Russia continues to make waves in Ukraine, using its energy riches as a bargaining chip. That's put Europe in a bind. However, a rekindled friendship between Russia and China could make life even harder for Europe on the energy front, but even better for U.S. gas exporters.
Looking out for number one
Russian natural gas giant Gazprom (NASDAQOTH:OGZPY) highlights Europe as a good market, noting such things as the region's decreasing gas production and increasing use of natural gas in transportation and other sectors. In fact, Europe accounts for about 50% of the Russian company's revenues.
But here's the rub, Gazprom is pretty much controlled by the Russian government. So, Gazprom has to do what it's told even if what it's doing would be bad for business. Like, for example, cutting shipments to Ukraine when Gazprom knows full well that it will hurt its business in Europe. And the impact goes beyond just the financial, since key European markets will have to rethink energy security when they sign a deal with Gazprom.
A friend in need...
That's where China comes in. China and Gazprom just signed a $400 billion gas deal that will allow the Russian gas giant to shift away from Europe. That's good news for Gazprom and gives Russia more freedom to make waves. However, more waves could turn out to be really bad for Europe.
If Russia starts to ship natural gas to China in large quantities, it's likely that Europe will become a second-class citizen. It will have to find other sources of energy. That will likely mean more coal, nuclear, and oil will get used than otherwise might be the case. However the region can't just stop buying natural gas.
...is a friend indeed
That's going to make the U.S. natural gas boom an even more important element on the world stage. Right now it's hard to get U.S. gas on the water, but with Russia's shift toward China, the push for more natural gas exports could get increasingly loud. Already there are a number of terminals on the drawing board or under construction.
For example, Freeport-McMoRan Copper & Gold (NYSE:FCX) has made a pivot of its own, toward oil and gas drilling. This division now makes up about a third of the company's business. Although that's big news, it would be even bigger if Freeport could get its 50/50 joint venture with United LNG up and running. This duo is working on the Main Pass Energy Hub in the Gulf of Mexico.
Freeport's offshore facility would export natural gas, and the East Coast location would make Europe a prime market. It's in the middle of the approval process, but the facility already has a tentative 20-year deal with India. If gas supplies to Europe fall short because Russia makes an Asian shift, that would give Freeport and its Main Pass terminal a potential new destination for its natural gas.
Further along in the approval process is Cheniere Energy (NYSEMKT:LNG) and its Cheniere Energy Partners LP, which is building the Sabine Pass terminal. This project has numerous customers already lined up with long-term contracts. However, since the project is still under construction, Cheniere Energy has been a money-losing business for the past five years.
Cheniere Energy is Cheniere Energy Partners' general partner (GP), so as long is there's no natural gas being shipped, there's no money being passed up to Cheniere Energy. However, once the gas starts flowing, look for both the GP and Cheniere Energy Partners' fortunes to change fast. The potential for increased demand out of Europe would help ensure plenty of demand.
A great development
Russia shifting gears toward China is a great development for the U.S. gas export market. And since Gazprom has already found a new customer, the real loser here is most likely to be Europe. But as an investor, what you need to watch is how the shifting gas market has the potential to make the big gas export investments by companies like Freeport-McMoRan and Cheniere even more valuable.
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. 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.