Gas Glut In The European Union (UNG, OGZPY)

It now seems to be official: There is too much natural gas pumping into Europe’s increasingly environmentally friendly power sector, and it is putting pressure on both prices and suppliers.

Representatives of the European gas industry say they are working with “extraordinary challenges” as the International Energy Agency concludes that supply of the key fuel in Europe will exceed demand through at least 2020.

And with countries like Germany pumping around $200 billion into wind and solar power, there may not be a chance for the gas industry to retool its operating model for a boom in 2021 and beyond.

Europe currently produces 65 billion cubic meters more gas than it needs to support its industry and other power needs. Although analysts expect that surplus to evaporate by 2015 and turn into a significant shortfall by 2020, five years may be too long for some traders to wait for a recovery.

This is ultimately not good for either commodity-linked funds like the U.S. Natural Gas ETF (NYSE:UNG) or the stocks of companies that supply gas to Europe — notably Gazprom (PINK:OGZPY), the linchpin of many ADR-driven Russia portfolios.

Gazprom recently cited weak demand from Europe as the factor driving its 12% profit shortfall in the spring quarter. Further weakness could keep this gigantic Russian exporter on the defensive for some time to come.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

Leave a Reply

Your email address will not be published. Required fields are marked *