Global natural gas demand is rising, setting the stage for up to four export projects to be sanctioned this year, the Baker Hughes Co. CEO said Thursday.
Only one liquefied natural gas (LNG) project was sanctioned during pandemic-plagued 2020, but there are signals from customers for positive final investment decisions (FID) this year, CEO Lorenzo Simonelli said Thursday during a quarterly conference call.
That would be welcome news for an industry that saw up to 200 U.S. gas export cargoes shelved last summer as demand — and prices — plunged. By 2030, Simonelli said, the global thirst for LNG will translate into needing up to 700 million tons of capacity. That should translate into FIDs for 50-100 million tons of LNG capacity over the next three to four years.
Worldwide gas demand has risen on wintry weather overseas, with Asian spot prices hitting record highs earlier this month. That in turn has led LNG developers to strike up conversations once again on commercial development.
For the broader gas market, including the LNG services contracted to developers, last year “proved to be a more resilient year for demand primarily due to growth in China and accelerated coal-to-gas switching across several countries,” Simonelli said.
“LNG demand growth is estimated to have held firm versus 2019 levels and did much better than other commodities that saw meaningful declines. We believe this resiliency highlights the structural demand growth for LNG and reaffirms our positive long-term view for natural gas as a transition and destination fuel for broader energy consumption.”
The focus in the Turbomachinery & Process Solutions (TPS) unit, of which LNG services are a part, “remains on executing the significant backlog of LNG projects awarded in recent years.”
Baker Hughes also is continuing to grow its aftermarket services to capitalize “on attractive opportunities in the new energy space.”
During 4Q2020 the company booked an award from longtime partner Qatar Petroleum to supply power generation equipment for the North Field East LNG project following a 3Q2020 order for main refrigerant compressors.
“For the LNG market overall, the long-term outlook for demand growth remains intact,” said the CEO. “The recent increase in LNG spot prices has solidified a similar view for many of our customers and improved momentum for a number of projects.
“As a result, we continue to expect three to four projects are likely to move forward in 2021, followed by a robust pipeline of LNG projects that we expect to reach FID beyond 2021.”
Simonelli said the company’s LNG bookings should have “continued momentum in ’21,” as “conversations with customers, given the current pricing, have continued to be positive…From a demand perspective, we continue to believe LNG demand increases as we go forward…”
CCUS In Lead
To complement the LNG equipment services in the TPS unit, Baker Hughes has “multiple concepts and business models” to enable lower carbon emissions. The leading candidate today is via carbon capture utilization and storage (CCUS) options, with growing interest in hydrogen and energy storage options.
“We are seeing increased traction on CCUS, as well as hydrogen…with the continuing theme of the energy transition” the center of many customer discussions, said Simonelli. More LNG customers are stepping up efforts to reduce carbon dioxide (CO2) emissions in part as some countries crack down.
“We see several opportunities to deploy our existing technologies” to help customers reduce their carbon footprints as part of the energy transition to lower emissions, Simonelli said.
Baker Hughes also wants to snap up opportunities that fit with customer discussions about, for example, transitioning to low carbon. The company last fall purchased Compact Carbon Capture, aka 3C, an early stage carbon capture technology company. The equipment has a 75% smaller footprint and has a lower cost than what is available today, Simonelli said.
Baker Hughes also announced a joint service offering with Wurth Industry North America to expand additive manufacturing solutions for Wurth’s 80,000-plus global customers. The partners plan to provide advanced design, digital inventory and customized 3-D printing services for industrial applications. Through 3-D printing at scale, customers would be able to reduce their supply chain logistics-related emissions by moving production closer to the point of consumption.
The company has been involved in carbon capture technology “for some time,” Simonelli said. Now “some of the LNG projects are looking to…mitigate some of the CO2 emissions…We’re in dialogue with a number of customers. We’re actually involved in over 20 trials at the moment.”
The carbon capture market has huge upside, which means an enormous opportunity to provide lower emission LNG equipment.
“There’s going to be an increased requirement of carbon capture” from LNG, and with capacity climbing from “40 million tons today up to 750 million tons by 2030, and then…to 2.4 billion tons by 2050…clearly it’s an important part of the portfolio as it continues to grow. And we expect to see orders coming through in the next one to three years.”
The carbon capture business is expected to be the first mover opportunity, “followed by hydrogen and others, but it’s clearly something that customers are looking at already.”
Rigs Going Up?
This year “our view remains largely intact, with a modest recovery in the second half across several low-cost basins.”
Specifically in North America, the fourth quarter was solid, he said, with improvements in drilling and completion activity, which outweighed typical seasonality. “Looking into 2021, we expect further improvements in drilling activity over the first half of the year,” as public exploration and production companies start adding rigs.
“Although the rig count is moving higher, we believe that the commitment toward capital discipline and maintenance mode spending remains intact,” Simonelli said.
Management is becoming more positive as oil prices are “returning to the $50s,” with a “more optimistic view for oil demand over the next few years.”
Orders in 4Q2020 were $5.19 billion, up 2% sequentially and down 25% year/-year. The sequential increase was a result of higher order intake in the Oilfield Equipment and Digital Solutions units, partially offset by lower orders in Oilfield Services, and TPS. Equipment orders were down 10% sequentially while service orders were up 13%.
The decline in orders year/year was attributed to “lower order intake across all segments.” Equipment orders were down 30% from 4Q2019 while service orders fell 21%. The total book-to-bill ratio in the quarter was 0.9; the equipment book-to-bill ratio also was 0.9.
Net income climbed to $653 million (91 cents/share) in 4Q2020 from year-ago profits of $48 million (7 cents). Revenue declined 13% to $5.5 billion.
For the year, net losses were $9.94 billion (minus $14.73/share), compared with 2019 profits of $128 million (23 cents).
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