The Exchanges

Q the technology side. Is there any, I mean, these are pretty mature technologies. Is there any significant innovation that either we have seen recently or that you expect to see in the next few years? Like, Will, will the market change as a result of technological innovation, or is this just a, you know, rinse and repeat and stamp them out as much as we can kind of a situation?

A Yeah, good, good question. I would touch on two areas. First off, all of the OEMs have spent an enormous amount of money trying to get, and they've been very successful, in slowly increasing the efficiency of their combined cycle plants. I mean, it used to be combined cycle plants, average Efficiency was about 55%, and they slowly crept it up to 60, and then they kind of hit a, a dead spot, and they couldn't figure out how to get above 60, and that, then they started to evolve, developing their, I'll call it a very holistic strategy to the power plant, so it wasn't just the gas turbine, it was the HRSG, it was a whole, all sorts of different technical, technical factors that they were, levers that they were pulling to try and squeeze more Efficiency out of their power plants. And, and they crept it up to 60. Then they got to 60 and a half, 61, 60.3. I mean, they're, they're starting to push 62% efficiency and more. And I don't think they're going to quit, because if you look at the, if you look at the levelized cost of electricity for, and that's a big factor that these utilities are using in assessing which OEM they're going to use. Fuel is a big, big element in the levelized cost of electricity. So the more efficient and the more efficient, the more effective that the OEM is in convincing that customer that they have a more efficient unit and even guaranteeing it, the better …

AI assessment note: “First off, all of the OEMs have spent an enormous amount of money trying to”

Q and being oversupplied into a market that turned out to bust. And I had a sense that there's kind of a similar dynamic in the turbine world, but it sounds like you're saying this one seems like it's different. What drove those bubbles that then burst in, in recent history in the market? Was it over-exuberance about new gas generation build that just didn't come to fruition or something else?

A No, actually, there's actually several different dynamics, and that's a really good question. If you go back to that First big bubble back in 98 through 2001. That was really being driven by an artificial demand created by Enron. I mean, they clearly were sending artificial signals to the marketplace that were driving up, um, uh, the cost of electricity significantly in several regions of the country, California, Texas, and other areas. And that was also right around the same time that deregulation was coming into play. So those two factors created a lot of panic in the marketplace. And keep in mind, uh, large utilities in the sixties and seventies, they, everything was regulated. So they were pretty much just, they, they only built when they could get the public utility regulators to approve investment. But as deregulation came into play, deregulation came into play, uh, Everybody was just basically learning, okay, how do we, how do we make money now that there's regulated, deregulated, and semi-regulated markets to deal with across the country, and even to a degree in areas outside the country, in Europe and Asia, for example. So, and then the Enron thing just created a significant, I would say, artificial signal to the marketplace. So, those two factors really drove A bubble in the market, and, and a little bit of it was unreal. I would say at least half of the volume was ar…

AI assessment note: “That was really being driven by an artificial demand created by Enron.”

Q Can you say more about that? I think that's one thing people don't always appreciate on the outside. What is that supply chain look like? And what are the big categories of sort of end markets that these products get sold into?

A Right. Well, that's a great question. I, I have, um, basically, I described the supply chain for the gas turbine industry in four different levels. I call level zero is raw materials. So, you know, you talked about transformers. Well, copper is clearly a big raw material when it comes to transformers, but for gas turbines, it's the super alloys, nickel, nickel-based alloys, chromium, all those other, uh, Expensive key ingredients, titanium, all those things that are involved in the, the raw materials for gas turbines. That's what I call level zero. Level zero, level one is actually manufacturing the, um, the, the raw pieces of, uh, of product. For example, blades and veins and things of that nature that are being cast or forged. Level two is where they're actually manufacturing the gas turbine from all those components that were developed on level one. Um, so that's, that's where the OEMs are producing a, you know, what I call flange to flange gas turbine. And then level three, which is the fourth level, is where it all gets put together into a final package and delivered to an operator site, installed, commissioned, aftermarket activities, all that sort of thing. So, uh, so all, all of those, and then when you, uh, keep in mind, levels zero and level one are also being impacted by the aerospace industry. You know, there's something like 40,000 aircraft in backlog right now in …

AI assessment note: “I described the supply chain for the gas turbine industry in four different levels.”

Q and gas world or for bridge power type situations where you're looking to, this is what you see now where, look, we need, we need power now because we're building a data center and the grid connection is going to take three to five years. So we need a bridge, but we don't need it forever. Am I wrong to think that that's where the mobile power segment ends up?

A Well, well, you're not wrong, but you're not a hundred percent right either, because, uh, clearly when it comes to data centers and artificial intelligence, uh, mobile power and even, uh, uh, permanent onsite power is, uh, as, as a backup to the, and supporting the, the demand for, uh, Data centers is a very strong influence on both mobile power and, ah, permanent on-site units. But believe it or not, there's a lot of utilities who will buy mobile units They'll put, and they'll locate them in a, what they call a grid-sensitive area, and over the course of five to 10 years, they'll improve their infrastructure, and then they'll move those mobile units to another sensitive, grid-sensitive area, and so the mobile power has just been a fantastic opportunity for basically three companies, solar, gas turbines, the division of Caterpillar, GE Vernova for their renewable, uh, mobile units, and for MHI Aeropower for their mobile units. Those three players have done extremely well with mobile powered units, um, for a variety of reasons, even in oil and gas, but, but for the reasons that you and I have just discussed in the last 10 minutes, absolutely. And I don't see that market going away at all.

