Europe is looking beyond Russia for natural gas. These companies can benefit from it.

The European Union will seek to reduce its dependence on Russian natural gas.

Andrei Rudakov/Bloomberg

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It takes a courageous investor to bet on the outcome of Vladimir Putin’s saber blow which is shaking its neighbor Ukraine. One outcome of the Ukrainian crisis seems more predictable: the European Union will seek to reduce its dependence on Russian natural gas, which currently accounts for 40% of consumption. Companies from Norway to Texas could benefit.

The easiest way to replace Russian streams, if you were sitting watching a game of Risk on a rainy afternoon, would be American liquefied natural gas. America has more gas in the ground than it can use on its territory. LNG production jumped 42% year-on-year in the first half of 2021.

It could climb another 80% over the next five years, says Randy Giveans, head of offshore energy equity research at Jefferies. Best Producer


Energy Cheniere

(ticker: LNG) earns $100 million on every ship load right now, Giveans estimates. Its stock has increased by two-thirds over the past year.

However, finding Cheniere Energy’s next story is anything but simple. Multi-billion dollar LNG projects require base customers who will commit to 20-year contracts. This type of clientele is rare despite the current boom. “There are lots of conversations going on, but few final investment decisions,” says Giveans.

Jefferies is playing the gas bull market through infrastructure providers like


Golar LNG

(GLNG). This company operates “floating storage and regasification units” that can circumnavigate the globe where demand is greatest. Gians also likes


GasLog Partners

(GLOP), a shipper specializing in LNG.

Russia’s new wave of aggression is ‘more likely to spur investment in oil than gas’ as Putin worries about crude supplies, thinks Leo Mariani, oil and gas analyst at Keybanc Capital Markets. US shale oil producers learned the lesson of previous bull cycles, when they pumped enough to drive the market down. “U.S. production will likely increase by 800,000 barrels per day this year, not 1.4 million as it once did,” he says.

This is good news for some small producers who may fly under the radar of investors, such as


SM Energy

(MS) and


Talos Energy

(TALO), says Mariani.

In Europe itself, Russian tensions are breathing new life into some old alternatives. This year, the Dutch government was to close its Groningen gas field, operated since the 1960s by


Exxon Mobil

(XOM) and


Shell

(SHELL.Netherlands). Instead, the Economy Ministry doubled its production target and may continue to pump until 2026, says Kateryna Filippenko, global gas supply analyst at Wood Mackenzie.

A safer thing is Norway


Equinor energy

(EQNR), the company formerly known as


Statoil
.

Equinor pushed natural gas production to a record last quarter and has a lot more track. Half of the reserves at its giant Troll field remain untapped, according to the company. Equinor shares are up 40% in the past six months.

Europe will remain dependent on energy from Russia for the foreseeable future, especially from Germany, which buys half of its gas from the state monopoly


Gazprom

(GAZP.Russia). “For now, Russia has market power in Europe,” says Ben Cahill, senior energy security fellow at the Center for Strategic and International Studies.

But the alternatives have already mitigated Moscow’s most realistic supply threat, cutting off gas flows through Ukraine.

“Additional leverage from Europe can push it through this year and fill next year’s storage” in this case, Filippenko says.

Additional leverage could also prove profitable for savvy investors.

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