The European Union's (EU) recently unveiled Energy Master Plan talks about energy in the year 2030, but what really worries the EU is much more immediate: the coming winter.
The ongoing civil war in eastern Ukraine, along with the corresponding crisis between Kiev and Moscow, means that Russian gas supplies could once again be cut off come September.
This time around, Europe's savior could be the United States - which is good news indeed for select natural gas stocks...
Taming the Russian Bear
Right now, the dispute between Ukraine and Gazprom, the Russian natural gas giant, is mostly a war of words. Since demand for natural gas is low in Europe and there's gas in reserve for domestic use in Ukraine in the warmer months, there's no immediate repeat of 2009's gas crisis.
That will change as September approaches. Ukraine must replenish supplies in underground storage for the winter season, and Gazprom has suspended exports to Ukraine over unpaid bills.
For the moment, throughput volume is still moving across Ukraine to Western Europe, where countries are dependent on that route for 15% of the gas consumed daily. However, the last time there was a tiff over what Gazprom was owed by Kiev, three things happened: Russia stopped providing gas, Moscow charged that Ukraine siphoned gas intended for Europe, and deliveries were halted farther west.
For EU citizens, it got very cold. And the situation had a great impact on thinking at EU headquarters in Brussels.
Last week, with another natural gas standoff looming, the EU unveiled its latest Energy Master Plan, which projects energy policies and strategies for the next 15 years.
Because the EU is known for designing, debating, and then dismantling long-term plans on just about everything, this plan could be dismissed as another "been there, seen that," except for one, very important factor.
The threat of another gas interruption possible later this year, combined with the continuing geopolitical crisis in Ukraine, has huge implications both for this winter and for the planners in the Belgian EU headquarters. In fact, the energy situation is so unsettled that planners at another multinational organization - NATO - are drawing up their own contingencies.
Those contingencies could mean new opportunities for a number of U.S. companies.
As with any long-term policy plan, the opportunities are only revealed by reading between the lines. As with any initial release of a long-term plan, it is broad on objectives and weak on particulars. Nonetheless, given the realities on the ground, the new EU plan pivots away from a reliance on Gazprom and towards a number of Western alternatives.
In essence, the plan accelerates a strategy that the EU began in 2009. While the continent is still reliant on Russia as its largest single source of imported energy, the EU has begun to diversify where its fuel comes from.
New Emphasis Will Benefit Liquefied Natural Gas Stocks
The forward-looking plan includes increased imports of liquefied natural gas (LNG) from several countries, including main supplier Qatar, several North African nations, and even demonstration delivery projects from BP Plc. (NYSE ADR: BP) terminals in the Caribbean.
Now, imports from the Caribbean aren't currently cost-effective. The EU only wants to illustrate the ability to receive a high volume of LNG from the Western Hemisphere. That sets the stage for the global energy shift that will begin for the EU in about 18 months.
LNG from the United States.
Imports from the United States will be one of the most important revisions in energy trade to hit both sides of the Atlantic in generations.
Cheniere has locked in major 20-year export contracts from its terminals on the Gulf Coast, while Golar will provide the primary LNG tanker fleet to move the liquefied gas.
That explains why Cheniere, without having yet produced a single drop of LNG for export, has been on a tear.
A mainstay both of the Energy Advantage and Energy Inner Circle portfolios, Cheniere is up 140% since introduction. Its sister holding, Cheniere Energy Partners LP (NYSEMKT: CQP), is up 56% and pays a very healthy dividend of 5.3% to sweeten the deal.
The EU plan means gains for natural gas stocks like these are likely to continue: CQP controls the Cheniere export terminals - and those terminals haven't even been completed yet.
When they are, apparently EU customers will be lining up for those exports.
Meanwhile, Golar is already involved in the transport of LNG globally and will be the first beneficiary of traffic from the United States. GLNG is an Energy Inner Circle position and has done very well: It's up 73% since introduction (and it pays a solid 3.2% dividend).
Not only is U.S. LNG a key element of future European energy plans, but it represents the most direct challenge to Gazprom. That it will also result in huge profits for average investors on this side of the pond hardly hurts either.
The Importance of LNG
Increased imports of U.S. LNG are only one part of the strategy emerging in Brussels, but for the moment it's one of the most important ones. Europe will remain dependent on imports as long as it delays development of its own shale and tight gas. Geologic surveys show that there are significant basins that stretch from the UK through Sweden, France, Poland, and into the Baltic republics. There are also large prospects in western Ukraine.
Yet, with the exception of Ukraine, where energy is a critical and immediate issue, development of European natural gas fields has been almost nonexistent. Poland is moving ahead with development to mediocre initial success. In London, Paris, and Brussels, it's another story. There, opposition to fracking is substantial, and environmentalists have political parties with some clout.
As a result, many of these gas basins are virtually untouched.
I've spent years in and out of this controversy, and I understand both sides. There are places where drilling simply should not take place. But the EU's overwhelming energy needs, combined with the continent's strategic interests and geopolitical factors, dictate a more balanced approach. And that's why the new EU plan is structured the way it is.
The new EU plan has three legs.
Diversifying sourcing and providing energy security is one leg.
The second is an intensifying fight against climate change. This will mean that the majority of government energy subsidies will go to renewables like solar, wind, geothermal, and biofuels.
Those renewables will require the technology that several North American companies possess to offset the adverse environmental impacts from shale drilling.
When the EU is ready, there are some American companies I'll introduce to EU officials. The fact that these companies have technology that will address the continent's environmental and energy needs, while at the same time generating large profits for the companies and their investors, is a very nice combination indeed.
The third leg of the EU plan is as much political as it is practical. Europe needs to tackle how expensive it is for citizens to power their homes and keep warm in the winter. On a per-unit basis, Europeans pay more than just about anyplace else on earth to keep the lights on.
It won't be easy.
The plan acknowledges that some consumer pain is going to be necessary over the next 15 years (remember that this plan is through 2030). In some cases, some energy sources will almost certainly be replaced by more expensive ones.
The question for the EU is how to balance economic development with energy development, while facing the political unpopularity of high energy prices and possible supply disruptions.
That will make the third leg the most difficult one by far. But in the long term, the EU really has no choice.
They have to rely on the United States over Russia, while developing more of their own energy resources.
This story is a long way from its conclusion.
But one thing is certain - this development means U.S. natural gas stocks will offer energy investors plenty of upside in the months and years to come.
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