Monday, October 15, 2012

General Electric to Benefit From Gas Turbine Boom

Its always good when a company raises its revenue growth forecast. This is especially true when the company is one of the world's largest. General Electric (NYSE: GE) recently raised its 2012 industrial revenue growth forecast to 10%, the high end of the previous 5-10% forecast. This news sent its stock price to levels not seen the autumn of 2008. Much of what powered that increased revenue forecast was GE's forecast of a boom in demand by power companies globally for natural gas-fired turbines as they increasingly turn to gas to provide baseload electricity.

In the past few days, the company announced $1.2 billion in new orders for 19 of its recently-developed, heavy-duty gas turbines from Saudi Arabia, Japan and the United States. General Electric has been investing heavily into its “flexefficiency” turbines and technology designed to allow rapid ramp up and ramp down in power output while using gas efficiently. GE has developed technology for both 50 hertz and 60 hertz, the two main frequencies for power grids around the globe. It has placed a big bet on natural gas and its future in the past few years, including acquisitions worth $11 billion in 2010-11. Now it looks as if that bet is just beginning to pay off.

Among the clients buying the GE turbines here in the United States are Hess Corporation, Xcel Energy (NYSE: XEL) and an unnamed industrial client. General Electric is supplying two gas turbines to the Cherokee Clean Air Clean Jobs Project in Denver, Colorado which will convert an existing coal power plant into a cleaner burning natural gas combined-cycle facility. Carbon dioxide emissions are expected to be lowered by half. The new plant will be owned and operated by Public Service Company of Colorado, a subsidiary of Xcel Energy.

General Electric is not alone in its belief in the bright future for gas turbine power. Its major competitor in the sector, Germany's Siemens AG ADR (NYSE: SI), also thinks along the same lines. Earlier this year, Siemens announced it had earmarked more than $1.3 billion to expand production of gas turbines and hopefully fend off GE as they jostle for top spot in the sector. This division is the largest of the German company's 10 main divisions, accounting for about 14 percent of the company's revenues last year.

In recent years, Siemens has almost doubled its market share to 40% in the large turbine segment for power exceeding 100 megawatts. It also currently has the at least 10-unit-a-year market to itself as GE and Japan's Mitsuibishi Heavy Industries (NASDAQOTH: MHVYF.PK) are still developing their offerings for that segment of the market.

Another competitor of GE and Siemens in the turbine market is France's Alstom SA ADR (NASDAQOTH: ALSMY.PK), but it is more focused on the steam turbine market. However, even Alstom has launched its upgraded GT24 gas turbine and KA24 combined-cycle power plant which the firm says is a response to the increasing demand for gas-fired power generation around the world.

The upturn in gas turbine business for GE, Siemens and the rest is being driven by four factors: the global shale boom which is making natural gas cheap and plentiful, fast-growing power needs in the emerging economies, concerns about nuclear energy in the wake of the Fukushima disaster and stricter emissions rules in the United States.

Environmental regulations alone will lead to roughly half of all U.S. coal power plants being upgraded or replaced in the next decade. General Electric itself forecasts that more U.S. power plants will be fueled with natural gas rather than with coal by 2017. As for the emerging world, as shale gas deposits are developed in China and elsewhere, the markets for gas turbines will expand even further. This bodes well for Siemens and GE, as it moves back toward to its industrial roots and away from financial services in the years ahead.

This article originally appeared on the Motley Fool Blog Network. Make sure to read all my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

9 comments:

  1. Its interesting how the price of natural gas has declinded over the last five years. In 2007 it was trading at 14 dollars for so many cubic feet today its trading around 5.

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  2. Does general electric really bring good things to light.

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  3. This news sent its stock price to levels not seen the autumn of 2008. Much of what powered that increased revenue forecast was GE's electrical forecast of a boom in demand by power companies globally for natural gas-fired turbines as they increasingly turn to gas to provide baseload electricity.

    ReplyDelete
  4. That good idea about which general electric to be benefit to gas.. making good support for the electric and gas..

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