Frost: Natural Gas Infrastructure Development Drives Latin American Power Plant Services Market

July 28, 2008 // Published as a news service by IHS

According to Frost & Sullivan, the benefits of this fuel availability has moved to the steam and gas turbine services market, as countries diversify their energy matrixes to meet growing consumer demand.

Analysts said large power plants are more economical, and a wide deployment of hydro and thermoelectric plants is expected in the next few years.

Recent analysis from Frost & Sullivan of the Latin American natural gas power plant services market found earned revenues exceeding $3.2 billion in 2007, with estimates to reach $5.37 billion in 2012.

"Currently, the greatest investments, in terms of energy supply, is directed at thermal plants, inducing a change in the energy matrix of various countries in the region," said Tamara Dvoskin, industry manager at Frost & Sullivan.

"Where hydroelectric generation was previously predominant, there is a strong trend to balance the energy matrices."

As thermal generation moves to the forefront, interest is surging in steam turbines, as well as combined cycle power plants that employ both gas and steam turbines to enhance efficiency. Analysts said the abundance of coal and biomass in the region, and the daunting prices of oil and natural gas, also help push the uptake of steam turbines.

The insufficient capability to efficiently service turbines in-house, and high profit margins of service providers - mainly original equipment manufacturers (OEMs) - will also fuel the Latin American gas turbine services segment. The ongoing initiatives to boost the natural gas sector and the expansion of the region's ambitious pipeline projects will boost growth, analysts said.

"The natural gas infrastructure projects in Latin America that offer lucrative investment opportunities are the development of both Bolivian and Peruvian gas, and the future South American pipeline," said Dvoskin. "As the gas transport infrastructure develops, thermoelectric generation in new areas increases and consequently, power generation accelerates the growth of the natural gas sector."

High levels of competition between OEMs and independent service providers (ISPs) in the servicing sector will require end-users to make an informed choice between high quality offered by the former and temporary reduction of costs provided by the latter. The low technological characteristics of steam turbines require little specialization, while gas turbines have highly sophisticated servicing activity that smaller participants cannot meet.

"Currently, long-term service agreements (LTSA) are extremely popular," said Dvoskin. "Newly commissioned power plants are now including LTSA and offering 20- to 25-year contracts, while ISPs are offering cheaper prices and shorter delivery times for the maintenance, repair and overhaul (MRO) services they provide."

Ultimately, service providers' willingness to take risks will determine their success, analysts said. For instance, providing attractive, cost-effective service packages that go beyond simple spare parts supply to offer additional features such as heat rate, insurance on availability and output, will make the contract assume the dimensions of a low-risk investment for the plant owner, attracting more takers.

Overall, the region's need to satisfy its energy demand is a top priority. Analysts said updating existing power plants to new technologies and meeting efficiency demands will further propel the Latin American power plant services market's growth, as the trend will be toward more sophisticated and cleaner technologies.

Source: Frost & Sullivan.