Baker Hughes Co. in only a few years has navigated a brief merger with General Electric, an energy-demand-crushing pandemic and an exit from Russia, but it continues to deliver solid results. The secret, said CEO Lorenzo Simonelli, is the oilfield service company’s “differentiated” technology strategy.
The CEO offered his “roller coaster perspective” on Wednesday at the Barclays 38th Annual CEO Energy-Power Conference.
Simonelli took the helm in 2017, shortly after a blockbuster tie-up with General Electric. The deal had soured by 2018, though, and in 2019, it was becoming a standalone company once again.
Beyond the brief merger, Simonelli also captained the behemoth through the Covid-19 pandemic and an exit in 2022 from its Russian business, following the invasion of Ukraine.
How did the executive team manage through the turmoil? Was it a cultural shift? Was it an organizational change?
The strategy continued to center on being “at the forefront” with a “differentiated energy technology company,” the CEO said. The team worked to “transform the core” and invest in profitable growth.
The portfolio has been whittled to two main segments, Oilfield Services and Technology Equipment, and Industrial & Energy Technology.
Even with less-than-encouraging gas prices this year, natural gas orders have remained robust, with sales improving for LNG projects and beyond.
Even with the Biden administration’s temporary moratorium early this year that paused approval for new export projects, “we didn’t change our guidance because we were confident on the gas infrastructure developments. We were confident in the growth” beyond liquefied natural gas equipment.
This year, the “non-LNG orders will be up 50%. And we see that as a continuing theme.”
Orders Up!
The U.S. moratorium on LNG permitting should be fully “in the rearview mirror” by March, Simonelli said. Depending on who wins the presidential election in November, it could be sooner.
“It’s a good thing for the U.S. to be able to export LNG,” he said. “As a company that provides equipment and liquefaction trains to LNG projects around the world, those projects internationally are going to go forward. It’s a decision the U.S. needs to make…And we think they’ll make the right decision.”
Simonelli also believes that positive final investment decisions for LNG projects “will come back. So I think the consistency and also the durability of that tailwind for continued industrial orders growth is there for the future gas infrastructure.”
What gives the CEO the confidence that there will be “another wave” of export projects sanctioned?
“I think I’m in my fourth cycle of LNG, and this isn’t the last cycle,” he said. “There is going to be more LNG required, and it’s actually interesting to see it play out over time. We’re going through, obviously, a build cycle right now.”
In 2019, Baker Hughes executives were among the first to forecast that the world, by 2030, would need 800 million metric tons/year (mmty) of installed LNG capacity, he noted. Forecasts vary, and the pandemic cut into gas supply forecasts as renewables grew. The top global gas trader, Shell plc, earlier this year estimated that LNG consumption in 2040 would be around 625-685 mmty.
Baker Hughes is sticking by its higher forecast, based on customer demand.
“That is very much the case,” Simonelli said. “What we’re seeing now is that there is an understanding and an appreciation that energy demand continues to increase in the developing world. And where the population is increasing, natural gas/LNG is one of the best ways to provide that.”
The CEO reiterated that the energy transition to net-zero carbon “is going to take time…It takes a huge amount of effort to change the energy mix.
“We’re already hearing from customers and partners about projects that extend beyond 2030 and you just have to look at the areas where there’s a lot of gas available…
“Argentina is talking about LNG. You can see locations in Africa that are talking about LNG. So beyond what’s always been talked about, with regards to Qatar, Australia and the U.S., you’ve got new, emerging areas that are going to be LNG feedstock for the world where gas is prevalent.”
Next Up: Reducing Emissions
Plans also are ongoing for “new frontiers” to lower customer emissions. Technology is in the works for carbon capture, utilization and storage (CCUS) services, as well as hydrogen, integrated power and geothermal.
The bottom line is to offer a “portfolio of capabilities…because the energy ecosystem is also changing,” Simonelli said. “It’s not just about a drilling service contract or a well construction, it’s about a CCUS project. It’s about the complexity of gas infrastructure…”
One area where the company expects to see growth is from mature assets, he said. That category is “going to become much more important as we go forward, and as we think about today’s production. Seventy percent of the world’s production comes from mature assets.”
A mature asset could be a well that was drilled 25 years ago or a well in which 50% of the reserves have been depleted. More capital and operating expenditures are likely to be directed to brownfield extensions, Simonelli said.
Baker Hughes also expects to unearth more opportunities to help with power generation, including for data centers that store artificial intelligence (AI).
[Overcoming obstacles in the LNG market: NGI sits down with Baker Botts' Jason Bennett, department chair of global projects, to discuss U.S. LNG projects and the hurdles they currently face. Despite those obstacles cropping up, global demand for LNG is going nowhere, and the U.S. remains a prime supplier. Find out more from NGI’s Hub & Flow podcast.]
“Everybody’s talking about generative AI,” as “electrical consumption by data centers is predicted to double by 2026 going from 2% to 4% consumption,” Simonelli said. “If you think about that from a scale perspective, 4% is the same amount of energy that Japan uses in a year…
“We don’t have grid stability, so there’s an interconnectivity that’s going to be required around where the gas is available and also where the power generation takes place. That’s one area where there’s an opportunity to grow.”
There also a “growing marketplace” for distributed power sources and off the grid options.
“The good thing about our equipment is it is molecule-agnostic,” Simonelli said. “You need it when you’re moving molecules around. And we’re very good at that.”
In the year ahead, the international business “will continue to be robust and it will continue to grow, but at a decelerated rate. North America will flatten out…So we feel good about the outlook as we go into 2025 with those assumptions.”
