More global natural gas export projects are likely to be sanctioned this year and beyond, fueled by a “growing appetite” for long-term purchase agreements, Baker Hughes Co. CEO Lorenzo Simonelli said Thursday.

The world’s No. 2 oilfield services (OFS) company unveiled its fourth quarter and 2021 results, with Simonelli helming a conference call. No. 1 OFS operator, Schlumberger Ltd., issues its results Friday, with No. 3 Halliburton Co. set to unveil results Monday.

Orders for liquefied natural gas (LNG) and OFS equipment continued to accelerate in the final three months, with overall orders up 28% year/year and 24% from 3Q2021 to $6.7 billion. 

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“We believe the broader macro recovery should translate into rising energy demand for 2022 and relatively tight supplies for oil and natural gas,” Simonelli told investors. There’s likely to be “significant structural demand growth for LNG in the coming decades. Our positive long-term view is also supported by the recent improvements in policy sentiment in certain parts of the world toward natural gas’ role within the energy transition.”

Momentum In Global Gas Markets

Momentum should continue for the global gas markets this year, the CEO said. 

“A combination of demand and supply factors converged in 2021, pushing natural gas and LNG prices to record-breaking levels in both Europe and in Asia. The gas price spikes also highlighted the fragility of the global energy system as the world transitions to net zero.” 

In addition, the global oil markets also are likely to remain tight for some time.”

LNG activity propelled the Turbomachinery & Process Solutions (TPS) unit last year, with nearly $7.7 billion in orders. That was only slightly below the record levels achieved in 2019, pre-pandemic. 

“Perhaps more importantly, we believe that the step-up in LNG order activity provides a solid indication that a new LNG cycle is beginning to take shape,” Simonelli said. 

“We also believe that the uptick in orders, along with other recent policy movements, particularly in Europe, confirms that natural gas is gradually gaining greater acceptance as a transition and destination fuel for a net-zero world.”

Management remains “optimistic on the outlook for LNG and remains confident” in a forecast for 100-150 million metric tons/year of awards over the next two to three years. 

“Based on the continued pace of discussions with multiple customers and the positive fundamentals in the global gas markets, we have a general bias toward the upper end of this range,” Simonelli said.

The energy transition business is seeing growth too, with about $250 million in orders last year across the company’s TPS, OFS and Digital Services (DS) product lines, led by equipment for hydrogen and carbon capture, utilization and storage (CCUS).

“We remain confident in our ability to grow this business over the next decade to ultimately total $6-7 billion of orders by 2030,” Simonelli said. 

Covid Still A Disrupter

While there were multiple achievements, last year had its challenges.

“We saw continued disruptions from the Covid-19 pandemic, which continued to impact our operations,” the CEO said. “Supply chain and inflationary pressures also drove higher costs and delivery issues primarily across our OFS and DS product companies.”

The teams have worked to offset some of the negative impacts, “but we expect to continue to see some level of tension and disruption in these areas, potentially through the first half of the year.”

While this year’s global economic recovery is likely to remain strong, “growth rates are likely to moderate from 2021 levels as central banks are expected to begin tightening monetary policy in order to reduce Covid-related stimulus plans and quell growing inflationary pressures,” Simonelli said.

“Despite the expected slowdown in the pace of growth, we believe the continuing broader macro recovery will translate into rising energy demand in 2022, with oil demand likely recovering to pre-pandemic levels by the end of the year.”

The company also is focusing on a revamped strategy to position for the “new energy frontiers,” the CEO explained. The revamp would split the business into Oilfield Services & Equipment  OFSE) and Industrial Energy Technology (IET). 

Notably, the company has created the Climate Technology Solutions (CTS) group and the Industrial Asset Management (IAM) group, which are part of the TPS business segment. CTS encompasses CCUS, hydrogen, emissions management, and clean and integrated power solutions. IAM brings together digital capabilities, software and hardware to help customers increase efficiencies, improve performance and reduce emissions.

Creating the groups should help advance “the speed of commercial development,” Simonelli said. 

Is Stronger Lower 48 Activity Expected?

By business segment, the OFS activity levels in the final three months of 2021 ended on a positive note in North America and internationally. “All signs point to a strong year of growth in 2022,” said the CEO.

In North America, Baker Hughes is anticipating growth in the U.S. land market and recovery offshore. 

“Based on conversations with our customers, we expect the underlying trends in North America to remain the same as 2021,” Simonelli said. The public exploration and production (E&P) companies, along with the international oil companies, are expected to remain disciplined in deploying capital. However, the private E&Ps, which do not have to answer to shareholders, “will remain more active.”

The OFS business achieved 10% operating margin rates in 4Q2021, but margins were below the objectives. The CEO cited “recent negative impacts of commodity price inflation and supply chain disruptions.” To offset the headwinds, the company has been able to increase pricing “across multiple product lines” and is “mitigating some of the logistics constraints.”

In the Oilfield Equipment segment, “activity is becoming more favorable, and we continue to show progress in taking costs out,” Simonelli told investors. 

“At a macro level, trends in the subsea and offshore markets are anticipated to continue to improve in 2022 after gaining modest traction over the course of 2021. In the subsea tree market, we expect industry awards to take another step higher in 2022 but likely remain below pre-pandemic levels for the foreseeable future. 

“Outside of the tree market, we continue to see a strong pipeline of flexible order opportunities. We are also seeing improving market conditions in our international wellhead and subsea services businesses. 

The DS market continues to improve, with a pickup in markets that recently have lagged, namely oil and gas, transportation and aviation end markets. The business continues to be impacted “by the supply chain challenges and chip shortages that began earlier in the year,” said the CEO. 

Net profits for 4Q2021 totaled $294 million (32 cents/share), down 55% from year-ago earnings of $653 million (91 cents). Cash flow climbed 86% from 4Q2020 to $773 million. Free cash flow increased to $645 million from $305 million.

For 2021, net losses totaled $330 million (minus 27 cents/share), compared with 2020 losses of $15.8 billion (minus $14.73). Cash flow improved year/year to $2.4 billion from $1.3 billion. Free cash flow improved to $1.8 billion from $518 million.