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Major challenges facing gas turbine manufacturers like GE

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Lack of global appeal

While natural gas is making big strides as a preferred fuel for new capacity additions, it’s not available everywhere in abundance. Two-thirds of the global natural gas reserves are located in former Soviet Union countries, Iran, and Qatar, according to British Petroleum (BP). The shale gas boom has raised natural gas production levels in the US. Over 40% of global production is concentrated in the US and Russia. Around half of the total global natural gas–fired capacities are located in the US and Eurasia. While demand for natural gas turbines may see some traction due to environmental issues elsewhere, coal will remain the primary fuel for fast-growing developing countries due to costs.

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Lower reserves

Global natural gas reserves at the end of 2013 totaled 185.7 trillion cubic meters—enough to last for 55 years at the current rate of consumption according to BP. Current North American reserves can last for only about 13 years. In contrast, world coal reserves can last for over a century at the current rate. North American reserves can last for a whopping 250 years at the current rate. The reserves may get a boost with new shale gas discoveries. However, the difference between 250 and 13 is too large to go unnoticed.

Geopolitical issues

The year 2014 was marked by standoff between Russia and the West over the Ukraine crisis. Europe is heavily dependent on Russian gas supplies. A large part of Russian supplies to Europe go through Ukraine. To diversify energy sources and to reduce dependence on an aggressive Russia, European countries like Germany are planning a future with less dependence on gas. While this is easier said than done, these policy changes may limit growth for natural gas–fired plants in Europe.

Impact

While these issues are real, major gas turbine manufacturers also have a strong presence in steam turbines (as we discussed in Part 9 of this series) and other sources. General Electric (GE) has acquired most of the energy business of Alstom (ALSMY) to strengthen its position. GE also has a presence in wind and nuclear energy. GE is part of various ETFs, including the SPDR S&P 500 ETF (SPY) and the Industrial Select Sector SPDR ETF (XLI). Siemens (SIEGY), too, has a strong presence in other products. So the impact of these challenges on major equipment manufacturers should be limited.

We’ll discuss what you need to know about nuclear energy in the next three parts of this series.

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