Looking at the Ukraine crisis, there's been enormous focus put on troop movements and the Crimean referendum. But what will really determine the final dispensation of Ukraine are the pipelines that are running through the country and the control of the natural gas that runs through them.
Russia supplies Eastern Europe with the majority of its gas, with most of that supply running through Ukraine. When it comes to real geopolitics, ideals and morals can quickly take a backseat to keeping warm and keeping your business running.
That's why so much talk has been devoted to U.S. natural gas supplies and how the shale boom could possibly be used to help support European markets as Russia leverages its spigots for influence.
I've written a lot and gone on air several times debunking any notion of U.S. shale gas having any significant purchase into Europe. But what might deliver some relief would be an active development of European shale assets, a course that most European nations have so far shunned.
The idea of developing European shale is a far less outlandish notion than importing U.S. gas via liquid natural gas. Europe, while not having anywhere near the number of potential shale formations as the United States, still has some very significant possibilities. All together, the EU sports a potential gas reserve of 3.5 trillion cubic meters, putting it 13th in the world in resources. The greatest potential remains in France, where hydraulic fracturing has been entirely banned.
Other significant reserves are to be found in Poland, where Conoco (COP), Chevron (CVX), Marathon (MRO) and Talisman Energy (TLM) are trying to make inroads, and in Romania, where little so far has been developed, even though Romanian potential is thought to exceed 1.4 trillion cubic meters.
In Eastern European states, the major difficulties to developing shale resources remains with the governments, who retain a far greater influence in the use of land and what is under it. Unlike the United States, where private property laws allow potential leases almost anywhere, in Romania or Poland, development depends greatly upon the ruling party's desire. Corruption and kickbacks are well-known hurdles to energy companies looking to explore new markets. Add to this a very strong environmental lobby that believes strongly in the dangers of fracking (but not, apparently, in the dangers of nuclear power or reliance upon Russia), and you end up with molasses-slow progress towards new natural gas development inside the EU.
That might be changing with the latest events in Ukraine and Crimea. Recent shortages of Russian gas in 2006 and 2009, as well as these latest events, have made clear to Europeans that other sources of natural gas would be very useful. The latest report from the European Commission was far more favorable to shale development than it has ever been.
But for investors looking for an opportunity on an alternative natural gas source to impact Europe, neither Poland nor Romania will provide an answer anytime soon. A far better possibility remains with the Israelis and their assets in the Levant basin, being jointly developed for transport through LNG by Noble Energy (NBL), Delek (DK) and Woodside (WPL).