Bright future for IGT services & maintenance sector

Offering a full range of services for gas turbines is essential. Here is shown a customized compressor blade used for critical measurements

Stable growth is predicted for the global power plant services and maintenance market over the coming years. Dr. Heather Johnstone finds out if this is reflected in the services and maintenance market serving the decentralized energy market, in particular the industrial gas turbine (IGT).

The services and maintenance sector serving all forms of power generation in Western Europe is expected to generate yearly revenues that top $2.8 billion in 2018; up 14% on 2011 revenues, and thereby representing a stable rate of growth over the next five years. This was the main finding of research conducted by Frost & Sullivan, a market analyst company, last year.

According to Neelan Patil, a research analysts at Frost & Sullivan, ‘a key market driver’ of this growth will be Western Europe’s ‘aging fleet of power plants’ leading to new capacity additions ” shifting from large, steam-fired power generation facilities to more compact, efficient gas-fired combined-cycle power plants.

He adds: ‘The continued trend of LTSAs [long-term service agreements] for gas turbines, and the willingness of [customers] to outsource operations and maintenance activities to third-party providers will also drive revenue growth for services.’

So the services sector serving the global power generation industry appears to be in the best of health now and over the course of this decade. Is this same growth trend reflected in the services and maintenance sector that serves our decentralized energy assets, in particular the industrial gas turbine (IGT)?

Main drivers of growth

According to Alina Bakhareva, a research manager a Frost & Sullivan, the simple answer is yes, So if this is the case, what are the main drivers behind the growth?

A compressor inspection underway Credit: Sulzer Turbo

Focusing on Europe, Bakhareva says, ’15-20 years ago the liberalization of many markets in the region provided the opportunity for large industrial energy consumers to build and operate their own power plants, many of which were gas turbine based’.

This meant that OEMs’ activity was mainly focused on equipment sales, with relatively little attention paid to servicing and maintenance. According to Bakhareva, aftermarket servicing ‘was not part of their strategies and not part of their development efforts’.

However, since the economic crisis hit in Europe there has been ‘a massive shift in the gas-fired decentralized energy sector away from equipment sales and towards servicing’, says Bakhareva.

The subsequent slowdown in the equipment sales segment has undoubtedly made OEMs reconsider their strategies in aftermarket servicing and maintenance, which offers an opportunity to boost revenues.

‘This has resulted in a heating up of the competition in the services sector’, says Bakhareva, ‘with OEMs and independent services providers (ISPs), as well as some customers carrying out servicing themselves.’

Bakhareva also believes the industrial customer is also driving the growth in the sector, especially for IGTs. Faced with rising fuel costs, especially outside of the US, as well as growing environmental pressures, large industrial facilities are keen to identify ways to run their existing assets in the most economical and environmentally-friendly manner. And that is where the aftermarket service providers are stepping in.

For example, there is now greater interest from industrial self-generators on how predictive maintenance can help reduce equipment downtime. ‘With advances in sensors, wireless technology and software, it would be silly for them not to take advantage,’ says Bakhareva.

For an ISP’s perspective, Cogeneration & On-Site Power Production spoke with Iain Murray, president of Wood Group GTS’ Oil, Gas & Industrial Services division.

He is similarly bullish about the growth prospects in the decentralized energy servicing sector, and not just in Europe and North America, but also in many developing regions.

He believes that in terms of the industrial sector, a global economic recovery, additional production capacity and equipment reliability will be their main concerns over the next five to 10 years, which in turn will have an impact on the servicing and maintenance segment.

Murray also foresees shale gas having a significant role to play in this segment, although at the moment this is only visible in the US where shale gas has become an unstoppable force in the country’s energy sector.

According to Murray, ‘We see shale gas as a game-changer in the industrial segment. It pretty much means that most regions, eventually, will have cheaper gas, giving clients the opportunity to install gas-fired power generation on-site.’

And if you combine that with the aging transmission grids, he anticipates more industrial clients will look to install small gas turbine powered units at their sites, which will open up more opportunities for the servicing sector

Although the US is 3-5 years ahead of everywhere else in terms of getting shale gas to market and achieving cultural willingness to take advantage of shale gas, Murray says ‘China, with significant shale gas deposits, is playing catch-up fast.’

He anticipates that the ‘two biggest energy demand regions ” US and China ” will be self-sufficient on natural gas in the next five years’.

Another interesting point Murray raises is that in the two main sectors Wood Group GTS serves ” oil & gas and industrial ” the drivers in terms of services and maintenance are very different at the moment.

