Liberty Energy Inc. CEO Chris Wright said he thinks artificial intelligence (AI) and the return of manufacturing in the United States would bode well for natural gas demand. He also said exports to Mexico would be “increasingly important” and could support the price of U.S. natural gas indexes going forward.
The oilfield services company is one of the leading hydraulic fracturing (fracking) operators in North America. Management unveiled the company’s second quarter earnings results last week.
“The massive increase in data centers for AI and restoring industry back to the U.S. is inflecting upwards demand for electrical power and natural gas. AI is both enhancing our business and growing the demand for our services,” Wright said during an earnings conference call.
He warned, however, that natural gas prices have a long way to go for activity to rise, despite a recent bump.
“Natural gas prices saw a resurgence from early spring lows as gas producers reduced drilling and completions activity and curtailed production. Recent reinstatement of some curtailed production has moved prices downward, but still above recent cycle lows,” Wright said.
He added, “The commissioning of new LNG export facilities and continued growth in power demand are expected to drive higher natural gas demand and eventually firmer natural gas prices than today's. Frac industry trends have moderated marginally in recent periods on the heels of slightly softer drilling activity in both oil and gas basins.”
The U.S. benchmark Henry Hub natural gas price averaged $2.534/MMBtu in 2023, a 60% decrease from the 2022 average, NGI's Daily Historical Data show. This year, gas prices also have remained low. NGI’s July Bidweek National Avg. climbed 40.0 cents/month to $2.215, but that was down from $2.560 a year earlier, NGI’s Bidweek Historical Data show.
“During the first half of 2024, industry-wide completions activity has declined to levels consistent with only roughly flat oil and gas production,” Wright said. “For the U.S. to deliver rising oil and gas production levels, completion activity would need to rise. Signs of tightness for quality frac crews may emerge in 2025 on a demand-pull for energy.”
Modest Growth
As a result of pricing, management did not forecast major growth in 2025.
“I would say our expectation for growth in '25 is likely modest,” Wright said. “But the current activity today, it would not support even flat natural gas production because it overshot. It overshot. We had very robust gas activity through 2022. I thought that would roll down more in early '23, but it really didn't roll down till later in '23. So gas activity is very low right now, and that's not going to reverse next quarter, probably not this year.
“But as you look ahead, eventually you've got to have more activity just to keep U.S. natural gas production flat, let alone a little bit of growth. We have to be careful, of course, of too much growth, which has been the mistake in the past among the natural gas operators. And today's oil production is also pretty flat. We had a chunk of growth last year, but crude production, it's been flattish for six or eight months, and we've still seen activity decline a little bit since then. So the production trend you're seeing today, that's reflective of what frac activity was three to six months ago.”
Management sees global oil and gas markets remaining “constructive on favorable multi-year market fundamentals,” despite near-term volatility in commodity prices.
Wright said that the outlook “is pretty positive for U.S. natural gas demand from” liquefied natural gas and “electricity demand. I think we're going to see some more reshoring of manufacturing in the U.S., and I think we're going to see, over the next several years, more of that in Mexico as well. And so I think that connection of U.S. gas going to Mexico is going to be increasingly important as well. So the macro is positive.”
LPI Business
The Liberty Power Innovations (LPI) unit, created in 2023, was designed to lead the revamp of the top-of-the-line fracking equipment to change to compressed natural gas from diesel.
“Our LPI business is starting in the oil field where we are building assets and expertise to reliably deliver both natural gas and electricity 24/7 in remote areas on frac locations. We rapidly construct a 25-35 MW power plant fuel and operate it, and then tear it down roughly once a month and move that plant somewhere else,” Wright said.
“That next-generation equipment, not only is it cheaper to run because it's burning all natural gas versus, on the extreme, all diesel or some mix of the two, but it's quiet, it's precise, it's high tech,” Wright said.
Energy Transition?
Wright concluded the call by questioning whether an energy transition was actually taking place.
“I will close with a plea yet again to all my colleagues in the industry, particularly the analysts and bankers, to stop using the deceptive and destructive term energy transition. First because it is simply wrong. The share of hydrocarbons in the global energy supply stack has not shrunk in 50 years. In fact, hydrocarbons have actually grown their market share over the last 24 years.
“Yet the incessant repeating of the simply false term energy transition contributes to a serious misunderstanding of the global energy system, with destructive consequences, including damaging political energy policies, seriously misinforming kids in our schools, and most relevant for today's audience, it has perhaps driven down investor valuation of hydrocarbon companies due to the impression that our industry is soon fading away,” Wright said.
The company reported net income of $108 million (64 cents/share) for the second quarter, compared with $153 million (87 cents) during the same period last year.
