Latest Developments In Europe Further Boost LNG Prospects
For weekend reading, Bryan Perry, Senior Director at Navellier & Associates, offers the following commentary:
It is only mid-July and already European leaders are clamoring for strategies to make it through winter on enough natural gas supplies. As the EU, U.S., and other allies advance plans to bring more aid to Ukraine, Vladimir Putin and the Kremlin are now trying to counter these efforts with further curtailment of gas imports to Europe.
Get The Full Henry Singleton Series in PDF
Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues
Q2 2022 hedge fund letters, conferences and more
Alluvial Fund: Searching For Deep Value In Stormy Markets
Alluvial Fund declined 9.9% in the second quarter and is down 16.5% year-to-date, outperforming the Russell Microcap Index, which is down 25.1% in 2022. According to a copy of the firm’s first-half letter to investors, which ValueWalk has reviewed, Alluvial Fund has returned 13% annualized since its inception, compared to 4.9% for its benchmark, the Read More
EU And Russia
The current situation is a testament to those that warned EU leaders against being so reliant on Russia and how it would someday backfire. It was held among Europe’s political leaders that the EU and Russia are mutually dependent on one another, respectively, as buyer and supplier of energy. While on the surface, this might seem completely rational, it has severely oversimplified the situation as policymakers strived to partner with a superpower that has a history of aggressive tactics when it doesn’t get what it wants.
Case in point: On June 17, fiery comments sent alarm bells ringing throughout the EU bloc after Gazprom CEO Alexei Miller said that Russia will play by its own rules after the firm halved supplies to Germany.
“Our product, our rules. We don’t play by rules we didn’t create,” Miller said during a panel session at the St. Petersburg International Economic Forum, according to The Moscow Times. Miller reportedly said the return of the gas turbine for the Nord Stream pipeline that was repaired in Canada had been hampered by an unprecedented barrage of economic sanctions. He added that he saw no solution to the problem.
The current output of gas through the pipeline is already down by more than 40% of capacity with fresh fears that Putin may decide against reactivating it in retaliation against 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 is aimed at weakening the pro-Ukraine coalition and turning the winter weather into an “every nation for itself” situation. And this past week, Hungary’s prime minister, Viktor Orban, said Hungary would halt gas exports to its neighbors.
An LNG Importing Behemoth
To this point, Germany entered talks last week with Shell to supply liquified natural gas supplies to replace Russian fuel that supplied over 50% of Germany’s intake. As the war in Ukraine deepens, with Russia able to circumvent sanctions on most fronts, Europe is radically shifting policies that will turn it into an LNG importing behemoth. After retreating from over $42/MMBtu in late March, imported prices for gas are back on the rise as traders speculate whether the Kremlin is considering tightening supply.
With apparently no end to the war in sight, the ability to meet Europe’s gas needs for this year and the future are boosting the prospects of the LNG value chain in all its forms – infrastructure development, conversion terminals, regasification platforms, floating storage, and LNG shipping.
The ramping up of LNG imports by Europe and most of Asia to enhance energy security is providing investors with stealth bull market conditions in companies that operate in this fledgling sector. China surpassed Japan to become the world’s largest LNG importer in 2021. Global LNG trade reached 381 million tonnes (MT) in 2021, according to industry leader Shell, and expects global LNG demand to reach 700 million tonnes (a metric ‘tonne’ is about 2,200 pounds) by 2040, where Asian countries could absorb as much as 70% of the new LNG volumes coming to the market over the next two decades.
You will find few charts that rise so rapidly from left to the right as that of global LNG demand, above. While there are numerous ETFs with LNG-related stocks as core holdings at this time, to my surprise there are no pure-play LNG ETFs. With most LNG-related stocks having pulled back with the correction in the energy sector, it might prove timely to consider adding exposure to this powerful investment theme.
Navellier & Associates owns Shell Plc Sponsored Adr (SHEL) in managed accounts. Bryan Perry does not personally own Shell Plc Sponsored Adr (SHEL).
Updated on Jul 22, 2022, 5:13 pm