearly 8000 MW, up about 1000 MW from a year earlier. GE garnered 67% of the total aero business outside North America.

The LMS100, launched commercially in 2004, had its best year ever in 2015, with 17 orders—including 12 from US utilities and four for Canadian LNG service. Orders for LM6000s—more than 1000 units since 1990—slipped to 14 in 2015, the lowest total since 1992.    

Aeros versus frames. The split between aeros and frames has remained relatively constant for the last several years, with the latter capturing 84% to 88% of the business (capacity basis). But aeros remain the clear choice among users of gas turbines rated between 18 and 65 MW, which includes all the LM engines supported by WTUI. Last year, aeros captured more than 70% of the orders in this market segment.

In North America, frame orders totaled more than 14,000 MW, with more than 5000 MW for Mexico. There was virtually no Canadian activity in 2015. GE booked 50% of the business, Siemens 34%, and Mitsubishi-Hitachi 16%. Three-quarters of the orders were for GTs larger than 175 MW installed in combined cycles.

Simple cycle versus combined cycle. About 55% of the GT capacity ordered last year for the US will be installed in combined cycles, the balance in simple-cycle applications.

Economic climate, observations. Axford closes his annual presentations with a look at economic and market trends. Here are some takeaways from his presentation at the 2016 Western Turbine meeting:

      • Don’t expect US crude to go above $60/bbl in 2016.

      • LNG exports from the US began in February 2016, with the first shipment going from Cheniere LNG, Lake Charles, La, to Brazil. Five US export terminals are likely to be in service by 2020. Projections by experts suggest 6.5 to 8.0 bcf/day of gas eventually will be converted to LNG for export. Estimated impact on the price of domestic gas ranges from 15 to 25 cents/million Btu.

      • US assessment: Axford sees America challenged by soft demand and little need for new generation. Utilities are focused on investing in wires and a guaranteed return, he said, while IPPs are hurting in competitive markets. In the oil patch, drilling and service companies are struggling to stay alive. Plus, renewables subsidies are having a huge negative impact on GT orders: the effect of extending wind subsidies through 2021 is the capacity equivalent of 380 LM6000s, while extending solar subsidies through 2021 equates to the loss of an additional 360 LM6000s.

      • Europe still is in recession. Power demand is soft and orders for GTs will reflect that in 2016. Germany is retiring nuclear generating stations and adding low-cost coal-fired units—go figure.

      • Canada is being clobbered by falling oil prices and currency valued at 76 US cents per Canadian dollar.

      • Mexico is a bright spot in North America. Electricity and energy reforms are working and the pace of change is accelerating. Pipelines and powerplants are being built at a historic rate.

      • In Asia, LNG prices, linked to crude, are down sharply: $19 million Btu in 2014, about $9 today. This will stimulate GT orders. Will Indonesia follow Egypt and Algeria as the next bonanza for gas turbines?

      • In Africa, Nigeria has huge potential if the independent power movement is successful.

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