Putin's Iron Grip: How America's Energy Secrets Can Unshackle Europe

Europe needs to press the case for developing its shale resources.

Jul 23, 2014 at 11:29AM

The tragic Malaysian airline crash in Ukraine last Thursday has brought relations between Russia and the West to an all-time low. While Russia's role is being investigated, there is mounting evidence that the plane was brought down by a surface-to-air missile fired by Russia-backed separatists fighting against Ukraine in the country's eastern region. Apparently, the separatists mistook the civilian aircraft for a military jet. Russia has already come under significant pressure from the West for its role in the Ukrainian crisis.

Only a day before the unfortunate incident, the U.S. has announced further sanctions against Russia. The U.S. has been more aggressive in its actions against Russia. The European Union (EU), though, has been more cautious, which is understandable given that the region relies heavily on Russian gas giant Gazprom (NASDAQOTH:OGZPY) to meet its energy needs. Indeed, the time has come for Europe to seriously consider developing its own shale resources to cut reliance on Russian gas.

Europe's cautious approach
Unlike the U.S., the EU has been reluctant in imposing harsher sanctions on Russia for its role in the Ukrainian crisis. Last week, the U.S. imposed further sanctions on Russia, targeting major companies including energy giant Rosneft. The EU, meanwhile, has been more cautious. On July 16, EU leaders had agreed to sanction Russian companies that help to destabilize Ukraine.

EU foreign ministers will meet on Tuesday to discuss the severity of future EU sanctions on Russia. However, given EU's reliance on Russia as a trading partner and the fact that it still imports a third of its gas from Gazprom, harsher sanctions are not likely. For Europe to take a more aggressive stance, it will need to cut reliance on Russian gas. Gazprom, which itself relies heavily on Europe, recently signed a major gas deal with China to diversify its revenue sources. It is time now for Europe to consider measures to reduce its reliance on Russian gas. However, Europe's options are limited.

Limited options
Europe can import more LNG from countries such as Qatar; however, it will have to compete with Asian countries which are willing to pay a higher price. Importing LNG from U.S. is an option, however, the U.S. places restrictions on exports of LNG to countries with which it does not have a free trade agreement (FTA). LNG projects require approval from the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC) in order to export to countries that do not have a FTA with the U.S.

So far, only two projects have been approved by both regulatory bodies. Cheniere Energy's (NYSEMKT:LNG) Sabine Pass export plant was the first project to be approved. The plant is under construction and is expected to start exporting LNG in late 2015. Sempra Energy (NYSE:SRE) received approval last month for its Cameron LNG project in Louisiana. The plant is expected to be fully operational by 2018.

The U.S. can certainly meet some of Europe's energy needs; however, many more projects will have to be approved for that to happen. Also, the plant operators are under no obligation to export to Europe, especially if they can fetch a higher price by exporting to Asia.

Europe's other options include coal and nuclear. However, the continent is looking to cut down its carbon emissions; therefore coal is not a long-term solution. And in the wake of the Fukushima nuclear power plant meltdown in Japan, nuclear energy is not favored by several European countries. That leaves Europe with expensive renewable energy. Indeed, given this scenario, Europe should now seriously consider developing its shale resources.

Europe's wild card
Europe needs a shale revolution of its own. While it is not likely to match the one seen in the U.S., it will certainly help the continent to cut some reliance on Russia for its energy needs. Also, like the U.S., shale gas could play a role in reviving the EU economy, which has been stagnant.

In a 2011 report, the Energy Information Administration (EIA) said that technically recoverable shale gas resources in Europe were estimated at around 605 Tcf, accounting for 9% of the global shale resource potential. Last year, the EIA revised its assessment of global shale gas resource potential, and now estimates that Europe's potential is far greater than initially estimated.

According to data from Bloomberg, the EU has sufficient shale gas resources to free itself from reliance on Russian gas for around 28 years. Using data from the EIA, Bloomberg came up with a ranking of EU countries by recoverable shale-gas reserves expressed in years of domestic consumption. According to Bloomberg's calculations, Sweden leads with 250 years. Other countries with significant resources include Denmark, Poland, Bulgaria and France. However, Bulgaria and France have bans on shale extraction.

Indeed, opposition from anti-fracking groups has been one of the major reasons why Europe has not been able to develop its shale resources. However, this is an ideal time for European lawmakers to press the case for developing its own shale resources and cutting its dependence on Russia.

OPEC is terrified of this game-changer
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Varun Chandan Arora 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 fool.com.

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 www.fool.com/beginners, 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 www.fool.com/podcasts.

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