Soyuz in Kourou
Clark Lindsey linked to a recent news article about the groundbreaking for a Soyuz pad at the Guiana Space Centre (aka Kourou). The interesting item from the article was that the inaugural Soyuz launch from there is slated for late 2008, which was a lot sooner than I had expected. It'll be interesting to see how the Russians and Europeans do on this joint venture. Being able to launch from Kourou should greatly improve both the performance of Soyuz, as well as the orbits it can launch into.
This got me thinking about orbital propellant depots again. Soyuz is one of the more cost effective boosters in the world (prices I've seen are on the order of ~$2.3-3k/lb in LEO, compared with the typically $4-5k/lb from most other expendable vehicles), and the ability to buy propellant launches from them should help provide the competition necessary to help drive prices down with other potential providers. When there is no real competition, sellers will tend to charge whatever they can get away with, to try and maximize profits. But when there is direct competition like this, it should help keep people honest (and provide at least one redundant supplier).
For right now, this is just for unmanned Soyuz launches, but who knows what will happen down the road. This might allow the Russians a way to access Sundancer if that market pans out. Competition and backup suppliers for that market would also help keep prices down, and access more reliable.
Just a thought.
This got me thinking about orbital propellant depots again. Soyuz is one of the more cost effective boosters in the world (prices I've seen are on the order of ~$2.3-3k/lb in LEO, compared with the typically $4-5k/lb from most other expendable vehicles), and the ability to buy propellant launches from them should help provide the competition necessary to help drive prices down with other potential providers. When there is no real competition, sellers will tend to charge whatever they can get away with, to try and maximize profits. But when there is direct competition like this, it should help keep people honest (and provide at least one redundant supplier).
For right now, this is just for unmanned Soyuz launches, but who knows what will happen down the road. This might allow the Russians a way to access Sundancer if that market pans out. Competition and backup suppliers for that market would also help keep prices down, and access more reliable.
Just a thought.
Labels: Launch Vehicles
posted by Jon Goff at 10:27 PM
3 Comments:
Jon,
I read your blog with great interest. However, I take issue with a fallacy I see perpetuated on this and a number of "space blogs". You state: "When there is no real competition, sellers will tend to charge whatever they can get away with". While that statement is true, generally, that isn't the case with the launch industry. There is a glut of launch providers and little demand. If and when launch demand increases; for on orbit refueling or whatever, launch prices won't go down, they will go up. Increased demand doesn't not reduce prices, it increases them. Even if increased launch rates drive down marginal costs it doesn't follow that a launch provider is going to charge less. In a market with rising demand he has every incentive to charge more and keep the difference as profit.
Been a while but I'll try to explain this even though there are other readers on this site who could possibly do a better job of it.
Jardinero1 there isn't a conflict between demand & supply elastics (what you're reacting to) and profit maximiation (what you're alluding to even if you manage to contradict yourself), quote contrary the two depend upon each other (which is sort of beautiful if you think about it and its consequences).
The launch industry's publicly traded companies will always seek to maximize their profits, they're even bound by the law to do this to protect the interests of their shareholders (privately owned companies without shareholders is a different story but I don't know of any currently available launch company that is).
Now as to whether the price will increase or decrease can be simplistically illustrated by where on the supply & demand curve the company presently is and where it is moving to. You are absolutely right that increased demand does not always lead to decreased prices and both scarcity and oversupply are important factors.
So what is the current situation?
- almost all launch companies are looking for more customers (could be interpreted as oversupply but it isn't, the correct term for this is overcapacity: the business as a whole has spare unused capacity it would like to fill to maximize its profits further)
- however it's not like the launch companies are constantly producing more launch vehicles than they have any use for (that would be real oversupply as well as the opposite of profit maximizing and if they did that the leadership would be quickly thrown out by the shareholders)
- there are plenty of available launch windows, especially for LEO (no scarcity)
- there is no lack of material or factory capacity for increasing the production of launch vehicles (no scarcity)
- most launch complexes can be easily expanded (and Nasa is trying to get rid of a rather large one in an excellent location...)
- the main cost to the launch company is in maintaining the infrastructure and workforce required (fixed capital costs) and not in the launch vehicle production and launch itself (variable cost depending on units produced). Actually the fixed costs dwarf the variable costs, the two aren't remotely close.
Regarding the last point there are at least two things worth mentioning:
1. this is the explanation for why the barrier to entry into the industry is rather high unless you can evade or mitigate the huge fixed costs. A NewSpace company like SpaceX is able to attempt it because it is lead by an "angel" investor (Elon Musk) willing to spend a lot of money for little in return in order to establish the company. Another NewSpace company is attempting to evade the fixed costs by using air-launches (that would be t/Space) and thus has less of a need for money (but they're still struggling getting enough investors).
2. The second thing is that this is a very strong indication that increased production even if at a lower price would be more profitable. In other words if a somewhat lower price would bring in significantly more sales your total profit would rise (thus profit maximization).
What would cause the price of a launch for the customer to go up even though there was high demand? Scarcity in the launch industry. If the launch industry has little additional capacity and/or the fixed costs are no longer such a major cost relative to the product production and/or when investing in additional infrastructure (industry expansion) would not lead to increased profits through increased sales, then profit maximization would result in price increases to the customer (taking advantage of the oversupply of customers).
However that simply isn't the case in the immediate future and even an additional 40 Atlas launches a year would not make it so for the industry as a whole, likely not even for LM. It's also important to understand that guaranteed sales as would be the case with Bigelow Aerospace is somewhat different than one-by-one sales and makes any need for additional capital investements much more tenable (if theres should be such a need at all that is).
Might as well stop now or this is going to become very long and cumbersome. I guess any introductionary textbook on microeconomics should do a better job at this than I have ^_^
I once saw launch costs partially explained by this anecdote I read on the internet.
It was asserted that an RL-10 rocket motor is of comparable complexity with a gas turbine engine used in high performance helicopters.
Gas turbine helicopter engines cost abour $100,000 each because they are mass ptoduced and between 5,000 abd 10,000 are sold each year.
RL-10s cost ~$5 million each and they sell less than a dozen each year, perhaps way less than a dozen per year.
I also recall people saying that building the 2nd Mars Rover (an identical twin to the first) added about 25% to the total cost because they were built side by side. Buy one at $100X or buy two at $125X.
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