A Falcon 9 rocket carries 49 Starlink satellites into orbit on February 3, 2022.
The space industry is expected to hit $1 trillion in annual revenue by 2040, with launch costs down 95%, Citigroup analysts said in a detailed report released this month.
A further drop in the cost of accessing space would create more opportunities for technological expansion and innovation, unlocking more in-orbit services such as satellite broadband and manufacturing, the bank added.
Citi’s estimates for the industry match forecasts published in recent years by Morgan Stanley, Bank of America and others. The value of the global space economy reached $424 billion in 2020, according to a Space Foundation study, after growing 70% since 2010.
“Revenues from manufacturing, launch services and ground equipment will make up the majority of revenue growth in the satellite business,” Citi said. “However, the fastest growth rate is expected to come from new space applications and industries, with revenues expected to grow from zero to $101 billion over the period.”
Private investment in space ventures, especially venture capital, has consistently broken annual records over the past decade. Last year, space infrastructure companies received $14.5 billion in private investment, according to Space Capital’s quarterly report, which tracks about 1,700 companies.
A slew of space companies went public last year under SPAC deals, but most stocks are struggling despite industry growth. The changing market environment, with rising interest rates hitting technology and growth stocks hard, also caused space stocks to fall. Shares of a dozen space companies have fallen 50% or more since their debut.
Despite Citi’s optimistic outlook, the company pointed out that many things remained speculative in the industry, “such as space solar power, lunar/asteroid mining, space logistics/freight, space tourism, travel long-distance rockets and R&D and construction in microgravity”.
“A similar analogy would be trying to predict the value of the internet today compared to almost 20 years ago, when the term ‘smartphone’ was relatively unknown and before broadband replaced dial-up internet connections” , analysts said.
Falling start-up costs
According to Citi, a $1 trillion space saving would occur through lower launch costs, which it says “have already fallen precipitously since the 1980s,” about 40 times lower.
The cost of a rocket launch is usually broken down into dollars per kilogram. From 1970 to 2010, Citi noted, the average launch cost plateaued around $16,000 per kilogram for heavy payloads and $30,000 per kilogram for light payloads.
The bank attributed the sharp drop in costs to the private sector. “The drop in launch costs was kicked off by SpaceX with the launch of Falcon 9 in 2010,” Citi said. The rocket dropped the average cost per kilogram to around $2,500, 30 times less than NASA’s space shuttle costs and 11 times less than the previous historical average.
“Basically, with the next generation of commercially driven spaces, the launch industry is going through a secular evolution from cost-plus pricing to a value-based approach to open up new markets. and maximize profitability,” says Citi. “Previously, the launch market had a limited number of government-backed companies that were more concerned with military capability and revenue and job creation than increasing operational efficiency.”
The increasingly common practice of reusing rocket propellants is driving that cost down. Citi estimates launch costs could drop to around $30 per kilogram by 2040 at best. If the rockets “are still only reused about 10 times” each by 2040, which SpaceX is already doing, the cost drops even further to around $300 per kilogram, the firm said.
The satellite market represents the largest share of the space economy, at more than 70%, and Citi says the sector is “experiencing a paradigm shift in demand.”
While satellite revenue comes primarily from services like television, the bank sees expansion into applications ranging from consumer broadband to mobile connectivity to Internet of Things networks.
The bank believes that the vast satellite networks of Starlink of SpaceX and Amazon’s Project Kuiper will accelerate this change through “greater accessibility” to internet services around the world.
Another area where Citi sees strong gains is satellite imagery, which the company estimates accounts for about 2%, or $2.6 billion, of the current space economy. The bank predicts industry expansion driven by space-as-a-service applications, reaching $17 billion in annual sales by 2040.
However, expanding the space economy will not be easy, the company said, noting that the harsh space environment, high initial investment costs and long lead time to see returns on space projects represent all significant growth risks.
Citi pointed out that the perception of space “as just a pastime for billionaires” poses another risk, as the industry “must gain public acceptance before it can be adopted across various industries.” While investments by private entities have lowered the cost of accessing space, with more people and spacecraft flying for a fraction of what governments have been able to accomplish, the perception that space companies are Selfish projects by the wealthiest individuals can damage the industry’s potential, the company said.
Regarding human spaceflight, Citi noted that the failure rate for crewed launches is historically less than 2%. But that “is still far too high for space passenger flights,” he said, given that commercial aviation experiences failures at the miniscule rate of around 0.0001%.
Another hurdle for the industry is regulatory risk, Citi noted. There are several federal and international entities responsible for approving and regulating space businesses.
Then there is space junk. This debris poses “a growing threat to orbiting satellites, future launches, and expanding opportunities across the space ecosystem,” Citi said. Tens of thousands of man-made objects are tracked orbiting the Earth, many times thought to be in orbit but too small to track.
“This increases the risk that ‘Kessler Syndrome’ will become a reality – the idea that space junk orbiting the Earth, with no air resistance to slow it down, will reach a saturation point where it will simply crash into colliding with other space debris and fragments into smaller pieces, until it eventually creates a debris field that prevents the launch of any new satellites,” Citi said.