A matter of supply and demand in outer space

At the moment, there’s a logjam to get satellites into orbit, a McKinsey report notes.
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Francis Scialabba

· 4 min read

Right now, the space industry resembles a line for a rollercoaster at a theme park: Thousands of satellites are in development or waiting in the wings to be launched, but there aren’t enough rockets to take them there, creating a bottleneck, according to a recent report from McKinsey.

Even still, things are getting crowded on the other end. Approximately 7,500 satellites are in orbit around Earth, with an average of around 50 more launching every week, according to McKinsey.

Cumulatively, investment in the launch industry over the past decade totaled $26.8 billion, according to Space Capital’s Q1 2023 Space Investment Quarterly report. Much of that is thanks to SpaceX, which accounted for 34% of investment in the last 10 years.

But that sizable sum might not be enough to break the logjam, at least for the moment.

“In the near term, the bulk of the demand is going to be for medium and heavy [launches]. Super heavy depends on what they’re going to charge for prices and the business model of whoever the customer is,” Chris Daehnick, senior solution leader and associate partner at McKinsey and one of the authors of the report, told Tech Brew. “There are other factors which drive a demand for small launch, but it’s pretty clear that in terms of overall tonnage, you would have a hard time making that up with small launch vehicles.”

John Gang, a McKinsey consultant and another report author, told Tech Brew that although communications is a large driver of demand, it’s not the only significant business in space commerce.

“Communications is by far the biggest driver for launch demand. But there are two other segments that also make up a good portion. One is crew and cargo for space stations,” Gang said, acknowledging 2031 plans to deorbit and then replace the International Space Station with commercial space stations. “The last key segment would be remote sensing and Earth observation,” he added.

However, the federal government remains a player in the space business, with plans to expand its Proliferated Warfighter Space Architecture low-Earth orbit constellation.

McKinsey’s projections account for a variety of scenarios, but in its base case, which the firm anticipates to be one of the more likely outcomes, active satellites in orbit will quadruple to 27,000 by the end of 2030 at a rate of 4,000 to 5,000 satellites launched per year. For comparison, the high-end projection anticipates 67,000 satellites reaching orbit in the same time frame.

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The proliferation of launches projected by McKinsey is due in part to lower prices to get into orbit. The price of heavy launch alone has plummeted more than 95%, from $65,000 per kilogram to $1,500 per kilogram, according to the report. Small launches might send satellites to specific orbits, but medium and heavy rockets are still the most cost-effective launch method, which matters given that “the new generation of satellites will operate for just five to seven years,” McKinsey noted.

Much of the demand stems from SpaceX, which has an outsized hold on the launch market. SpaceX is still developing its Starship super heavy rocket, which, if completed, would serve as the primary launch vehicle for its larger second generation of Starlink satellites, numbering as many as 30,000. So far, though, Starship has endured a bumpy start, with the program recently grounded by the Federal Aviation Administration after the fallout from its test explosion last month.

The space industry is at an important inflection point. Many of the stalwart medium and heavy launch vehicle providers like ULA, Northrop Grumman, and Arianespace are retiring their current launch vehicles with sights set on updating their fleets in the next year or two, according to the report.

Concurrently, newer players like Blue Origin and Rocket Lab are entering the space with their own medium or heavy launch vehicles, opening the door to broader competition and more satellite constellations.

“The next couple of years are going to be big. You will see successful debuts and you’ll see failures, and you’ll see people get back in the game because the demand is there, but it takes a while to ramp up,” Daehnick said.

In the long term, however, the report suggests that oversupply could become an issue following the short-term demand problem.

“As providers increase launch rates and vehicles become more reliable, there is a risk of oversupply, at which point cost control is likely to become a vital factor in remaining competitive,” the report said.

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