We know it’s an odd thing to say, but right now, we like Europe.
The European Union has only narrowly avoided falling into recession.
And Moody’s Investors Service is set to downgrade several Spanish banks.
Only a fool would exchange ‘safe’ Aussie dollars for ‘risky’ euros. But that’s exactly what we’re asking you to consider today.
Because, as we’ll explain in a moment, this could be the most profitable trade you make in 2012…
Europe is in a bind.
On one hand it’s battling a big debt problem and slow economic growth.
On the other hand, it needs to invest to ensure Europe doesn’t fall back into the dark ages.
As you may know, most of Europe’s natural gas comes from Russia. A supply that has more than once been disrupted due to political arguments.
Also remember that last year Germany vowed to close down the last of its nuclear reactors by 2022.
Nuclear power accounts for nearly one quarter of Germany’s electricity generation. That’s a big hole to plug.
Of course, the spin at the time was that Germany would be a ‘trailblazer’ for renewable energy sources (RES). That’s not likely.
Renewable sources (wind and solar) generate just 4.83% of electricity across Europe.
And in Germany renewable energy sources produce just 6.5% of the nation’s energy.
So, what’s the answer?
A clue is in a couple of headlines we’ve seen during the past two days:
‘Macquarie in $4b deal for European gas grid’ – The Age
‘Ukraine sees 2017 for commercial shale gas output’ – Reuters
In our view, these two stories support our position that Euro-Energy is the next big opportunity for investors.
Eastern Europe Leading the Way for Natural Gas Energy
To stress the point, big energy players Royal Dutch Shell and Chevron are backing what could be Europe’s biggest shale gas play – the Ukraine.
Nothing is certain. But Shell and Chevron clearly see the chance to make a buck or two.
According to the Reuters report:
‘The former Soviet republic has Europe’s third-largest shale gas reserves at 42 trillion cubic feet (1.2 trillion cubic metres), according to the U.S. Energy Information Administration, behind France and Norway.’
Bearing in mind the EIA says Europe could have as much as 639 trillion cubic feet of shale gas in the ground. So, if Europe is smart enough to exploit this resource, it could put them in the same position as the US. And that is energy independence.
Europe would no longer need to rely on Russia or the volatile Middle East.
Remember, the main reason the Brent Crude oil price is USD$16 higher than US crude oil is due to the fear of supply problems from the Middle East.
In short, Europe is paying a higher risk premium for energy than the US. All the more reason to develop a domestic natural gas supply.
Or you’d think so.
The Halt On Shale Gas That Europe Can’t Afford
In what we can only describe as a ‘typically French’ reaction, France has put a halt on shale gas exploration.
Despite having the largest shale gas resource in Europe, no one can produce it because, as usual, politicians have fallen under the spell of the green lobby.
In time this will change. But it goes to show that European unconventional natural gas development is still at a very early stage.
But in the end, even the green fanatics will have to face the facts. Europe can’t survive as an economic powerhouse without having a domestic energy supply.
Our bet is that Europe will have to develop shale gas. Not because it wants to, but because it’s the only option.
And that’s why we’re taking a punt on European natural gas stocks. It’s early and high risk, but if we’re right, the payoff will be immense.
P.S. We first wrote about Euro-Energy stocks in the April issue of Australian Small-Cap Investigator. We’ve picked three Aussie stocks we believe are best placed to gain if Europe embraces shale gas. To find out what they are, take out an obligation-free trial of Australian Small-Cap Investigator and check out the latest issue. Click here for details…
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
If you’re already a subscriber to these publications, or want to follow his financial world view more closely, then we recommend you join Kris on Google+. It’s where he shares investment insight, commentary and ideas that he can’t always fit into his regular Money Morning essays.