Mcilvaine Insights

No. 99   April 5, 2019

• Gas Turbines are a Most Profitable Market for CFT Suppliers
• U.S. Petrochemical Industry is a Most Profitable Market (MPM) Opportunity for CFT Providers

Gas Turbines are a Most Profitable Market for CFT Suppliers

Suppliers of combust, flow, and treat products and services will benefit from a growing world market for gas turbine generated power. There are many opportunities which fall in the Most Profitable Market category.

·       The market is growing at a rate above GDP

·       There are continuing needs for improvement of CFT products

·       Purchasers are oriented to purchasing products with the lowest total cost of ownership

·       Access to purchasers is enhanced by the following factors

o   Purchasers are mostly large companies buying components for multiple plants

o   Purchasers are home based in markets well served by international CFT suppliers

o   Suppliers have the opportunity to reach these customers in a manner to validate the lowest total cost of ownership of their products (LTCOV)

All of these factors create an opportunity to generate substantial sales with high profit margins.  This opportunity is quantified for each CFT product in the McIlvaine CFT Most Profitable Market Program Click Here.

The inventory of existing gas turbine plants is growing at 4 percent per year and in the next few years, the base will grow to two million MWs.  There are 30,000 individual units which routinely require service, replacement or repair of CFT components.  The rapid cycling occurring because gas turbines provide backup power for wind and solar has resulted in serious problems.  One of them is Flow Accelerated Corrosion (FAC).  Suppliers of valves, pumps, and other CFT components have the opportunity to provide upgraded products to deal specifically with this condition.

Because higher performance turbines are being purchased there is a need to remove the very small particles in the turbine intake air. High efficiency glass media is relatively fragile and more expensive than the typical polymer based media commonly used.  There is a big opportunity to combine efficiency and longer life to generate high margins.

Fleets of turbines are being operated remotely. Some of the operators are large power companies and others are third party service companies. Those CFT suppliers whose products can be remotely managed to provide lower total cost of ownership can boost margins.  This opportunity expands to the extent that the CFT product supplier can also supply local process management programs with edge computing.  This optimizes the product operation and reduces the task for the cloud based plant process management system.

The U.S. will continue to be the largest market. This increases the profit opportunity for those CFT suppliers with a strong U.S. presence. Unlike coal fired generation, the U.S. gas turbine market will remain the world’s largest in the near future. The U.S. is replacing coal with natural gas whereas Europe is moving more aggressively toward wind and solar and Asia is continuing to rely on coal. Natural gas power generation in the U.S. already exceeds coal fired power and will grow at an average of 1.5 percent per year over the next 30 years.

U.S. Energy Production - quadrillion BTU

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The CFT market is boosted by the conversions of simple cycle plants to combined cycle. Many plants which originally were peaking are now being converted to combined cycle operation and are being used at least for intermittent power to offset fluctuations in wind and solar.  CFT companies have attractive markets in raw water intake, ultrapure water, and wastewater treatment.  Plants in areas with tough wastewater discharge limits or water scarcity are opting for zero liquid discharge. This substantially increases the CFT investment. ZLD technology is developing rapidly.  This provides the opportunity to offer products with much lower total cost of ownership.

The use of IIoT and Remote O&M will accelerate faster than in other CFT markets. The largest coal fired boiler is four times larger than the largest gas turbine.  Owners are challenged with  operating multiple units. Furthermore gas turbines are complex enough that OEM guidance is welcomed.  MHPS, GE, and other turbine suppliers have remote monitoring centers.  These centers are primarily focused on turbine issues but are expanding to cover the balance of the plant.  Third party operators such as NAES are contracting to operate a number of plants. The more plants which are remotely monitored the more cost effective the results.  GE cites its experience with many thousands of turbines as a major resource.

Many plants have cloud based process management systems.  CFT suppliers have the opportunity to supply packages with edge based software and analytics which is tied into the process management system.

There is the opportunity for CFT suppliers to provide extensive O&M services. Air filters, catalyst, treatment chemicals, valves, pumps, measurement devices and other CFT products and services can be sold in tandem with remote monitoring to provide a total solutions approach.

There will be fewer but larger customers.  Consolidation is taking place in many ways. The large operators continue to expand. Third parties are expanding their activities with the smaller operators. This provides CFT suppliers with the opportunity for direct sales contact.

The gas turbine markets as well as detailed project and plant information is continually updated in

59EI Gas Turbine and Reciprocating Engine Supplier Program.

For more details on the program McIlvaine CFT Most Profitable Market Program  Click Here

The potential for automation and remote monitoring is analyzed in N031 Industrial IoT and Remote O&M.

U.S. Petrochemical Industry is a Most Profitable Market (MPM) Opportunity for CFT Providers

The petrochemical industry segment of the Combust, Flow, and Treat (CFT) market will grow faster than the average segment.  Suppliers with a strong U.S. presence can take advantage of a market growing at close to 9 percent per year.  The rapid growth, potential for innovation, market access and the emphasis on better rather than low priced components make this a Most Profitable Market (MPM) opportunity.

The U.S. will gain market share over the next six years due primarily to the cheap supplies of feedstocks. Just within the last few months the major oil companies have made clear their intention to invest a higher percentage of capital on U.S. shale oil and gas extraction. Chevron believes that it can extract oil at a cost of just $15 per barrel.  ExxonMobil believes it can be profitable with $30/bbl oil.  Both companies are expecting the U.S. liquids production to be 25 million bl/d by 2025.  This compares to IEA and OPEC forecasts for the U.S. production at just half this amount.

The impact on the petrochemical industry will be substantial. The availability of cheap and abundant feedstocks such as ethane make the U.S. Shale Crescent in the East and the Permian basin in the Southwest ideal locations for new production facilities.  The U.S. Congress just received a report from the Secretary of Energy which predicts that the Eastern U.S. will become a petrochemical and plastics manufacturing hub. A detailed analysis by the McIlvaine Company built on specific projects and plans concludes that the U.S. petrochemical CFT market will grow by 9%/yr vs 6.5%/yr for the rest of the world.

The McIlvaine forecast of the CFT market in 2025 includes equipment, services, maintenance and repair parts. There will be a number of technical challenges as shale gases with varying percentages of ethane and other natural gas liquids are converted into ethylene and other petrochemical products. In recent years the CFT market growth in the U.S. has been less than in Asia. This has handicapped CFT suppliers whose primary strengths lie outside Asia. The opportunity to maximize profits in the U.S. market is therefore unique. Many of the CFT markets such as coal fired boilers are mature.  This reduces the profit potential because of the emphasis on price to sustain revenues. A growing market is much more likely to result in maximum profits.

Another aspect which identifies this as a most profitable segment is a combination of large customers who are oriented toward purchasing the CFT products with the lowest total cost of ownership.  This includes, Dow, Chevron, SABIC, Total, Shell and LyondellBasell.

The McIlvaine Most Profitable Market program identifies the market and individual purchasers and provides a route to present them with products which are validated to show lowest total cost of ownership.  Details of the program are linked from the website at www.mcilvainecompany.com .  The direct link to the program is found if you Click Here

For answers to your questions contact Bob Mcilvaine at rmcilvaine@mcilvainecompany.com  or 

by cell at 847 226 2391.