Baker Hughes, a GE company (BHGE), has increased its order book to US$6.9 billion in the fourth quarter, with the company paying particular attention to improving prospects in the LNG sector.
In comments on a conference call, BHGE’s chairman, president and CEO, Lorenzo Simonelli, said there was “positive change in the LNG market. Given the continued strong demand dynamics, likely project sanctioning is accelerating faster than we previously anticipated. We see the potential for up to 100 million [tpy] of new capacity to be sanctioned by the end of 2019.”
The service company’s Turbomachinery and Process Solutions (TPS) unit has already benefited from this improvement in 2018. In the fourth quarter, it won work on providing modular turbocompressor technology for the Royal Dutch Shell-led LNG Canada project, in Canada’s British Columbia. BHGE was chosen to provide its LMS100-PB low-emission gas turbine in December 2014 for the 14 million tpy LNG Canada project. The company has signed on to provide turbomachinery kit for the Coastal GasLink pipeline, which will carry gas to LNG Canada.
TPS orders were up 23% year on year, it noted, with equipment orders up 52%, “driven by higher order intake for LNG equipment”. Service orders were up 2%. TPS earned US$257 million of operating income in the quarter, up 64% from 2017.
LNG’s improved outlook should provide some balance to the recent decline of oil prices, which Simonelli warned would have an impact on work in the Americas.
BHGE cited two notable LNG projects. The first was for Novatek’s Arctic LNG-2 development, which chose BHGE to provide its LM9000 gas turbine technology for a large-scale LNG project. This will improve the work’s efficiency and will “be a key enabler to drive the project towards its [FID]”.
Russia’s Novatek chose BHGE in December for the plant, which involves three trains with 6.6 million tpy of capacity each. The service company noted this award had put it in a strong position for future expansion.
The company’s TPS unit was also involved in starting up the third train at Novatek’s Yamal LNG, a year ahead of schedule. This allowed the plant to achieve 16.5 million tpy after less than a year since starting.
As a result of the increased LNG sanctioning, BHGE said it was investing around US$75-100 million in its engineering efforts. The company said it was also simplifying its business and “gaining traction with our product lines in the lower-megawatt range”.
Responding to a question from an Evercore analyst, James West, the BHGE head said LNG production by 2030 was expected to be around 550 million tpy. “We see about 5% CAGR growth from now until 2030 driven by power generation and consumption in some of the emerging markets – India, China. The project sanctioning – hard to tell how it will evolve in all cases. Again, there’s a lot of activity in 2019.”
While the company’s pipeline work has been one of its “core strengths”, Simonelli noted that this was “slightly lower margin” than its LNG work.
A note from Stifel following the fourth-quarter results estimated US$30-70 million of revenue opportunity for BHGE for every 1 million tpy of new LNG capacity.
TransCanada noted that it was moving ahead with plans to sell a stake in its Coastal GasLink pipeline. The company said it would go ahead with the C$6.2 billion (US$4.7 billion) link in October 2018, commenting at the time that it would consider joint ventures and project financing.
It is in the early stages of discussions with potential investors, it said, although it stated that it would continue to construct and operate the pipeline.
A filing last week revealed that TransCanada had retained RBC Capital Markets to handle the sale of up to 75% of the link. The company is also working on the C$10 billion (US$7.6 billion) Keystone XL pipeline, which will carry crude from the oil sands of Alberta to the US Gulf Coast.
As with the Keystone XL project, though, the Coastal GasLink has faced protests. Blockades have shut off roads and politicians have faced protests in an attempt to halt work.