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Why Europe Needs America Now More Than Ever

By Callum Turcan - Mar 6, 2014 at 3:19PM

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With Europe's heavy reliance on Russia for its energy needs, it needs a new, stable source of natural gas

Almost everyone now is aware of the impending crisis in Ukraine and the little that can be done to resolve the situation. Natural gas prices for the United Kingdom jumped 10% due to the rising tensions in Ukraine, pushing the price per mmBtu over $10. Natural gas prices all across Europe have jumped on concerns Russia, or those ethnically tied to Russia, may try to take over part of Ukraine. The reason why Ukraine is such a crucial part of Europe's energy market is that 16% of Europe's natural gas is transported through Ukraine, or 86 billion cubic meters a year.

Natural gas stockpiles remain significantly higher than last year's levels, but the uncertainty is still there, and that's what's keeping prices elevated. If a violent conflict breaks out in Crimea, which is a part of Ukraine that is predominantly ethically Russian, then the transportation of natural gas could slow down or stop completely. While countries like Norway and Libya could try to compensate for the drop-off in supply, they have problems of their own maintaining current production levels, so prices will have nowhere to go but up if the situation doesn't improve. 

Why should investors care about a conflict going on halfway across the world? Well due to the recent surge in U.S. natural gas output, not only can we strive toward energy independence but we can also help stabilize the global energy market as a whole via LNG exports.

More than just Asia
Most investors are focused on U.S. LNG exports to Asian markets, and for good reason. The average price of natural gas in Asia can range from $15 mmBtu to $20 mmBtu, a hefty premium over North American and European prices. This is perfectly exemplified by ConocoPhillips' ( COP -0.21% ) LNG export plant in Alaska. While the multi-billion project has received approval to export to nations with free trade agreements with the U.S., it is geographically and strategically located to serve the Japanese market. As such, ConocoPhillips still has to wait for approval to export to non-FTA nations, like Japan. 

But with Europe moving away from nuclear energy due to the Japanese crisis a few years back and transportation problems erupting to the East, a new source of energy is going to be needed to fill the gap.

Cheniere Energy ( LNG -1.44% ) is going to have its Sabine Pass facility up and running by the end of 2015. With the ability to export to non-FTA nations, Cheniere Energy will be able to sell to both European and Asian markets. While the majority of its initial LNG production will go to Asian markets, Europe offers a great long term-growth opportunity for shareholders if Cheniere Energy expands its export capacity. 

This extends far beyond just Cheniere Energy; dozens of other LNG export operators, like ConocoPhillips, are still waiting for government approval to export to non-FTA nations in Asia. While those companies wait for bureaucracy to give them the green light, Europe still offers plenty of cash making opportunities.

A Foolish conclusion: Europe deserves attention too
There are too many talking heads in the financial world completely ignoring the opportunity European LNG exports has to offer. Sure the margins won't be quite as high, but Europe still is an enormous market that is desperate for a stable supply of cheap natural gas. North America is one of few regions where natural gas prices are low enough to be competitive in every market, even after the cost of liquefying and transporting the LNG.

For shareholders in the 24 or so other LNG operators waiting for government approval to export to non-FTA nations, don't fret. Even if the Department of Energy continues to sit on its hands a little while longer, there still is Europe, a profitable market to fall back on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

ConocoPhillips Stock Quote
$71.11 (-0.21%) $0.15
Cheniere Energy, Inc. Stock Quote
Cheniere Energy, Inc.
$103.51 (-1.44%) $-1.51

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