LNG stocks have gotten a bump up as Russia's clash with Ukraine boils on. The conflict may open the door to rejuvenated liquefied natural gas (LNG) exports to Europe.
Cheniere Energy Inc. (NYSE: LNG) - an LNG stock we've been bullish on for quite some time - closed up 3.88% to $51.17 per share Tuesday. It's up 18.67% so far in 2014. Sempra Energy (NYSE: SRE) climbed 0.91% to $94.60, and 5.77% in 2014. Dominion Resources Inc. (NYSE: D) went up 1.02% to $69.29 per share, a 7.11% increase in 2014.
Driving LNG stocks up - along with U.S. oil futures and crude and gas prices worldwide - is the definite possibility that Russian President Vladimir Putin could restrict gas supplies as a weapon in this conflict with Ukraine.
This places heightened urgency and importance on the exportation of U.S. LNG as a means to meet increasing world energy demands.
"[This is] an example of how geopolitical events sometimes have a major energy component," Money Morning Global Energy Strategist Dr. Kent Moors said last week. "In the case of what is transpiring in Ukraine, energy may be the main chess board in which political change is worked out."
Here's a quick breakdown of the events behind this week's LNG stock gains...
How the Ukraine Crisis Means Higher Gas Prices
Over the weekend, Russian gas-export monopoly Gazprom OAO (OTC ADR: OGZPY) threatened to terminate its natural gas discounts to Ukraine if the former Soviet republic doesn't pay off its alleged $1.55 billion heating fuel debt.
Russia raising its rates on Ukraine, and any other inner turmoil between the two countries, will affect gas prices globally. That's because Russia is the world's largest oil and natural gas exporter. It's the second-largest producer of natural gas after the United States, and the biggest European supplier of natural gas.
And much of Russia's natural gas passes through the Ukraine - a transit point that supplies about 16% of European demand.
As a result of the weekend's troubling developments, gas prices shot up 10% during early trading on Monday.
The whole situation is sparking quick gains for LNG stocks - which, because of the following reasons, were already set to take off...
A Window of Opportunity for U.S. LNG Stocks
U.S. exports of LNG could mitigate any shortages in Europe caused by the Ukraine-Russia conflict.
And so far, the U.S. Department of Energy has approved six proposals to export LNG to countries without free trade agreements (FTAs). Combined, the projects amount to 8.5 billion ft3/d of LNG - compared to 6 billion ft3/d that Russia exports to Europe via Ukrainian gas pipelines.
"Expanding U.S. LNG exports is an opportunity to combat Russian influence and power, and we have an energy diplomacy responsibility to act quickly," U.S. Rep. Fred Upton, R-MI, chairman of the Natural Resources Committee, said in a statement on Monday. "We will continue to advance legislation and develop new proposals that allow market forces and technology to help expand Eastern Europe's access to affordable energy beyond Russia."
U.S. LNG supplies are "just waiting" to be exported, according to Sen. John Barrasso, R-WY.
"If President Obama is serious about helping the people of Ukraine, he will immediately expedite the approval process for liquefied natural gas exports," Barrasso said on Tuesday.
Failing expedition, the federal government will need to decide whether LNG exports to countries without FTAs fall "within the public interest" - the applicable legal standard - before exporting licenses.
Even without the crisis in Ukraine, U.S. LNG stocks are benefiting from an LNG revolution. Just seven years ago, experts agreed that the U.S. would be using LNG imports to meet 15% of the country's gas needs by 2020, but now the United States is set to become a heavy-hitting LNG exporter.
Gazprom itself admits the United States could very well end up providing 8% to 12% of all worldwide LNG exports seven years from now.
"The market events that I'm predicting will make the New Year a big one for LNG investors," Moors said. "The global energy sector is intensifying, and its importance has never been more striking than it is right now."
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