Let the sanctions begin.
With executive orders flying every which way through the D.C. beltway nowadays, it wasn’t much of a surprise yesterday when the President signed an order imposing additional sanctions on Russia.
Basically, he expanded his strategy to bring Putin to his knees by targeting people who support the Russian government and a bank with connections to them. Furthermore, Obama’s executive order lets him target the Russian industrial sector.
This, of course, means our Commander-in-Chief is going after Russia’s energy exports.
Sanction Frenzy
Earlier this week, I briefly mentioned the growing cry for natural gas exports to Europe as a way to put pressure on Russia.
Thing is, these sanctions may turn out to be profitable for U.S. gas companies and investors, but it’s going to take a while.
Now that Crimea’s annexation is in full swing, plenty of people in government, the oil and gas industry, and the media continue to beat the drum for the U.S. to allow large scale natural gas exports.
If you didn’t catch Senator John Barrasso’s pitch for LNG exports, he laid it out like this:
“We could do a lot to undercut that situation by exporting liquefied natural gas from the United States to our European allies and to the Ukraine.”
And while this could be a good solution, we still see a slight problem…
Investing in the necessary infrastructure could be a big bump in the road for exports (and that’s not to mention the sheer amount of governmental red tape involved, or even the media war being waged by the environmentalists.)
Energy Secretary Ernest Moniz confirmed this much after reiterating the fact that there’s only one export license currently approved.
Even if Russia hadn’t invaded and seized Crimea, the United States already planned on allowing exports. It’s going to happen, it will just be a few years.
So far, Cheniere Energy has the only approved license to export LNG from the U.S., and they don’t expect to start shipping until late 2015 at the earliest. Moreover, the Energy Department is moving at a snail’s pace with the 24 export applications under review.
In other words, most of these projects (if licensed) won’t actually be able to export until 2018 or even later. Perhaps a better question is whether this crisis will still be around when those LNG tankers start sailing across the Atlantic.
As you can see, U.S. gas exports overall are only expected to reach around 8 trillion cubic feet per year by 2040, with significant LNG exports not occurring until at least 2020.
I don’t exactly see Russia giving up its Crimean prize so soon, and it certainly wouldn’t shock me if Putin takes several years to actually start negotiating, and by then it’s almost inevitable he’ll make a play for the eastern part of the Ukraine.
And it’s exactly that kind of timeline we would need to ramp up pressure through U.S. exports. According to the EIA, the shale gas boom currently underway should provide plenty of natural gas to go around.
And if this crisis does escalate, you can bet Europe will be willing to snag any extra gas available. As it stands now, approximately 16% of Europe’s natural gas flows through the Ukraine, which makes it much more difficult for the EU to impose sanctions without shooting themselves in the foot.
Naturally, this means that Putin has a four-year window, because that 2018 date for U.S. LNG exports is fast approaching — and the point when Gazprom will have to deal with the loss of a huge customer base.
It also gives Russia a few years to bolster its presence in the Asia-Pacific gas market. Unfortunately, even that may be closed once these Canadian gas stocks take over.
In the meantime, keep an eye on companies applying to export natural gas. Within a few years, there will be plenty of profit to go around
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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