AI assessment note: “you're not wrong, but you're not a hundred percent right either”

Q or something like that, to expand capacity? Or do you think that they share the view that you expressed, which is, actually, this one's real. I'm not too worried about being overextended. If I expand capacity now, I'm sold out through whatever it is, 20, 29, 20 30, and so I should just build as much as I possibly can. Like, where do you think they are on the spectrum?

A Yeah. Well, I think there, there's guarded optimism. Very guarded optimism. I mean, certainly, all of the OEMs are investing in the future for new production capabilities, particularly Siemens and General Electric, or GE, uh, GE Verneau, I should say. The other thing to keep in mind is About half of the gas turbines that's ordered in the marketplace aren't even for the electric power utility market. They're for the oil and gas market. And so, the, all of the supply chain that's feeding The, those three OEMs and others are also competing for supply chain resources going into the oil and gas market, and some of those OEMs are also delivering into the oil and gas market. So there, there's a lot of interesting dynamics, uh, going on, and it's important to look beyond just the, the power generation or the utility sector when you think about, um, what's happening in the marketplace.

AI assessment note: “Well, I think there, there's guarded optimism. Very guarded optimism.”

Q What's your outlook on timelines? Do you think that the lead times just get longer and longer and longer for a while? Where are we in the cycle of, like, the lead times have been getting longer? Are we at the peak there? Is it going to turn back the other direction? Is it going to get worse? Do we know?

A A good question. I, I actually don't think they're going to get much worse. I think, I think, uh, all of the OEMs are, in fact, I know all the OEMs are working like crazy to try and, uh, shorten up their lead times, or at least make sure they don't get worse. And part of the reason why is that, I mean, customers are eventually just going to get weary, say, okay, we're just going to put things off, uh, because they're, you know, as it is, they're putting down, uh, 1520, 25% non-refundable deposits. I mean, all of those things are very painful for customers, and these OEMs have been living through these things, these busts and booms before, and they don't want to upset their customers too much. So they're all working hard to at least flatten out the timeline, and if not, improve it, and I'm seeing signs of that across the board.

AI assessment note: “I actually don't think they're going to get much worse.”

Q Is the demand, I mean, oil and gas prices are low right now. Does that mean that there's low investment On that side, and so most of the demand is shifting to electric power generation, or is that not sort of how the cycle works on the oil and gas side?

A Well, you know, that's a great question, Shayla. And the good, the good news is for the oil, for those that are involved in the oil and gas industry is, by and large, most of the large oil and gas players have long-term thinking in mind. So they're, they're making five, 10, seven, and ten-year strategy developments for strategy. Now, well, in any one year, they might Reduce their order activity because the oil and gas prices are down? Absolutely, that's correct. But in the long run, oil and gas companies basically stick to a strategy that, an investment strategy that, that keeps them investing. And typically what we see are what I call seven-year cycles in the oil and gas industry. It'll go up peak, At about year seven, and then come back down, slowly come back down, and then go back up again on another seven-year cycle. And it's all driven by upstream activity for development of oil and gas, midstream for, um, transmission, and then downstream where you have a lot of LNG, refinery activity, all that sort of stuff. And all those things are somewhat independent of each other, so it does level out the market for the oil and gas industry a little bit. Which means that the investment stays. And when you look at the midstream oil and gas market, most of the players midstream, they're making their money not on the price of oil and gas, but on transmission of oil and gas. So they're v…

AI assessment note: “in the long run, oil and gas companies basically stick to an investment strategy”

Q And is it purely a supply demand thing?

A Uh, Yes and no. I mean, again, raw materials at level zero. Raw materials are up everywhere. Um, even before all of the tariffs come into place, you were seeing demand on aluminum, uh, uh, nickel-based alloys, titanium, all of these things are all interrelated. Again, I'm coming back to the aerospace industry. When you've got, you know, the aerospace industry, you know, ordering 40,000 aircraft, that's at least 80,000 gas turbines. So, you know, and they're all, they're all drinking from the same supply chain, so, for the most part. So, no, it's, it's not just supply and demand. It's, it's also being driven from, well, it's, of course, supply and demand is related to the cost of raw materials, so I don't want to discount that, but, but certainly raw materials is a big part of it, and if you look at, uh, some of the, uh, you know, U.S. government's tracking of, uh, Uh, producer price indices on all of these different elements. You'll see a pretty significant bump in the last three years that is very indicative of what you and I are just talking about.

AI assessment note: “So, no, it's, it's not just supply and demand.”

Q think the scale question is sort of an interesting one because the question is sort of, is what's getting built or what is being designed to get built? Um, large scale generation, gigawatt scale type of stuff is the, the fact that data center is driving a lot of this changing the desired scale of the end customer. And what does that mean for the products in the supply chain?

A Good question. Well, I, I actually look at the market drivers, um, I think there's at least five major market drivers, and in each one of those market drivers, small, less than 20 megawatt gas turbines, turbines 20 to a hundred megawatts, are, are seeing a different set of dynamics, and then what I call jumbo-sized units, which are, you know, a 152 150 megawatts and above, um, Those I call jumbo units. They're all being affected differently, driven by the different market drivers, and I, I say there's at least five market drivers in the marketplace. One is grid scale battery storage. Number two, coal plant retirements. Number three, grid scale renewable energy expansion. Number four, the development of rapid development of data centers and artificial intelligence exploitation or expansion. And then just the availability of, of natural gas and its affordability is I'd say the fifth driver. And if you look at each one of those different drivers, those three sized units are all being affected differently. And if you want, I could actually walk through each of the different drivers and then explain how each one of those three different markets are being affected.

AI assessment note: “Those I call jumbo units. They're all being affected differently, driven by the different market drivers”