Global natural gas and LNG consumption continues to strengthen, supported by accelerating Asian demand and “resiliency” in the industrialized nations, Baker Hughes Co. CEO Lorenzo Simonelli said Friday.
All signs look positive for gas consumption for the medium term, Simonelli said during a conference call to discuss second quarter performance. In addition to rising liquefied natural gas demand, he pointed to trends suggesting burgeoning growth in gas technology, driven in part by data centers powering artificial intelligence (AI).
“The notable rise in generative AI could provide upside to our current expectations for natural gas demand to increase by almost 20% between now and 2040,” Simonelli told investors. “We are confident that strong underlying natural gas demand will lead to robust and sustainable growth in LNG through the end of this decade.”
Meanwhile, Baker Hughes is maintaining forecasts that LNG demand will “increase by mid-single digits annually,” which would require installed nameplate capacity of 800 million metric tons/year (mmty) by 2030.
‘Record Breaking’ LNG Contracting
“Offtake contracting for LNG is 42% higher than the same period last year,” the CEO noted. “With recent contracting of Middle East capacity from Asian buyers and portfolio players, we expect a record breaking year for contracting offtake volumes.”
Contracting offtake capacity is considered a key factor in determining whether an LNG project reaches a positive final investment decision (FID), he noted.
“We continue to expect global LNG FIDs of about 100 mmty over the next three years, which would result in our installed capacity increasing by 70%,” Simonelli said.
As important, the “growing installed base of equipment brings significant aftermarket service opportunities for Baker Hughes across the lifecycle of the equipment.”
The company is seeing “strong tailwinds outside of LNG that we are experiencing within the Gas Technology equipment portfolio,” the CEO said. “This enables us to sell our equipment into numerous end markets outside of LNG, where we often compete and win against the diverse group of industrial companies.”
Baker Hughes booked $6.4 billion of orders during the first six months. About 85% were for “non-LNG equipment and services,” Simonelli noted. “This strength has been most notable in Gas Tech equipment, where we booked almost $1.4 billion of non-LNG orders during the quarter.
“On the back of a robust fast path, we now expect Gas Tech equipment orders outside of LNG to exceed $3 billion for the full year, which is almost double last year's level.”
There also has been a “notable increase” in orders for natural gas infrastructure.
“Looking over the next few years, we see continued strength in gas infrastructure opportunities across the Middle East, U.S., Latin America and Sub-Saharan Africa, due to secular growth in global natural gas and LNG demand through at least 2040,” Simonelli said.
Based on the “outperformance” in the first six months, Baker Hughes has raised the mid-point of full-year guidance by 5%.
‘Flattish’ North America Activity
Baker Hughes has one of the largest oilfield services businesses in North America. This year exploration and production (E&P) customers have pulled back on spending, with muted growth to the end of the year.
During the first six months, there was “lower than expected rig activity,” which has tempered expectations for E&P spending. “Flattish activity” is forecast for North America, CFO Nancy Buese said during the conference call.
Baker Hughes estimated that overall E&P spending in North America will increase this year in the “mid-single digits.” That would square up with a recent industry survey by Evercore ISI, which estimated spending would increase about 3% in 2024, down from an initial forecast in late 2023.
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In the Oilfield Services and Technology Equipment (OFSE) segment, orders were 3% higher year/year. Industrial & Energy Technology (IET) orders jumped 28%. Sales surpassed $7 billion, up 13% from 2Q2023 and 11% sequentially.
The total book-to-bill ratio was 1.1; the IET book-to-bill ratio in the quarter was also 1.1.
By geographic region, OFSE sales in North America dipped 2% year/year, but they were 3% higher than in the first quarter. Latin America sales were off by 5% from 2Q2023 but were up 4% sequentially. Meanwhile, overseas sales were higher, both year/year and from 1Q2024.
In the IET segment, Gas Technology sales jumped by 37% from a year ago and were 22% higher sequentially. Equipment sales increased by 59% year/year; revenue was 27% higher sequentially.
Net income was $579 million (58 cents/share) in the second quarter, compared with $410 million (41 cents) a year ago. Revenue increased to $7.1 billion from $6.3 billion.
