The New Cold War is Heating Up... And So Are These Stocks

Written by Jason Simpkins
Posted March 14, 2014

Vladimir Putin has made his intentions clear.

He wants to fight the Cold War again (if he ever stopped fighting it in the first place).

And while that may not be ideal, in terms of geopolitics, it does create some big opportunities to profit...

Particularly in the energy arena.

The United States is finally coming to realize that the best thing it can do with its natural gas is export it.

The only reason we haven't already ramped up exports — despite the enormous glut currently on the market — is that chemical companies have fought hard to keep natural gas supplies at home, thus lowering their input costs.

But that's all over now. The United States has to guard its interest against Russia, and this is the best way we can do that short of military intervention.

The bottom line: Liquefied natural gas (LNG) exports are about to take off.

And once they do, it's going to mean big money for a select few companies.

I'll explain...

Russian Winter

I've been writing about investing for eight years now. And for at least the past three, I've been beating the drum for natural gas exports.

The benefits are glaring: higher profits for American companies, more jobs, and a reduced trade deficit, just to name a few.

Now you can add thwarting Russia to the list.

As you're no doubt aware, Russia controls 25% of Europe’s natural gas imports, giving it a veritable monopoly there for decades. And it’s really put the screws to former Soviet states — jacking up prices and even cutting supplies in the dead of winter.

Ukraine, which gets two-thirds of its gas supplies from Russia, has clearly been the most affected, but just about every major European country is vulnerable.

Estonia, Finland, Latvia, and Lithuania all get 100% of their gas from Russia. For Slovakia and Belarus, it's 98%. They're followed by the Czech Republic (78%), Greece (76%), Turkey (64%), Hungary (60%), Slovenia (52%), Austria (49%), Poland (48%), and Germany (36%) — all heavily dependent on Russian gas.

And they're all screaming for help.

In fact, ambassadors from Hungary, Poland, Slovakia, and the Czech Republic have already sent letters to House Speaker John Boehner and Senate Majority Leader Harry Reid, begging them to hurry up and approve natural gas exports.

And that's exactly what we should do.

Let Freedom Reign

In 2012, America actually surpassed Russia in natural gas production for the first time since 1982.

Last year, we produced a record 71.96 billion cubic feet per day (Bcf/d) of natural gas. And we're already on pace to top that record again this year.

This has depressed U.S. natural gas prices to a range of $3 to $4 per thousand cubic feet (Mcf).

Compare that to the $12 per Mcf natural gas sells for in Europe and the $16 to $17 per Mcf that Japan pays, and it's pretty clear we could make a fortune exporting the stuff.

Unfortunately, chemical companies like Dow and Alcoa have lobbied against natural gas exports.

You see, in addition to cheap energy, natural gas is also used to produce a vast array of chemical products including plastic. So by keeping gas prices low, chemical companies can undercut their foreign competitors.

The problem is, that's not free market economics.

Natural gas should be allowed go where the demand is, and prices should be allowed to rise to their proper level — not be kept artificially low.

Furthermore, a government-commissioned study concluded that natural gas exports would broadly benefit the U.S. with up to $47 billion in new economic activity.

Still, the Obama administration has stubbornly refused to change its policy.

Just six LNG export projects have been approved, with another 22 left waiting in the wings.

Of course, now Russia's recent actions are a wake up call and will catalyze change. The cries from Europe will force the Obama administration to soften its stance on exports.

And that's terrific news for natural gas producers and exporters.

On the Way Up

The big companies to watch are:

Cheniere, Dominion, and Sempra are among the few companies to already have their export facilities approved by the government.

And their shares are already flying.

Sempra is up 22% in the past year. Dominion is up 23%. And Cheniere has more than doubled, rising 105%.

Meanwhile, Exxon and Chesapeake are the two biggest natural gas producers in the country. They'll benefit in the long-term as natural gas prices rise.

A lot of critics have been quick to point out that the LNG exports from these facilities are already contracted to go to Asia, not Europe — and thus, presumably, they're not relevant to the current crisis...

Well, nothing could be further from the truth.

It's true that many — though not all — of the export contracts are with Asia. But that affects Russia, too.

Russian companies Gazprom, Rosneft, and Novatek plan to build more than 50 million metric tons of LNG capacity in the next decade — all to service Asia.

Indeed, Russia wants to apply the same energy-based political power it wields in Europe to its neighbors in the East.

And Japan, the world's top importer of LNG, is currently using Russian gas to rid itself of nuclear energy, which it's disavowed since the Fukushima disaster.

This is a major opportunity for America to weaken Russia, rectify a market imbalance, and improve our economy in the process.

It's a no-brainer.

If we can buy oil from our enemies, we can sell natural gas to our friends.

Fight on,

Jason Simpkins Signature

Jason Simpkins

follow basic@OCSimpkins on Twitter

Jason Simpkins is an Editor of Wealth Daily and Investment Director of Secret Stock Files, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

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