Is Putin Friend or Foe for Natural Gas Investors?

Vladimir Putin might just be the best friend investors U.S. natural gas producers have. His moves to occupy Crimea and bully Ukraine could create new markets for American natural gas.

Europe, which gets most of its natural gas from Russia, would be the most logical of these new markets. European nations were quietly moving to secure alternative sources of gas long before the present Ukrainian crisis began. The Wall Street Journal reported that the German company Gascade just hooked up a pumping station that will allow Poland's gas company, PGNIG, to pump in 5.5 billion cubic meters of gas a year from Germany.

Since Germany has little natural gas of its own, most of that gas will have to be imported by sea in the form of LNG, or liquid natural gas. A logical place for that gas to come from is just across the Atlantic in the United States, namely the Marcellus Shale, a short distance from the ports.

The decidedly cheap Chesapeake Energy (NYSE: CHK  ) is one of the biggest drillers in the Marcellus. Chesapeake's share price was up slightly on April 1, 2014, although I think it's too early to tell if Russia is the primary reason for this.

Congress likes the idea
Some members of Congress, including Senator Mary Landrieu (D-Louisiana), the Chairwoman of the Senate Energy Committee, agree with this logic. Reuters reported that Landrieu likes the idea of speeding up the approval of U.S. natural gas exports. Current U.S. law limits such exports to countries with which America has a free trade agreement.

The House of Representatives wants to go even further; its energy committee has been considering a bill that would allow U.S. natural gas exports to any nation in the World Trade Organization without federal approval, a Reuters article indicated. Basically, the bill would allow unlimited natural gas exports. Reuters didn't say what the Senate is considering, but it could be similar.

One supporter of U.S. gas exports is a likely customer: Jaroslav Neverovic, the energy minister of Lithuania a former Soviet Republic. Russia is Lithuania's only source of gas, and its people are already paying high prices for gas because of a dispute with Russia's gas producer, Gazprom. Reuters noted that Neverovic told the Senate that his country would like to buy U.S. gas.

Cold War II and high natural gas demand not guaranteed
This sounds great, but investors in companies like Devon Energy, Chesapeake Energy, and Apache Corporation, all of which own U.S. gas fields, shouldn't count their money yet. A Cold War II is actually highly unlikely and so is the increased demand for the natural gas it could produce.

The Cold War was an ideological conflict created by the irreconcilable differences between the communist Soviet Union and the democratic-capitalist United States. The ideological differences between the United States and the present Russian Federation are inconsequential in comparison; both are capitalist and democratic nations (at least on paper).

Despite his occasional bouts of nostalgia for Stalin, Putin is no communist. Remember, Putin is the man who signed a deal to give ExxonMobil (NYSE: XOM  ) drilling rights on 11.4 million acres in Siberia. Putin is also the leader who gave a speech in which he attacked the Bolsheviks (the Soviet Union's founding fathers) and asked God to judge them for giving Russian territory to the Ukraine on March 18, 2014. Putin is many things, but he is no Communist out to launch Cold War II.

The present conflict is not rooted in Communist ambitions for world domination. Instead, it results from territorial disputes created by the collapse of the Soviet Union. Basically, Crimea, a historic Russian territory, was given to the Ukraine by then Soviet boss Nikita Khrushchev in a sleazy political deal in 1954. Putin is simply trying to get back what he thinks should be Russian.

It also sounds as if there is a lot of room for negotiation here. Some sort of negotiated solution that would make both Mr. Putin and Mr. Obama look good is the most likely outcome.

When that happens, the political will to allow U.S. gas exports could disappear. Some of the new markets for that gas could also disappear because there will be no reason for Russia to shut off Europe's gas supply.

The bottom line is that Cold War II is highly unlikely, a state of affairs that makes the investments of ExxonMobil and others in Russia look smart. 

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