The opening of the liquefied natural gas market opens a multi-billion market to major U.S. companies, but experts are still highlighting potential hang-ups.
German Chancellor Angela Merkel's shift towards not only allowing but subsidizing the import of liquefied natural gas from the United States to Germany and the European Union has the ears of investors in companies like Tellurian (TELL) , Sempra Energy (SRE) , and Cheniere (LNG) perking up.
"An exciting moment and another step towards Germany's first LNG terminal - LNG Stade hands in its application," the US diplomatic mission in Germany wrote in a statement. "What we are doing here today is diversifying energy, creating jobs, and strengthening the transatlantic relationship."
For investors, this also means the exciting opportunity for U.S. publicly-traded companies to attack a market traditionally dominated by Russian, Norwegian, Dutch and Middle Eastern suppliers.
Moving Market Share
Analysis of the situation of course begins with the opportunity offered to LNG companies preparing to pounce on a new market.
Sempra Energy, for one, noted its preparedness to seize upon the new opportunity.
"Sempra Energy is well-positioned to help meet Germany's need for additional LNG supplies," a statement provided to Real Money states. "We are currently developing three liquefaction projects, two in the gulf of Mexico and one on the west coast of Baja California, that will export North American natural gas to customers in Europe and Asia."
The company added that it already has European partnerships as well, aiding their capabilities in LNG delivery.
"Earlier this year, we signed an agreement with the Polish Oil & Gas Company that could result in the delivery of more than 95 billion cubic feet of U.S. natural gas per year to Poland from our proposed Port Arthur LNG facility in Texas," the statement reads. "By supporting the development of new LNG import facilities and natural gas pipelines in Germany, energy consumers will benefit with reliable and cost-competitive LNG from the U.S."
The long-term deal with a European-based company right on Germany's border certainly presents a compelling case for market leadership.
Stifel Nicolaus Managing Director Ben Nolan, a specialist in natural gas companies, noted Sempra's ability to move into the market. However, he suggested Cheniere's leadership position in the market globally should not diminish in Europe.
"Obviously Cheniere will be the leader," he said. "They are the 800-pound gorilla in the LNG market."
Cheniere is not a laggard in finding European partners, either. The company has already made agreements in Spain, France, and the United Kingdom with a number of powerful partners.
Nolan added that while the market is by no means as large as those in Asia, it opens up room for increased profit while countries like Germany shift from coal to more renewable energy.
LNG acts as a logical go-between for the time being and the diversification of supply is an important aspect for Europe that will aid U.S. leaders in adding to their bottom lines.
Balance of Power
However, the implications of the German invitation to US companies move beyond simply market share and into geopolitical gamesmanship.
"For Europe, expanding LNG means energy security," U.S. Ambassador to Germany Richard Grenell said in a statement. "Diversifying sources, routes, and types of energy is crucial. And with the previous U.S. government delays now gone, U.S. LNG will be an industry game changer soon."
Dr. Tim Boersma, Director of Global Natural Gas Markets at Columbia University's Center on Global Energy Policy, noted that as Dutch production has waned countries like Germany have become increasingly dependent on Russia and majority state-owned entities like Gazprom (OGZPY) .
"After the investment in Nordstream 2, natural gas from Russia could reach almost 70% of German imports," he explained to Real Money. "The imports from the U.S. could act as an insurance policy so they do not overly rely on one or two countries to supply the market."
The diversification effort "insurance policy" will help keep its suppliers honest on price and also defend the country from over-reliance on precarious political partners, he explained.
He added that the endeavor has the added benefit of helping balance the country's its coal power dependency, much the same as Nolan pointed out.
"If Germany is serious about curtailing its carbon emissions, it needs an alternative to coal," he said. "Renewable and natural gas seem to be the path away from coal."
Not Ready to Light Up Yet
However, industry experts and analysts are noting remaining hang-ups that might hamper the growth of the industry.
Raymond James vice president of equity research Pavel Molchanov noted that the economics of LNG supply and demand will maintain Russian pre-eminence in the region.
"Gazprom will still be the cheapest option," he told Real Money. "Gas that comes by pipeline is always going to be cheaper than LNG."
Further, he said that the European market is not robust enough to support much growth for U.S. suppliers to seize on as they pick up the slack left from Gazprom.
"The pace of coal fired power shutting down has been very rapid in the United States, opening the LNG market," Molchanov explained. "In Europe, there are just not as many coal plants in the first place."
He added that European gas consumption has been weak in recent years, bottoming out at the lowest level since 2000 in recent years as the shift to renewable and green energy takes hold.
"When you hear European politicians paying lip service to LNG, it's just rhetoric," he said. "Economics tends to win out in these situations."
Gazprom did not return requests for comment on how U.S. LNG incursions might affect the company.