Europe's $800B Energy Crisis Sparks Investment Frenzy

Source: 3/4/2024, Location: Europe

The energy crisis that engulfed Europe after Western sanctions punished Russia's invasion of Ukraine cost the continent hundreds of billions of dollars. Now, the Middle East crisis and the Houthi war on the Red Sea could threaten future energy supplies. Companies mentioned in this release include: TotalEnergies, MCF Energy, Halliburton Company (NYSE:HAL), Schlumberger Limited (NYSE:SLB), Enbridge Inc. (NYSE:ENB), Golar LNG Limited (NASDAQ:GLNG), Transocean Ltd (NYSE:RIG).

While climate change remains at the top of the agenda, the immediate name of the game is "energy security," and that has opened up enormous opportunities for investors on both sides of the divide.

At the height of the Russia-Ukraine conflict, European countries were even forced to return to coal burning. While that has since declined, with climate change returning to the top of the agenda, natural gas has regained status as the only viable bridge to a green energy transition.

In early February, Germany earmarked $16 billion for the construction of four natural gas power plants to complement a renewable energy expansion push. And Austria has recently made its largest natural gas discovery in four decades—enough to increase its domestic production by 50%.

In the meantime, Germany—the EU's largest economy—has been creating a new dependency on American LNG. In fact, according to McKinsey, "Europe has come to shape global gas markets, with European hub prices setting global LNG spot prices."

That false sense of security is also being threatened by the Biden administration's recent pause on new LNG projects. But one thing is clear: Natural gas is back in fashion in Europe, and domestic sources in combination with renewable energy are the only true answer to energy security.

Below are two companies well-positioned to take advantage of the new energy security atmosphere in Europe:

#1 TotalEnergies (TOT)
French TotalEnergies (TOT) is shaping up to be a big winner on the Europe-LNG playing field. TOT partnered with QatarEnergy in Qatar's giant North Field East and North Field South projects in a joint venture. Last Fall, the JV secured two long-term deals—27 years--to deliver LNG to France, beginning in 2026. TOT has a 6.25% share in the North Field East LNG expansion project and a 9.375% share in the North Field South project.

Deals of this magnitude are usually reserved for Asian buyers, so a 27-year deal for Europe is a milestone for TOT in Europe, where the company can now brandish its status as a major contributor to France's energy security.

Earlier this month, TOT reported its highest profit in history for 2023, underpinned by LNG performance and its electricity divisions, which helped push net profit to $21.4 billion, or 4% higher than in 2022.

The French giant is pursuing a more unique strategy in terms of reaching net-zero emissions by 2050. Instead of simply divesting fossil fuels assets (though it is offloading its Canadian oil sands), it's "expanding ownership of renewable power and low-carbon assets" and "expects to more than double its gross renewable generation capacity by 2025". It's covering demand from all angles, Aristotle Capital Global Equity Strategy noted in a recent investment letter.

Going forward, the upstream growth focus is to be driven by TOT's bet oil and gas to boost profits, in addition to exploration success, new oil projects and an expansion of its LNG portfolio. Suriname offshore exploration could see $9 billion invested, and observers are closing watching its new Venus oil discovery offshore Namibia.

#2 MCF Energy (MCF.V; MCFNF.QX)
Small-cap MCF Energy, backed by veteran explorer and producer, Ford Nicholson, is convinced that this is the right atmosphere in which to foster European energy security through domestic natural gas production.

Germany and Austria are key venues for this, and MCF is tapping into five key prospects several of which have had wells that have produced or are capable of producing gas from, three previous discoveries.

MCF Energy is the first new public company consolidating major exploration projects in Europe, and it's the first since Russia invaded Ukraine to offer investors an opportunity to help build domestic natural gas resources in Germany and Austria.

The company is targeting large-scale natural gas exploration and production here, with two drills in the next several months, the first of which has already begun in Austria, in the Welchau prospect near the Austrian Alps.

Strategically located 18 kilometers from a pipeline, Welchau is adjacent to an up-dip from a discovery that intersected at least a 400-meter gas column previously. According to MCF, all elements are in place here for a significant discovery.

Thanks to its 100% acquisition of German Genexco last year, MCF Energy is now ready to drill down for some much-needed domestic energy resources for Germany.

MCF's second drill, planned for March, is in Bavaria, which is home to the company's Lech and East Lech concessions, which cover 10 sq km and 100 sq km, respectively. Lech has three previously drilled wells and two discoveries. Adjacent to this, Lech East, in southwest Bavaria, is a large-scale concession covering ~100 square kilometers, with significant 3D seismic and AI showing more potential ahead of MCF Energy's planned 4.6-million-euro exploration program.

At Lech, MCF will re-enter Mobil's former Kinsau #1 well, adapting new drilling technology and eventually horizontal wells to stimulate the already known hydrocarbons. Mobil established production rates of over 24 MMCF per day of natural gas with associated condensate from the Kinsau #1 in the '80s.

About a week into a 40-day drill in Austria and only several months away from its first drill into Germany's proven resources, MCF Energy (MCF.V; MCFNF.QX) is convinced it's on track for a hit that could give Germany a partial domestic solution to its ongoing energy security problems.

Bonus: 10 More Companies Looking To Capitalize on the Energy Bull Market

Halliburton Company (NYSE:HAL), one of the largest oilfield service companies globally, offers a comprehensive range of services and products to the upstream oil and gas industry. Halliburton's presence in Europe, through its operations and technological solutions, supports the region's oil and gas exploration and production activities.

The company's focus on developing sustainable technology solutions, such as hydraulic fracturing and shale gas production technologies, aligns with Europe's increasing emphasis on environmental responsibility and energy security.

Schlumberger Limited (NYSE:SLB), the world's leading provider of technology and services to the oil and gas industry, plays a pivotal role in Europe's energy sector through its extensive portfolio of innovative oil and gas technologies for reservoir characterization, drilling, production, and processing.

With a strong emphasis on research and development, Schlumberger is at the forefront of the energy transition, offering solutions that enhance the sustainability and productivity of the European oil and gas industry.

Enbridge Inc. (NYSE:ENB) stands as a titan in the North American energy sector, notably extending its operations into Europe through investments in offshore wind energy projects and energy transportation infrastructure. Enbridge's commitment to innovation and sustainability is reflected in its significant foray into renewable energy.

The company's strategic diversification into renewables, alongside its traditional oil and gas operations, demonstrates a balanced approach to energy production, emphasizing efficiency, safety, and environmental stewardship.

Golar LNG Limited (NASDAQ:GLNG) is a trailblazer in the liquefied natural gas (LNG) industry, with a diversified business model encompassing LNG shipping, floating LNG liquefaction, and floating storage regasification units. Golar's innovative approach to LNG solutions, particularly its pioneering floating LNG technology, positions it strategically within Europe's evolving energy landscape.

The company's commitment to unlocking new markets for natural gas worldwide aligns with Europe's energy transition goals, offering investors a unique vantage point into the dynamic LNG sector that bridges traditional energy supply with future energy demand.

Transocean Ltd (NYSE:RIG) is a global leader in offshore drilling, offering services crucial for the exploration and extraction of oil and natural gas beneath the ocean's surface. With a fleet specialized in deepwater and harsh environment drilling, Transocean's technological prowess and operational expertise enable access to some of the most challenging and resource-rich areas worldwide.

Transocean is enhancing its technological capabilities to address the emerging needs of the offshore drilling industry, with investments in next-generation drillships that offer higher efficiency and lower environmental impact.

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