This week on the Energy Pathways podcast, natural gas is not a transition fuel, it's a destination fuel. I speak to Baker Hughes CEO Lorenzo Simonelli on why the company you think of as an oil field services company is now so much more. This is Energy Pathways powered by Dryad Advisors. I'm Alex Steel. Lorenzo, it is always a pleasure to talk with you. Thanks for joining.
Very glad to be with you again, Alex.
Okay, so here's what if I say, hey, Baker Hughes, this is what most people think of. Oil and gas services company, period. That's not all you are anymore, is it?
No, in fact, we've changed fundamentally the face of Baker Hughes, and I understand the historical base of oil field services and we appreciate the legacy of being founders in the extraction, but we're much more than just oil field services. We're really an industrialized energy solutions company.
And that means that we're able to really take the molecule from the extraction side all the way through to the value chain of compressors, valves, pumps, turbines and provide solutions to our customers. We're not just serving large oil and gas customers, we're serving industrial customers as well. And what we've created is really a rewriting of the energy equation and the technology and the equipment and the services that's needed for that. And Baker Hughes today is really at the forefront as a technology company to enable affordable, sustainable and also very safe, secure energy for the world.
That was a good pitch. I mean, that was a good, that was a good CEO pitch answer, which I totally appreciate. What is, what form of energy do you not touch? Maybe that's a good way of thinking about it, right? Because you do geothermal, check. Hydrogen, check. Transmission, check. Nuclear, like what, what don't you touch?
Well, we're really not, when you think about it, in solar, we're not in wind, and we're not in hydro. And there's plenty of players that provide equipment and services in there. We're in the areas where there's much more of a molecule involved.
Is it like subsurface, something coming out of something?
Something coming out of something, and also chemistry involved, and that's where our legacy is, is in engineering and also the chemistry. And we've got years of experience in being able to transform that molecule. And it goes beyond even what you may think of. It's oxygen.
When you think about helium, and you think about some of the new energy sources that are going to be there in the future as well, we play an active role in really researching those and seeing the adaptability of those. A good example is space, and looking at the fuels that are going to be required for the rockets that go up to space.
Get out of here. I didn't know that.
What, what do you, what do you do?
Well, right now they are mini rockets that are looking at LNG. So, we provide the LNG. Now, as you go forward, you're going to need more density, you're going to need more power. So, we're looking at different fuel sources that would be applicable.
So, tell me how this all happened. So, so Baker Hughes has been around for a long time. It was part of GE. That's where you came along for Baker Hughes, and then it spun out of GE, and then it, it... How did, how did you go, and when did you go from an oilfield services company to an industrial energy solutions company?
I would say we started to see some early indicators as we came together as a company that partners and customers needed solutions to be able to connect the widgets, connect the services.
It would be like, 'Hey, look. Here it is. Look, I need a, I need a thing that goes on that thing.' And you're like, 'I can make that thing.'
2017, the industry started to show, first of all, natural gas is going to be a big deal.
And natural gas is not a transition fuel, it's a destination fuel. And I think that's actually proven to be the case as you look at where we are today. So, we brought the two companies together, GE Oil & Gas and Baker Hughes, really to start to bring that portfolio together. Now, it wasn't easy. There's an aspect of creating those solutions, being able to create the right equipment and technologies, and that's what we've been doing. At the same time, the customer has evolved. You think about the number of international oil companies now that are getting into power generation.
And so, we're there to support them. You think about hyperscalers going into data centers. Well, we're there to help provide them with the power generation, understanding the full flow, and also geothermal and enhanced geothermal. So, it's been a trajectory that we laid out as three horizons for the company.
And we're very much in horizon two, which is bringing out the solutions and capabilities which really match up the energy sources with the industrial outcomes that people need.
So, now are hyperscalers coming to you and saying, 'Hey, I need to know what you do. I need help.' Or are you still going to them and being like, 'Hi, by the way, it's me. I can help you do things.'
Okay, so it's not quite the first one yet.
It's a bit of both, and that's because there's a learning process and there's also the aspect of history and association with the name as you said at the beginning. And that takes time. And again, as you look at hyperscalers, we launched an industrial gas turbine that is being very well accepted. So, now we're getting a lot of inbounds. And once you start to showcase and you have some of these pioneer deals and proof points out there, customers start to call you. You get recognized in the industry, and that's what we want to be recognized for. We're not just an oil field services company. We truly are an industrialized energy solutions company that's connecting industrial outcomes for the future and energy sources today. Because there's one macro theme that's underlying all of this.
More energy. And more energy from multiple different sources.
How do you avoid investing in something trendy versus something that has real legs?
In our equipment, nothing short-term.
So, we get a very good aperture of being able to see whether it's just a trend or it's something that's going to be long-lived. And I look to hydrogen.
That's just kind of the example I was thinking of.
A couple of years ago, everybody said, 'Hydrogen is going to happen tomorrow.' Hydrogen has a role to play in the energy mix of the future, and it's actually very appropriate for certain uses. As you look at long-haulage storage, as you look at transportation mobility, you look at China and the usage of what they're doing from a hydrogen perspective. The ramp up was never going to be as quick as people anticipated. It will happen though over time. So, we incubate the technologies we can turn into nature, and we have a very rigorous capital allocation model that makes sure we are matching the returns for shareholders as well as investing for the future.
Also, to be fair, that was really the green hydrogen fervor. I mean, there's been gray hydrogen forever. There's still blue, there's lots of different colors that electrolyzers can play without having it be stymied by the power.
So, when you take a look at the AI part, and you said that part of the conversation is, 'Hey, hyperscalers, I'm here. I can help you.' And them coming to you and saying, 'Hey, can you help me?' What part of that build-out is moving faster than you thought?
I think overall, the need for data centers and the need for power generation off the grid is moving faster than we appreciated. It's great for us because obviously it provides great tailwind and a very good positive future outlook. And it's not just on the gas turbine. It's also on the synchronized condensers. It's on the cooling equipment. It's on the pumps and the module that's required. And so you're going off grid more because the grid unfortunately is going to take time to catch up. It's not that utilities aren't investing, but when you look at permitting, you look at different regulations, you look at state, you look at federal, that's going to take time.
People are going to prime backup power off the grid behind the meter and that's where we have a very good portfolio of capabilities. And also it's going to be an increasing focus for the company across the products.
Where does gas fit into your portfolio? Because what in my previous life as a broadcast journalist, I mean years ago, I'd be like Baker Hughes is front and center in the LNG export or build out. And everyone would be like, really? So even before we got to the hyperscalers, I mean before we got to the industrial solutions at energy solutions business, there was the LNG portion of it. Where do you see that evolving?
So there are a couple of terms that we've used at Baker Hughes. One is the age of gas.
Which we think we're firmly in and it's the propensity of what we do. And also that we're in an energy demand decade. And that energy demand decade is going to be fulfilled predominantly through natural gas. And that's why LNG continues to be a key growth area. Also though, when you look at behind the meter, it's gas turbines of an industrial scale. They have less emissions. Again, it's quick. Gas is very abundant. And I think also from an affordability perspective. And people are realizing how abundant and affordable it is. And also from a standpoint, it's in multiple locations. And so, you look at the aspects of the importance for countries to have security of supply, affordability, and sustainability, gas is going to be a key factor.
So, do you, how, how big a role do you think gas plays in the data center world?
I think that for the foreseeable future, it's actually increasing.
