The world is on track to achieve 800 million metric tons/year (mmty) of LNG capacity by 2030, with Baker Hughes Co. expecting to grab a major slice of the market, executives said Wednesday.
CEO Lorenzo Simonelli, joined by CFO Nancy Buese, discussed the Houston-based oilfield service giant’s latest quarterly results and the outlook during a conference call. Most of the discussion, as well as the questions from analysts, centered around prospects for liquefied natural gas capacity.
Through the next few years, the global outlook for positive final investment decisions (FID) to advance LNG projects “remains strong, and we see projects progressing across all markets,” Simonelli said. “But in 2024 specifically, we expect LNG FIDs of around 65 mmty. However, it is important to note this includes a couple of major LNG orders that were FID’d during 2023.”
Into 2025 and 2026, “we could see between 30-to-60 mmty of FIDs annually,” bringing total potential LNG FIDs to as much as 185 mmty.
“Based on existing capacity, projects under construction, and future FIDs in the pipeline, we have line of sight for global LNG installed capacity to reach 800 mmty by the end of 2030, representing an almost 75% increase in nameplate capacity from 2022 levels,” Simonelli said.
“This provides good visibility for significant near-term growth and gas tech equipment, where we have the broadest set of LNG solutions to suit customer needs” onshore and offshore. “In addition, this expansion in our LNG installed base will provide long-term structural growth for our gas tech services.”
Solid Longer Term
For reference, the company has been awarded 207 mmty of global LNG capacity since 2017 out of a total of 210 mmty, the CEO said. The company last year booked 80 mmty of orders. While the talk has been about the “recent weakness in LNG prices, we believe the long-term outlook for the global LNG market remains solid,” Simonelli told analysts. “In fact, LNG prices remain at relatively strong levels compared to historical averages.
“For example, 2023 European and Asian gas prices averaged about 20% above the 10-year average in the fourth quarter and global LNG demand was up approximately 4% year/year. For the full year, global LNG demand reached record levels of 405 mmty, up 2% compared to 2022, despite softer than anticipated gas demand in Europe.”
European LNG demand was around 115 mmty last year, which was “in line” with 2022 levels, he said. Demand in China rose 10% year/year to 71 mmty.
“With estimated global nameplate capacity of 491 mmty last year, effective utilization averaged 86%, which represents a tight LNG market,” Simonelli noted.
This year, Baker Hughes is estimating worldwide LNG demand to increase by 2%, though, with only 15 mmty of additional nameplate capacity coming online.
“Looking out to 2025 and 2026, we see a similar trend of supply growth being balanced by demand growth, which should keep global LNG markets at good utilization levels with energy markets,” Simonelli said.
‘Uncertainty’ In North America
There are concerns, though, about future LNG capacity growth across North America, but most especially the United States.
The Biden administration is in the process of revising the LNG approval process, which may put a damper on advancing FIDs along the Gulf Coast. There is likely to be no impact on Baker Hughes activity this year, though, because “the project landscape – and also the cycle of projects – is multi-year,” the CEO said.
“But I’d say that, again, there is some uncertainty in North America, given some of the discussions that are taking place and some of the delays in the permitting. I’d also say I’m disappointed that this is coming about right now…
“U.S. LNG is enormously beneficial to the U.S. economy.” The Lower 48 energy industry “has had a large beneficial impact on global energy markets, especially when you look at everything that’s happened,” Simonelli said. “And there have been commitments made to providing LNG supply to many other countries.”
For the United States, he said it was “important that we continue to go down that path,” as “it’s a matter of national security for many. So, we anticipate that this will work itself through…We don’t anticipate that there will be any detrimental impact over the long term to U.S. LNG.”
Beyond U.S. shores, the company’s international gas projects “continue to be buoyant,” the CEO said. In addition, Baker Hughes has seen continued gains in the natural gas technology business beyond LNG.
The outlook overall for global FIDs “remains strong, and we see projects progressing across all markets.” Growth in the gas technology segment is likely to see gains in the United States to advance emissions reductions, too.
The U.S. Environmental Protection Agency recently issued a final ruling to require reduced methane emissions from oil and gas operations. That translates into new business for gas emissions technology. Another area for growth is in U.S. carbon capture and sequestration projects.
“We are hopeful that a pragmatic resolution will be reached that actually encourages rather than inhibits new investments in this critical industry that will play a vital role in decarbonizing hard to abate sectors,” Simonelli said. “As we have stated previously, the energy transition will likely be more challenging and take longer than many expect. This is why we have Baker Hughes pursuing an all-of- the-above strategy, where our technologies and capabilities have a key role to play in decarbonizing the planet irrespective of the fuel source.”
In highlighting Baker Hughes’ gas technology business, Simonelli noted that nearly 50% of the equipment is serving customers outside of LNG. That’s set to grow even more as LNG FIDs decline.
“We are also seeing a lot of potential opportunities in onshore gas processing and pipelines as natural gas becomes an important aspect of the energy mix around the world, particularly in places like the Middle East and Southeast Asia,” he said.
In the New Energy business, centered around low-to-no carbon technology, total orders of $800 million to $1 billion are expected this year, more than triple the orders since 2021. Artificial intelligence orders also are forecast to “remain at robust levels this year, anticipating a range between $11.5-13.5 million, driven by strong momentum across all aspects of the Internet of Things portfolio. Importantly, we expect a noticeable increase in non-LNG gas tech equipment orders.”
Net income rose to $439 million (44 cents/share) in 4Q2023, versus $182 million (18 cents) in the year-ago period. Revenue improved 16% year/year to $6.8 billion. The total book-to-bill ratio in the quarter was 1.0.
For 2024, profits increased to $1.97 billion ($1.93/share), reversing a 2022 loss of $330 million (minus 27 cents). Revenue rose to $25.5 billion from $20.5 billion.
