Latest developments in Europe further strengthen LNG prospects

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For the weekend reading, Bryan Perry, Principal at Navellier & Associates, offers the following comment:

It’s only mid-July and already European leaders are calling for strategies to get through the winter with enough natural gas supply. As the EU, US and other allies advance plans to provide more aid to Ukraine, Vladimir Putin and the Kremlin are now trying to counter those efforts by further reducing gas imports to Ukraine. Europe.

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LNG

The EU and Russia

The current situation testifies to those who warned European leaders against such reliance on Russia and how it would one day backfire.. European political leaders have argued that the EU and Russia are mutually dependent, respectively, as a buyer and supplier of energy. While at first glance this might seem completely rational, it oversimplified the situation as policymakers scrambled to partner with a superpower that has a history of aggressive tactics when it gets nowhere. not what she wants.

Example : On June 17, fiery comments raised alarm bells across the EU bloc after Gazprom CEO Alexei Miller said Russia would play by its own rules after the company cut deliveries in half to Germany.

“Our product, our rules. We don’t play by rules we didn’t create,” Miller said. during a panel discussion at the St. Petersburg International Economic Forum, according to the Moscow Times. Miller reportedly said the return of the repaired Nord Stream pipeline gas turbine to Canada had been hampered by an unprecedented barrage of economic sanctions. He added that he saw no solution to the problem.

Current gas production through the pipeline is already down to more than 40% of its capacity, with renewed fears that Putin is deciding not to reactivate it in retaliation for Western sanctions. Ben van Burden, CEO of Shell, said this week that Putin has now shown that he “is able and willing to weaponize supplies”. The strategy aims to weaken the pro-Ukrainian coalition and turn the winter weather into an “every man for himself” situation. And last week Hungarian Prime Minister Viktor Orban said Hungary would stop gas exports to its neighbours.

A giant LNG importer

At this point, Germany began talks last week with Shell to provide supplies of liquefied natural gas to replace Russian fuel which has supplied more than 50% of Germany’s supply. As the war in Ukraine deepens, with Russia able to circumvent sanctions on most fronts, Europe is changing its policy drastically that will turn it into an LNG-importing juggernaut. After falling more than $42/MMBtu in late March, imported gas prices are back on the rise as traders wonder if the Kremlin plans to tighten supply.

LNG

With the end of the war seemingly not in sight, the ability to meet Europe’s gas needs for this year and into the future is boost the prospects of the LNG value chain in all its forms – infrastructure development, conversion terminals, regasification platforms, floating storage and LNG transport.

Rising LNG imports by Europe and most of Asia to bolster energy security are providing investors with stealthy bullish market conditions in companies operating in this nascent sector. China overtook Japan to become the world’s largest importer of LNG in 2021. Global LNG trade reached 381 million tonnes (MT) in 2021, according to industry leader Shell, and is expected to global LNG demand to reach 700 million tonnes (a metric “tonne” equals approximately 2,200 pounds) by 2040, where Asian countries could absorb up to 70% of new LNG volumes coming to market in over the next two decades.

LNG

You’ll find few charts that rise as rapidly from left to right as the global LNG demand chart above. Although there are many ETFs with LNG-related stocks as their top holdings at present, to my surprise, there are no pure-play LNG ETFs. With most LNG-related stocks having retreated with the correction in the energy sector, it might be worth considering adding exposure to this powerful investment theme.

Navellier & Associates holds Shell Plc Sponsored Adr (SHEL) in managed accounts. Bryan Perry does not personally own Shell Plc Sponsored Adr (SHEL).

Updated