Ukraine Crisis: LNG Stocks in Focus - Analyst Blog

Even as tensions in Ukraine ease with Russian President Vladimir Putin asserting that military intervention is not on the cards and force will be used only as a last resort, the confrontation between Moscow and the West – the most serious since the end of the Cold War – has captivated world energy markets.

Russia's bloodless seizure of border posts in Ukraine's Crimean Peninsula threatens to derail hydrocarbon deliveries bound for Europe. In particular, with about a third of the continent's natural gas supply coming from Russia – most of it via pipelines passing through Ukraine – any escalation of the conflict there will severely disrupt natural gas availability to downstream customers in Europe, sending prices soaring.

Following two prior supply cuts in 2006 and 2009 and a possible third anytime, Europe is on the lookout for other sources that can reduce its dependence on Russian gas. The most viable alternative seems to be the U.S., which, thanks to the shale revolution, is flush with the commodity.         
With the success of ‘shale gas' – the kind trapped within dense sedimentary rock formations or shale formations – and the advent of sophisticated drilling techniques, natural gas is now available in abundance, while domestic prices have fallen by two thirds. This gives the U.S. leeway to export some of the excess and cheap gas through sea – in the form of liquefied natural gas LNG – to the European markets.

Let's look at some companies that are likely to benefit a great deal from the growth and development of the LNG markets.

Houston, Texas-based Cheniere Energy Inc. LNG is the first name that comes to mind. The only Federal Energy Regulatory Commission/FERC -approved operator in this space with the 2.6 billion cubic feet per day Sabine Pass terminal in Cameron Parish, Louisiana, this Zacks Rank #2 (Buy) company has got the first mover advantage. Cheniere is expected to witness earnings growth of 14% in 2014 and 33% in 2015, when first commercial production from the Sabine Pass facility is expected.

While Cheniere Energy is clearly ahead of the pack when it comes to natural gas export, there are certain other players that are in line to get federal approval for their terminals. These include Dominion Resources Inc's D Cove Point facility in Maryland, Sempra Energy's SRE Cameron terminal in Louisiana and Energy Transfer Equity L.P. ETE/BG Group Plc's Lake Charles facility, also in Louisiana.

As natural gas production in the U.S. soars, domestic prices remain constrained, and the Obama administration speeds up LNG approvals, more and more companies will be eyeing European markets through export. Importantly, this will loosen Russia's energy squeeze on Europe and provide the region with long-term energy security.