‘In the oil & gas sector, where oil is now in the region of US$110/barrels when historically it has been at $80 or below, these clients are essentially making more money than they know what do with, so their only real driver at the moment is ensuring reliability’,

‘That doesn’t mean they do not care about the cost when it comes to their service and maintenance needs, but they are not price sensitive,’ he says

‘Yet on the industrial side, we are seeing an increase in interest in our independent offerings because we are a second or third item on a factory or facility’s budget so they are looking around and saying we need to get some money out of this cost structure.

A Solarà‚® Marsà‚® gas turbine in a test cell Credit: Wood Group GTS

‘So we are now seeing companies who probably wouldn’t have talked to us two or three years ago coming in and testing the water on what an alternative solution would look like: Is it technically comparable? Is the service level comparable? And if so, is there a cost saving?’

It appears that despite much of the world continuing to experience the challenges of an economic downturn business is booming for ISPs.

Constraints to growth

However, before we become carried away with all this positivity, it would be fanciful to believe no barriers exist to the development of the IGT services and maintenance sector.

In Bakhareva’s opinion, one of the constraints facing the sector is that some industrial clients may not be familiar with the benefits that outsourcing equipment servicing can bring. As she says, ‘they may not have the internal capabilities to compare different servicing models and because they are accustomed to doing everything in-house with their own teams they may not be willing to consider outsourcing this function’.

This is clearly less of an issue in Europe and North America because clients, such as oil & gas majors or large chemical manufacturers, are familiar with the outsourcing concept.

However, Bakhareva says, ‘as you move further east, towards Eastern Europe, Russia and the CIS, many of the companies remain rooted in an old-fashioned way of thinking’. In Russia, for example, despite many large industrial companies having spun-off their servicing division, the market for services and maintenance is not fully competitive yet.

So although servicing can be carried out by a separate legal entity, in reality historic ties between the customer and the service provider mean that the former is unlikely to consider holding an open tender and inviting other ISPs to participate.

Thus, a cultural change needs to take place here. Is this happening? Bakhareva believes progress, albeit slow, is being made.

She holds up Sulzer Turbo as success story. In 2011, the Swiss ISP established a partnership with Urals Turbine Works, and now is essentially one of few foreign ISPs successfully operating in the Russian market.

She suggests that this should be viewed as a successful working business model for services companies interested in entering these eastern markets.

As an ISP, Murray says ‘your technical credibility is paramount’.

‘When speaking to a client, questions that will be front of mind are: Can you do this? If I give you this maintenance contract will my turbines still run? Will my unplanned outage be resolved as quickly as with the OEM?’ he says.

The belief that the OEM is the only one who knows the equipment and therefore the only one who can look after it still exists. ‘And this barrier needs to be knocked down,’ Murray adds.

‘Thus as an independent we put a lot of emphasis on our technical expertise ” we demonstrate we do more than a ‘me too’ service. We ensure we know how the engine works and how to optimize its performance,’ he says.

And to the future?

Looking longer term, say over the next 10 to 15 years, should we be optimistic about the continued growth of the sector?

Murray is definitely optimistic about the future of his business. He expects gas-fired power generation to play a greater role in energy. And once global gas at a reasonable price is achieved clients will be attracted to gas-fired power generation resulting in a growing installed base of smaller machines and demand for at least one or two ISPs. Bakhareva is more reserved in her response but concurs that the future is looking bright for this sector.

Oil major extends services contract

Wood Group GTS recently secured a multi-million dollar, three-year contract extension from Total E&P Nederland BV to provide maintenance management support for the client’s entire fleet of turbines, driven equipment, generators and associated equipment on seven offshore gas platforms located in the Dutch sector of the North Sea.

The contract extension encompasses the provision of specialist training on gas turbine operations, maintenance and controls for more than 100 customer personnel, as well as the supply of supplementary offshore personnel for planned and ad hoc turbine package maintenance, the provision of engine supply and overhaul services, and critical package spare parts reviews for both planned and unplanned break down mitigation.

The extension follows on from a contract first awarded to Wood Group GTS in 2009 to provide a dedicated team of offshore and onshore engineers to support the planned and ad hoc maintenance activities on Total E&P Nederland’s turbine packages.

Iain Murray, president of Oil, Gas & Industrial Services for Wood Group GTS, said: “We share Total E&P Nederland’s business goal of achieving optimal equipment availability and reliability. Under the existing contract, turbo driven equipment availability and reliability both now exceed 98%. We look forward to working with Total E&P Nederland to optimize their maintenance strategy”

Jeroen van der Kaag of Total E&P Nederland said: “Wood Group GTS’ ability to deliver the most effective solution across multiple types of turbo-machinery and ancillary equipment to meet the needs of our individual assets is one of the main reasons for awarding them this contract extension.”

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