Why Libya Unrest Could Be a Boon to Europe's Natural Gas Market
The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By Ian Wyatt
NEW YORK (TheStreet) -- Most investors won't connect the dots between unrest in Libya and higher natural gas prices in Europe.
But those that do are likely to profit from their specialized knowledge.You see, Libya produces around 2% of the world's oil. That's not an insignificant amount, and the supply disruption is spurring headline after headline of "Welcome back $100 a Barrel Oil" knock-offs. What's not garnering as much attention in the media, however, is that Libya's natural gas exports have increased significantly in the past few years -- especially for natural gas thirsty Europe. The U.S. Energy Information Administration (EIA) has data showing that since the Greenstream pipeline from Libya to Europe opened in late 2004, Libya's natural gas exports to Italy have doubled. But Libya halted gas exports to Italy on Feb. 22 -- that means Europe is short the 25 million cubic meters that used to flow through the Greenstream pipeline every day. As this Bloomberg story points out, Europe has another option to replace this natural gas flow -- the Russian firm Gazprom (GAZ.BE) can easily replace those volumes because the company is the biggest supplier to Europe. Here's the rub -- increased dependency on natural gas from Gazprom isn't a good thing. Already, Europe is at the mercy of Russian natural gas. And this dependence means that natural gas prices in Europe are more than twice the price of natural gas here in the United States. Small Cap Investor PRO analyst Tyler Laundon just crunched some numbers for me. He says that yesterday, the spot price for natural gas trading in the U.S. settled at $3.82 per thousand BTU's (mmBTU). But in London, spot prices for natural gas prices settled at $8.70 per thousand BTU's (mmBTU). And the futures market there is suggesting that natural gas prices in London could rise by around 18% by November of this year. Pulling 2009 European gas sales from Gazprom's 2010 Databook, and gas consumption from the EIA, it's clear why Europe needs to break its addiction to Russian natural gas.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV