Russia’s foil? American natural gas exports

For those of you who have ventured over to the ‘Library’ section of my site, you’ll notice one book that is neither financial nor fiction. George Friedman’s The Next 100 Years introduced me to the idea of geopolitical thinking, the field encompassing geography, politics, and foreign relations. First of all, I was marveled by the depth of the intricacies behind his predictions for the next century. When this book was published (2009), the prospect of the US negotiating with Iran seemed as preposterous as a new cold war brought about by Russian aggressiveness… situations not so preposterous now.

Beyond his specific predictions, however, what Friedman helped me to develop is trying to think beyond the present. Much of the media is fixated with what’s going on in the here and now. Huge car accident on the 405! Guilty verdict for white trash mother! Bridgegate! Missing planes! Tesla stock jumps 8%! On and on it goes… and it’s easy to get lost amongst all the flashy new stories thrown at us each day. Instead, try taking a step back, cut through the noise, focus on the important stories, and then try to make educated estimates for where they’re headed. This process is invaluable in business, politics, and certainly in investing.

Over the past few weeks, the (simultaneously tragic and bizarre) airplane story has shifted the world’s attention away from Crimea. As terrible as the airplane’s disappearance is, however, it is not nearly as consequential in the long-run as Russia’s invasion and annexation of the formerly Ukrainian region. So, in trying to channel George Friedman, let’s think ahead and try to think of what geopolitical trends this could set in motion!

Russia was able to make this bold move because it was confident that any punishment would be minimal. At the end of the day, it knew that Crimea (and Ukraine as a whole) was of far greater value to it than to the major European powers or the United States. The US is in the process of drawing down its military presence, and is hesitant to get involved in such a situation so far from home. Europe is unwilling to do much for a different reason; they rely on Russia’s energy exports, and it is this factor that I’m focused on.

Crimea’s importance to Russia is high and will be for the foreseeable future. The United States is unlikely to be any closer in proximity to Ukraine anytime soon either. There’s no reason, however, why Europe has to stay perpetually reliant on Russian energy exports! The annexation has cast light on the problems of Europe’s dependence on Russia, and I believe that the US will go to great lengths to ease this dependence. The best way to do that would to begin providing natural gas exports to Europe, a move that would require some changes to existing regulations on exporting US energy.

Such a move would allow the US to decrease Europe’s reliance on Russian energy. This could not happen overnight, but it would pose a serious threat to the financial prosperity of Russian elite. As the recent Iranian sanctions have shown – if you want to compel an adversary to negotiate, go after his wallet.

So, which companies are best positioned to profit should the US change its regulations limiting natural gas exports? Exxon Mobil (following its 2010 acquisition of XTO) is the country’s largest producer. Chesapeake Energy, Anadarko, and Devon Energy are also significant players, and would similarly stand to benefit. Their opportunities are currently constrained by the export regulations; should those be modified (or even eliminated) in the attempt to diminish Russian influence over European politics, we could witness surging revenues from those companies.

I’m not advocating investing in these companies solely on the expectation that geopolitical developments could alter the energy industry’s global outlook. However, it’s a useful factor to take into account when evaluating companies such as Exxon Mobil or Chesapeake Energy. Instead of focusing on news stories as they happen, try to use current geopolitical trends to anticipate where we’re headed. Doing so could allow you to make an investment before the rest of the market figures out what you know!

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