Baker Hughes sees international markets heating up, weakening North America activity

Oilfield services and technology provider Baker Hughes sees a balanced global oil market, albeit powering up international spheres that are offset by tamped-down North American activity and decreasing activity in US natural gas basins, the company's top executive said April 24.

But while OPEC+ production cuts have helped steady global oil markets, uncertainty over the group's expected restoration of the cuts, coupled with geopolitical risk stemming from localized wars in the Gaza region and Ukraine, could affect the trajectory of oil prices, Baker Hughes CEO Lorenzo Simonelli said in webcast remarks during a first-quarter earnings conference call.

"In North America, our outlook remains for a year-over-year decline in the low to mid-single digit[s]," Simonelli said. "We continue to anticipate declining activity in US gas basins, partially offsetting modest improvement in oil activity during the second half of the year."

And internationally, "we maintain our expectations for high single-digit growth," he said. "This contemplates extended OPEC+ cuts through the end of the year as well as any potential timing differences between the transitioning of rigs from oil to gas in Saudi Arabia."

Beyond 2024, Simonelli expects continued upstream spending growth, although at a "more moderate pace" than has occurred in recent years.

"We expect growth to be led by offshore markets in Latin America and West Africa as well as the Middle East," he said.

Similar outlooks of international market growth, especially in the Middle East, Africa and Latin America, and weaker although stable North American activity that owes to investment discipline by upstream operators, were voiced by the CEOs of SLB and Halliburton during their respective quarterly earnings calls.

Optimizing output means growth in E&P spending

Simonelli predicted the next phase of the upstream spending cycle will focus increasingly on production optimization to existing assets by upstream operators which own them -- also a widely discussed topic in recent upstream and oilfield services calls. Baker Hughes and other oilfield service companies are addressing this phenomenon by beefing up their offerings to help E&Ps extend the life of older reservoirs.

For instance, Baker Hughes in January launched Mature Asset Solutions, an emerging business that helps E&P customers maximize the value of mature fields with products such as chemicals, services such as artificial lift and new technologies in automation and digital optimization. And Baker Hughes peer SLB recently announced a $7.7 billion pending acquisition for energy chemicals provider ChampionX, whose offerings can extend the life of mature fields.

As for natural gas and LNG, Simonelli also said the long-term demand outlook for both remains "very encouraging."

"Through 2040, we expect natural gas demand to grow by almost 20%, representing a 1% compound annual growth rate in underlying energy demand and the desire to drive towards net-zero energy" emissions, he said.

And through the end of the 2020s, the CEO projects LNG demand to increase by mid-single digits annually.

Growth seen in LNG terminals

"We believe this will support an installed nameplate capacity of 800 mtpa by 2030" and should continue, requiring further capacity additions beyond that volume, he said.

"While there could be periods of price volatility driven by temporary dislocations in supply and demand over this period, we see these as opportunities for accelerated demand creation," he added. "LNG consumers, who tend to be very price-sensitive, typically respond to lower prices with stronger demand.

"Global LNG demand is up 4% year to date against the backdrop of an approximate 50% decline in LNG prices over the same period," Simonelli said. "We expect global LNG final investment decisions of about 100 mtpa over the next three years. This view, supported by customer dialogue and our internal LNG demand expectations, would result in our installed capacity increasing by 70%," with "significant" associated business opportunities.

Simonelli also sees growth momentum across Baker Hughes' five New Energy focus areas: carbon capture and storage, hydrogen, geothermal, clean power and emissions abatement. The company booked $239 million of new energy orders in Q1.

The new energy awards include a climate technology solutions project for compression trains driven by hydrogen-ready turbines. The equipment in turn supports a new gas compression station in Italy that eventually bring additional hydrocarbons from Azerbaijan, Africa and the Eastern Mediterranean to Northern Europe, Simonelli said.