Transformer troubles

A boom in demand is one of the primary reasons behind the supply constraints, as Tim Walker general manager for UAE-based Brush Transformers Gulf explains: “The transformers market is very busy in this region as there is so much infrastructure and building work going on.

The level of increase in the market is pretty drastic in terms of the requirements and it looks as if it is going to continue for the next five years at least. Worldwide, the transformers market is very strong with requirements outstripping capacity.

Average lead times have crept up from 6-9 months to 18-32 months due to the numbers of orders coming in. “For oil-type transformers the market is running at an undercapacity of 10-15% annually,” says Rachid Maalouly, production manager for Saudi Electrical Transformers Factory.

“This is due to new developments and infrastructure investment, which all need transformers.

The transformers cycle is very much affected by the real estate cycle. The current investment boom is leading to a shortage in transformers in general, oil-type and dry-type. For dry-type transformers the shortage is even more severe, with up to a 20% shortfall.

Dry-type transformers are used in residential blocks, hospitals, universities, on oil rigs and in other sites where there is a requirement for high safety standards.

“Utilities are also installing more capacity,” Maalouly continues. “We are expecting generating capacity to double by 2015. Now the total capacity is around 44 000 MW GCC-wide and by 2015 we are expecting it to reach as much as 89 000 MW.

This huge increase is putting pressure on the production of transformers: it is really straining the industry.

Caught off-guard

Industry players openly admit to having been taken by surprise by the sudden upturn in transformers demand. The change in the market came after almost two decades of stagnation, during which capacity cuts and plant closures were the norm.

“Five years ago there was overcapacity, transformers factories were shutting and then all of a sudden it took off,” says Walker.

The explosion of industrialisation in China and to a lesser extent in India, along with rapid development in the Middle East funded by massive budget surpluses, resulting from record high oil prices, are responsible for much of this new consumption.

But elsewhere in the world there is also a huge requirement for transformers from utility providers looking to replace assets that are reaching the end of their service life.

Capacity investments

Naturally, most transformers suppliers are responding to this market revival by increasing their production capacity, but of course this takes time.

“I can’t say when supply and demand will balance out again, as building a transformers factory takes time,” says Walker. “It took us 12-15 months to build ours. It is not a fast process to bring a factory online. There is no quick fix.”

Brush Transformers Gulf began commercial production at its facility in Abu Dhabi towards the end of last year. Previously, Brush Transformers supplied the region from its UK plant.

The company decided to open a unit in the Middle East in joint venture with local firm Al Nasser Industrial Entreprises in order to capitalise on the region’s high growth potential and to cut down on shipping and import duty costs.

The factory, which is still in ramp-up phase, is expected to have an annual capacity of 5 000 MVA once it hits its full stride in the second half of this year.

“We are still in the approval stage with the local utilities, getting engineering approvals, commercial approvals and third-party certification,” Walker explains.

“As it is a new facility, they want it to go through short-circuit tests, impulse tests, noise level tests – a full range of tests to prove that this facility can make transformers even though it is a proven design that we have been using for many years. This is to prove that this facility can make them to the same standard.”
 

There is space to extend further and double output and the firm is already considering this option.

Saudi Electrical Transformers is also adding new production lines. “We are expecting to double our capacity by next year and triple it by 2010,” Maalouly comments. “At present, we make around 800 transformers a year and, if everything goes according to plan, we will add another 1 000 by 2010.”

Missing components

But although transformers manufacturers the world over are expanding capacity, lead times are not yet retreating. This is because the market is also suffering from the global shortage of key raw materials that is currently hitting most industrial sectors, both physically and financially.

“Increasing transformer production capacity does not help much as there is a shortage of raw materials,” Maalouly adds.

The bottleneck is starting with the suppliers. Since 2005 we have been constrained by the volatility of the raw materials market, with the development of China and India the raw materials are being 90% consumed by these countries.

We are talking steel, copper and polymers. This shortage of raw materials is leading to huge delivery times for copper and steel and very high prices.

If companies are not working well financially, they are going bankrupt as they are unable to keep up with the price of metals increasing.

“Three years ago, you were able to buy one tonne of copper for around US$2000-3000, now it is US$8000, which is a four-fold increase in three years; this is crazy. Steel rose two or three-fold.

You cannot go to a copper supplier and say I need some material in two or three weeks, the minimum lead time is 16-24 weeks.”

Care and maintenance

With no signs of an improvement in transformer availability on the horizon, power grid operators are starting to pay more attention to and to divert more resources towards caring for and maintaining their existing assets in order to avoid unplanned outages and to extend the transformers’ service life beyond the average 40 years.

As transformers age or when they are consistently operated at or above their rated power, as is often the case in the Middle East, then the likelihood of faults occurring becomes far greater.

Failure of a transformer can have dire consequences such as blackouts, or even injury and death in the event of an explosion.

The most frequent sources of faults are irregularities in the tap-changers, bushings and the paper-oil insulation. A build-up of oxygen, moisture, dust and other contaminants will interfere with their performance.

But regular use of transformer diagnostic tools can help to prevent unexpected breakdowns by detecting changes within the transformer long before they become critical.

Dielectric response measurements and dissolved gas analysis are two popular methods of checking the health of a transformer and which can give early warning that invasive maintenance is needed. Equipment like OMICRON’s DIRANA is able to determine the water content in the insulation. The device combines two different instruments: a pA meter and a dissipation factor recorder.

Some utilities are going even further and investing in transformer protectors such as those sold by French firm SERGI HOLDING. The plug-on device prevents transformer tanks from exploding in the event of massive failure by depressurising any build-up of gas.

As transformers are such capital-intensive assets, utilities are using SERGI’s device to protect new and older transformers alike. The firm is seeing strong demand for its product in the Middle East, selling more than 150 units in Qatar alone last year.

Sustained growth

As long as the region’s investment boom continues there will certainly be no let up in demand for transformers, and with oil prices continuing to break records there is no saying when the money for new developments will dry up.

Suppliers that shuttered capacity during the slow years will no doubt be looking at the current surge in demand for transformers and rueing their earlier decisions.

Meanwhile, others will be left wishing they had added new production lines sooner, rather than waiting cautiously to assess whether this was an unforeseen bubble of demand that would soon burst or a new sustainable period of growth.

With mining giants promising to boost output of commodity metals in the months ahead, some relief in the supply chain is expected on the horizon, but until then transformer testing and maintenance providers can expect new orders to keep on pouring in.