It’s the Beginning of the End for Russian Gas in Europe. These Stocks Should Benefit.

Text size

The 27-member European Union is geared for incremental, some might say glacial, policy shifts. Vladimir Putin’s war on Ukraine is changing that—at least on paper, with respect to Russian natural gas.

The Paris-based International Energy Agency unveiled a plan on March 3 to cut the EU’s Russian gas imports by a third in one year. The EU raised that to two-thirds a few days later. The targets may be aspirational, but the political signal looks serious.

“This is the beginning of the end for Russian gas in Europe,” says Jonathan Stern, who founded the Gas Research Program at the Oxford Institute for Energy Studies. “It’s just a question of how long it will take.”

And how much it will cost.

The EU and Russia have been stuck in energy codependency. Europe gobbles two-thirds of Russia’s gas exports. These provide 40% of EU gas consumption while domestic fields in the North Sea dwindle.

Proposed means for breaking the cycle range from keeping aging nuclear plants humming to putting on extra sweaters and lowering thermostats. The crux of the matter, short- and medium-term, is buying more liquefied natural gas to replace Russian pipeline supplies.

The problem is that LNG production, concentrated in Australia, Qatar, and increasingly the U.S., is already answered for. Stern estimates global output might rise by 42 billion cubic meters, a little less than 10%, this year. The EU wants to cut 50 BCM from Russia, not to mention growing LNG demand from China and other Asian growth economies.

Increasing supply takes time and big bucks, notes Randy Giveans, head of energy maritime equity research at Jefferies. “A new onshore LNG facility takes four to five years to process,” he says.

Europe has work to do on the receiving end, too. Top consumer Germany has taken plans for two LNG terminals out of ecologically-driven mothballs in response to Ukraine. These could be active by 2026 at best, says Jacob Mandel, who tracks the industry for Aurora Energy Research. Spain has an LNG terminal sitting idle, notes Robert Songer, LNG analyst at commodities consultant ICIS. The pipeline to France is too narrow to carry its output.

LNG prices look firm against this backdrop. Shares in top U.S. producer

Cheniere Energy

(ticker: LNG), which were hot already, have climbed another 16% since Putin’s war started February 24. Giveans is partial to niche player

Golar LNG

(GLNG), which has spare LNG capacity at a floating platform it operates off the coast of Cameroon. He’s also bullish on petroleum shippers

Navigator Holdings

(NVGS) and

International Seaways

(INSW).

Beaten-down green-energy stocks have also gotten a boost on hopes that windmills and solar panels will substitute for Russian-export monopolist

Gazprom PJSC

(OGZPY). The

iShares Global Clean Energy
exchange-traded fund (ICLN) has jumped 20% since Putin’s armies rolled two weeks ago.

Analysts are cautious on this trend. Accelerating renewables could offset just one BCM of Russian gas over the next year, Aurora estimates. Delaying nuclear and coal plant phase-outs would bring in 12 BCM.

For all the obstacles, it doesn’t pay to scoff at Europe’s newfound resolve against Russian gas. “In a week we demolished at least a generation’s worth of accepted mindsets and doctrines,” says Frank Eich, a consultant on sustainability with commodities analyst CRU Group. “In three to five years, you could see a lot of difference.”

Putin can’t bomb his way out of that.