I’ve talked about a number of ways to play the rise in natural gas supplies… even in the face of record-low prices in the United States.
Today, I want to talk about the electric power generation industry… Why? Because its use of natural gas as a fuel for its generators is growing at unprecedented rates. And there’s a foreign company poised for incredible growth given the state of the energy markets.
To illustrate the point, look at the following chart, courtesy of the Energy Information Administration (EIA).
As you can see, most of the plants added in the last decade have been natural gas-fired plants.
[ad#Google Adsense 336×280-IA]According to the EIA, roughly 237 Gigawatts of natural gas-fired capacity were added in the last decade, an 81-percent increase over the previous 10 years.
At the end of last year, natural gas power plants represented 39 percent of America’s total generation capacity.
Technology Takes Natural Gas Generation to the Next Level
Why the big increase since the turn of the century? Several reasons.
- First, an improved outlook for availability of supply and favorable pricing of natural gas compared to coal and oil drove many companies to the fuel.
- The second, and perhaps most important, reason had to do with improvements in technology. And when we’re talking about natural gas power plant technology, we’re generally talking about improvements in combined-cycle power plants.
As you can see from the following EIA graph, most of the natural gas-fired generation capacity added was combined-cycle power plants.
How a Combined-Cycle Power Plant Works
So how does a combined-cycle power plant work? Here’s a little primer for those of you without an engineering background. A combined-cycle power plant is actually two plants in one.
- Natural gas is used to power a gas turbine connected to a generator. But like most fossil fuel driven engines, only about 50 percent of the energy is used to actually drive the generator. The rest of it is given off as waste heat.
- In a combined-cycle power plant, that waste heat is captured. It’s then used to boil water and create high-pressure steam.
- That steam is used to drive a steam turbine connected to a separate generator.
- Alternatively, it’s mechanically coupled to the same shaft that drives the gas-turbine generator. Either way, the overall efficiency of the power plant is improved.
Combined-cycle plants have become popular with electric utilities. Their construction times are shorter and their up-front capital costs are lower when compared to other types of power plants.
The French Connection to the Global Natural Gas Boom
[ad#article-bottom]That’s been great news for Alstom S.A. (PINK: ALSMY), a French power products company. It also designs, constructs and maintains combined-cycle power plants. In addition, it makes and designs hydro power plants, wind generators, and related switchgear for power plants and substations.
But its specialty is turbines. It’s shipped more than 740 gas turbines to customers all over the world. I like Alstom because it supplies the power plants “turn-key,” allowing utility operators to begin recovering their up-front capital costs quicker.
As the use of natural gas by utilities continues to rise, Alstom’s business will directly benefit. Investors wanting yet another angle to play the increasing use of natural gas from the utility side of the sector might want to consider picking up a few shares of Alstom S.A.
Good investing,
— David Fessler
[ad#jack p.s.]
Source: Investment U