Market Insight

Global Oil and gas CAPEX spending bolsters the market for medium-voltage motors

November 16, 2018

Matt Tolley Matt Tolley Analyst, Electric Motors & Capital Equipment

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In recent years, the medium-voltage (MV) motor market has contracted due to the oil and gas crisis that lowered oil prices, which resulted in curtailed investment in MV motors globally. However, going forward this trend is forecast to begin reversing. As prices for oil and gas rise in 2018 and 2019 to levels more in line with their historical averages, pent-up capital expenditure (CAPEX) is expected to return, which will lead to higher demand for MV motors across all regions. This spending will result in a boon to industries adjacent to oil and gas operations as well and will result in manufacturers expanding the capabilities of their motors in order to meet demand.

In Europe, Middle East, and Africa (EMEA), electrification is helping the global MV motor market grow. Grid-tied compressors driven by MV motors are increasing in prevalence, as liquified natural gas (LNG) transport by pipeline is becoming more ubiquitous to the Western European energy model. LNG from Eastern Europe is utilized by gas fired turbines to produce electricity in the West. Despite the greater environmental advantages to burning LNG more cleanly when compared to coal, the Western European energy model is increasingly turning to multiple lower output (7.5 MW) gas turbines in lieu of larger output gas turbines (25< MW). Despite greater overall efficiency associated with large output gas turbines, the most desirable advantage to this multi-turbine layout is greater efficiency when balancing an electricity grid that also includes supply from volatile renewable energy sources. These greater numbers of gas-fired turbines can be brought online or offline quickly and easily to provide necessary baseload output and decrease the risks of spikes and troughs from renewable wind power. This trend has resulted in higher demand for LNG in Western Europe and bolstered demand for LNG transport and compression projects requiring MV motors.

Furthermore, an overarching trend stemming from greater demand for MV motors in oil and gas and related applications (e.g. power generation, marine, chemicals, etc.) is the expected boost to MV motor output. The current mix for MV motors by power rating is expected to gradually change over the next five years and thereafter, as market demand for higher output motors is expected to increase. Manufacturers are eager to be on the forefront of this trend by expanding product lines into not only applications that require larger output, but also by expanding output and efficiency of their product line to meet this new demand. Regional and multinational manufacturers are currently releasing products that expand the output of their product lines from 100% – 400%. The result will fragment the market where motors 7.5 MW and higher will decrease in units shipped, but greatly increase in the average selling price (ASP) per motor, as the greater output and efficiency will come with a higher price. These high-output motors are producing efficiencies above 99%. On the other side of the market, below 1.5 MW, the motor will be more commoditized and less expensive due to manufacturers competing in a well-supplied market.

The increase in oil prices in other regions will have an impact on the global MV motor market as well. In North America, refining capacities have been nearing maximum levels in recent years. With the expectation of oil and gas supply increases to meet higher demand stemming from tightening global reserves and geopolitical volatility, refining projects in the Gulf of Mexico are lifting demand for MV motors. Additionally, global LNG demand will require a greater need for transport projects and marine transport vessels from the US. MV motor manufacturing for these units will be sourced globally, but most units will be manufactured in the US or Central and South America. In Asia Pacific, rising demand for oil and gas is increasing demand for MV motors required for off-shore projects and secondary marine vessels supporting these projects. These units are predominately sourced from South Korean and Japanese manufacturers which require a premium when compared with low-cost Chinese suppliers in the Asia Pacific region.

In conclusion, the global market for MV motors is poised to increase in revenue over the next five years. This will be welcome news to suppliers in this market that have been feeling the ill effects from weak commodity prices and overall economic performance over the past few years. Broad demand from most industries, especially oil and gas and those closely related, will bolster global demand for MV motors. The year 2019 or 2020 is projected to be a banner year for this market, but performance will still fall shy of pre-oil and gas crisis levels. Looking forward, the market is expected to level out with a year-over-year revenue demand increase of 2-3% for this mature industry. Furthermore, the consolidation of this market that had taken place in recent years will subside, as the market share players that were able to weather the oil and gas downturn will see returns on their investments.

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