Why Blackstone Is Betting $7 Billion on Natural Gas

Blackstone is a global investment firm with headquarters in New York City. Founded in 2004, the firm has expanded its reach by acquiring other companies and establishing them as subsidiaries. Now, with a market cap of over $12 billion, Blackstone is one of the largest investment firms in the U.S. The company recently made headlines for acquiring a 60% stake in French oil and gas company Total for $7 billion.

Why Natural Gas?

Blackstone has chosen to bet its entire investment on natural gas (also known as gasified natural fuels or GNAF) because of its projected growth and the need to replace fossil fuels.

According to the U.S. Energy Information Administration, in 2018, 66.3 trillion cubic feet of natural gas were consumed worldwide, and the demand is only expected to increase.

Additionally, replacing fossil fuels with natural gas has significant ecological benefits. Natural gas emits 40 to 70% less carbon dioxide than coal when burned, and it has a lower risk of explosion than other fossil fuels. Finally, natural gas is significantly less dependent on the geopolitical situation of a particular region than other fossil fuels. For example, the price of natural gas is largely unaffected by U.S. energy imports (which make up approximately 28% of the total U.S. market share for natural gas) as compared to oil, which is highly susceptible to international turmoil.

The Growth Of Natural Gas In The U.S.

In 2018 alone, U.S. gas production increased by 14% to 17% over the previous year, and the U.S. Energy Information Administration expects the growth to continue in 2019. To meet the growing demand, producers have expanded existing fields and opened up new ones. In 2019 alone, 14 new field projects were approved and are underway. These projects are expected to increase U.S. natural gas production by about 40%.

Why Now?

Although gas prices were low in 2018, they still remain somewhat affordable. That being said, the low gas prices are here to stay, and it’s not just the U.S. According to the International Monetary Fund, natural gas prices will likely remain low for the foreseeable future. That’s likely because demand for natural gas is expected to increase as countries look for ways to reduce their dependency on oil.

In 2019 alone, the Energy Information Administration projects that natural gas prices will increase by about 3.7%. In the coming years, this upward trend is expected to continue as countries like India continue to seek ways to reduce their reliance on coal. In 2021 alone, India is expected to become the single largest user of natural gas in the world. With such high demand and limited supply, it’s no wonder Blackstone is interested in taking a slice of this lucrative market.

Blackstone’s $7 Billion Bet

At the end of October 2019, Blackstone completed its $7 billion investment in Total by acquiring a 60% stake in the French oil and gas company. The French oil and gas company is the 8th-largest in the world and has operations in three continents. The company is best known for its deepwater exploits in the Gulf of Mexico and for its liquefied natural gas (LNG) projects, including the French node of the LNG Triangle project and the first ever LNG project in Portugal.

The money from Blackstone’s investment will help Total fund the development of new projects, including offshore drilling in the U.S. Gulf of Mexico and Africa, and onshore exploration in the North Sea. The company is also looking to develop resources in the Solomon Islands and Australia, where it has a 49% stake. Finally, Total has a 24% stake in the Ventane project in Algeria, which is the largest and one of the most technically advanced gas plants in the world. It’s safe to say that with this investment, Blackstone has chosen wisely.

Whether or not Blackstone’s investment in Natural Gas is a good idea remains to be seen. However, given the current climate surrounding fossil fuels and the environment, it’s easy to understand why the global investment firm would bet on a fuel that’s less harmful to the planet.