Outlook for oil, gas demand increasing to 2040: Baker Hughes CEO

While the renewable energy market continues to grow amid what is thought to ultimately be a transition away from oil and natural gas, demand for energy continues to mount and should increase by double-digits between now and 2040, Baker Hughes CEO Lorenzo Simonelli said Oct. 23.

it is "important" to emphasize the company's long-held macro view of structurally growing energy demand which supports its strategy and which remains the "nucleus of our long-term growth potential," Simonelli said in webcast remarks during the company's third-quarter earnings conference call.

"Between now and 2040, we expect global primary energy demand to grow by 10%, driven by population growth, and increasing energy intensity across major developing countries," he said. "According to the Energy Institute, a person in the developed world consumes, on average, three times the energy of a person who lives in emerging countries. Therefore, even a small increase in energy consumption per capita in the emerging world can have a sizable impact on overall energy demand."

Ultimately, the increase in primary energy demand will need to be met by multiple sources since the expectation is that renewables will "fall short" of meeting growing demand and replacing hydrocarbons in the current decarbonizing energy system, Simonelli said.

'This is the age of gas'

And at least in the view of Baker Hughes –-- of one of the "Big Three" global oilfield services and equipment providers -- natural gas is "a clear winner," Simonelli said. "This is the age of gas."

By 2040, Simonelli expects gas demand to grow by nearly 20% and global LNG demand to increase at an even faster rate of 75%.

"We are experiencing a significant increase in gas infrastructure equipment orders and anticipate this trend will continue as many developing economies look to increase the use of natural gas within power generation and industrial applications," he said.

In LNG, Simonelli said the energy industry continues to see a requirement for 800 million mt/year of liquefaction capacity by 2030 to meet increasing global LNG demand. This view is supported by more than 200 million mt/year of LNG capacity under construction currently and a "positive outlook" for additional final investment decisions on new liquefaction projects, he said.

And for oil, Simonelli anticipates "moderating" levels of demand growth through the end of the 2020s.

"In this environment, we expect operating expenses spending to accelerate as the focus shifts from greenfield to brownfield developments," said. "We have positioned our oilfield services and equipment portfolio for differentiated growth in mature fields, playing a leading role in helping customers optimize oil and gas production through our mature asset solutions."

Against this energy mix backdrop, the focus needs to be on lowering emissions, he said.

Focus on emission-reducing technologies

"We see energy efficiency and decarbonization technologies playing a critical role in achieving net-zero goals," Simonelli said. "We are focusing our efforts to enhance and develop new technologies in these areas and see this as a fundamental growth theme" for Baker Hughes.

In fact, the global markets have been recently affected by both supply and demand factors, including slowing global economic growth, resilient North American production, weakening OPEC+ compliance and geopolitical uncertainty in the Middle East, he said.

Still, even with a cloudy oil macro backdrop, Baker's global upstream spending for 2024 is unchanged: that is, spending in North American spend should fall year-over-year in the mid-single digits range, and international spending should grow in the high single digits.

Beyond 2024, "many factors" are at work that could drive further volatility in oil prices, Simonelli said.

"On the supply side, we continue to see production increasing in North America, adding to the growth in deepwater production that is planned for next year," he said. "Combining these variables with planned OPEC+ production increases, projections point to relatively soft oil fundamentals in 2025. However, geopolitical uncertainty across the Middle East could create added volatility for oil prices."

Baker Hughes, like other companies in the oil and gas patch that include both upstream producers and services/equipment purveyors, continues to evaluate its 2025 plans.

2025 E&P spend seen flat with 2024

However, based on the current macro and geopolitical environment, Simonelli said he expects 2025 global upstream spending to be similar to 2024 levels. "As the upstream cycle matures, we expect our customers to increasingly focus on optimizing production from existing assets, providing significant growth opportunities for ... mature asset solutions," he said, adding by 2030, "we estimate that 80% of the world's oil and gas will be produced by mature fields."

Natural gas should continue to see strong growth, he added. For LNG, year-to-date offtake contracting has totaled 78 million mt/year, which is on pace to exceed the record 84 million mt/year in 2022 – a level which supports Baker's outlook for 100 million mt/year of final project investment decisions between 2024 and 2026.

Moreover, robust demand also should continue for gas infrastructure projects, with significant awards this year for MGS 3 in Saudi Arabia, Hassi R'Mel in Algeria and the Margham Gas storage facility in Dubai.

"We expect non-LNG gas technology equipment orders this year to more than double levels booked in 2023," Simonelli said. "On the back of another strong year for New Energy, we see several projects progressing towards final investment decision in the US, and internationally in 2025, giving us confidence that our New Energy orders will continue to grow."

Baker Hughes posted total Q3 revenues of $6.9 billion, down 3% sequentially but up 4% year over year. The company's oilfield services and equipment division captured $3.9 billion in revenues, down 1% from three months ago but flat on the year, while industrial and energy technology recorded $2.9 billion, down 6% sequentially but up 9% on the year.