Russia Continues to Play the Natural Gas Card

Russia is threatening to halt natural gas shipments to Ukraine again; no wonder countries are talking positively about coal.

May 20, 2014 at 11:15AM

To say that Russia and Ukraine have a tense relationship is an understatement. Russia's annexation of Crimea, of course, has flared the flames. Since about 15% of Europe's gas goes through Ukraine, it's not surprising to see European nations rethink their commitment to politically uncertain natural gas. Maybe, just maybe, coal isn't such a bad thing after all...

This is the Russia I remember!
When I was growing up, Russia was the proverbial "bad guy." Movies, television shows, and books all fell back on the Cold War baddie image. Of course back then it was all about nuclear holocaust and espionage. Today, Russia's tough guy image is more blatant—it has vast energy resources that Europe needs and it's willing to use that as leverage to get what it wants.

The recent threats by government-controlled Gazprom (NASDAQOTH:OGZPY) to shut down the flow of gas to Ukraine are just the most recent example. In fact, Russia did the same thing back in 2009. Without passing judgment on who's right and who's wrong politically, this shows why owning shares in a government-controlled entity can be so risky.


Source: EIA

Gazprom gets about 50% of its revenues from Europe. Cutting off a vital artery to that market is bad business regardless of the political implications. Sadly, Europe is a market Gazprom should actually be nurturing.

In fact management recently highlighted the many European positives, at least for Gazprom: "decrease of indigenous gas production in Europe," "no success in shale gas developments," "slow down of nuclear energy development," "increase of gas consumption in transportation sector," and "new sectors of gas consumption." Why make waves? Because the government told it to.

Let's use more coal?
The Ukraine/Russia tension is why Ukraine has openly discussed falling back on coal (aside from the fact that it may have no choice). So, too, has Poland. Of course Poland gets about 90% of its electricity from coal now, so Polish Prime Minister Donald Tusk appears to be using Russia's tussle with Ukraine as political cover for sticking with a fuel that environmentalists hate.

That said, Germany has been shifting toward coal, too. This is because of the government's decision to exit nuclear power and because poorly structured policies supporting renewable fuels have actually made coal more competitive in some European markets. But the government can't be too upset about that shift in light of Crimea.

In fact, Kevin Crutchfield, CEO of Alpha Natural Resources (NYSE:ANR), noted during his company's first quarter conference call, "major European economies specifically Germany and the UK increased their thermal coal imports by a robust 13% for the first two months of 2014." And, he expects coal to benefit from "an increasing desire to [lessen] reliance on Russian coal and natural gas."

ANR Chart

ANR data by YCharts

Alpha Natural Resources just opened a sales office in London, and Europe is just a short boat ride away from the East Coast. Eastern thermal coal accounts for about 40% of Alpha's top line. That's been a rough business over the last few years as relatively low U.S. natural gas prices have led domestic utilities to switch to gas. Russian saber rattling, however, could turn that liability into a long-term asset, even if U.S. utilities continue to favor gas.

Coal becomes a less dirty word
Alpha Natural Resources' first quarter was rough, with a $0.25 a share loss dragging the losing streak to 10 consecutive quarters. It's hard to like a company with a track record like that. However, the same political issues that could throw a wrench into Gazprom's business are shifting the energy landscape back toward coal.

It won't be an overnight switch, but Alpha's Crutchfield is "cautiously optimistic on the outlook for the coal market in the back half of 2014 and moving into 2015." And Russia is just one of the many reasons why beaten-down Alpha shares could be a good way to benefit from a burgeoning coal upturn, though the light at the end of the tunnel is still a ways down the road.

Not a believer in coal? This trend might be good news for you
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers