Why Russia’s threats could be positive for natural gas companies

Ingrid Pan, CFA
April 23, 2014

Why the Russia-Ukraine crisis could affect energy investments (Part 6 of 8)

(Continued from Part 5)

Effects on natural gas markets

For the U.S. energy sector, Russia’s threats may actually be a positive catalyst for several groups, including companies that export natural gas, natural gas producers, and the natural gas midstream sector. Recent events may spur Europe to decrease reliance on Russian natural gas as much as possible. At the same time, the U.S. is producing growing amounts of natural gas.

The greatest problem right now is that natural gas requires expensive infrastructure with long lead times to construct, and currently not much of it exists in the U.S. However, there are several companies that are in various stages of planning and constructing LNG (liquefied natural gas) export facilities. The company furthest along in being able to execute major natural gas exports is Cheniere Energy Partners (CQP), whose GP is owned by Cheniere Energy, Inc. (LNG) and 56% of whose LP units are owned by Cheniere Energy Partners LP Holdings (CQH). Dominion Resources (D), Freeport LNG (whose GP is 50% owned by ConocoPhillips), and Sempra Energy (SRE) are other major companies with natural gas export facilities in the works.  Dominion is part of the Vanguard Uilities ETF (VPU).

Again, natural gas export facilities have a long lead time due to issues such as getting approvals from government agencies such as the Federal Energy Regulatory Commission (or FERC) and the U.S. Department of Energy (or the DOE). Plus, after permits are received, construction costs for the facilities are in the billions of dollars and can take several years. However, from a long-term perspective, Russia’s saber-rattling does strengthen the case for U.S. natural gas exports. Domestic gas prices remain near historically cheap levels, and there are ready markets abroad for the fuel.

Continue to the next part of this series to find out which other U.S. companies could be affected.

Continue to Part 7

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