What A Global Energy Crisis Means For North American Stocks

Nord Stream-2 negotiations

Both previous American administrations were staunch opponents of the Nord Stream-2 gas project. This resistance was motivated by geopolitical and energy security concerns, and American sanctions had delayed the project's final vital stages. In May, the Biden administration dropped its objections, apparently to mend strained ties with Germany and enable work to proceed. Nord Stream-2 is now complete, and gas flows are anticipated to begin as soon as Germany's final permissions are granted. An energy expert highlighted Putin's newfound influence over EU energy security in a recent Wall Street Journal article:

"Russia's enormous influence over Europe and beyond has been demonstrated by the European gas crisis," said Thierry Bros, an energy specialist and professor at Sciences Po Paris. "Because Russia has extra capacity, Putin is the only one who can stop blackouts in Europe. This is a strong stance."

Russia, in contrast to the West, has transformed into an energy "Super-Store," with record levels of gas, oil, and even coal. Russia currently controls 25% of worldwide gas and LNG exports, as well as 13.3% of global oil shipments, surpassing Saudi Arabia's 12.6 percent. In the absence of Australian shipments, which China has opted to restrict for diplomatic reasons, it is also providing coal to China.

Russia looks to be utilizing this advantage and taking a hard stance in discussions with the EU over additional gas for the winter.

"Nothing beyond the [current] contracts can be provided," Kremlin spokesperson Dmitry Peskov stated on Wednesday. Any further delivery will be "negotiable."

As the winter develops, it will be interesting to observe how steadfastly Russia maintains this stance. However, there are a few things that are definite. To begin with, the low-cost energy environment that has prevailed for several years is likely to give way to one that we are just now beginning to recognize.

As time goes on, higher pricing and supply worries will predominate in the minds of both global policymakers and consumers.

Second, Russia's increased importance on the global energy market and in world affairs is expected to expand. Putin has weathered the sanctions imposed as a result of the Crimea incident, which you don't hear much about these days as the news cycle has moved on, and now throws a greater shadow in geopolitical circles than ever before.

How to invest in this new era

Energy stock prices in the United States and Canada have risen sharply in recent months as the market has come to terms with the full potential effect of this new era. Independent firms like Devon Energy (NYSE:DVN) have tripled in value in a year as cheap pricing spurred industry consolidation. Even oil giants such as ConocoPhillips (NYSE:COP) have risen to pre-pandemic highs and made smart acquisitions, as I mentioned in a previous Oilprice piece. In this context, we believe these businesses are still investible, and greater recognition of the fundamental importance of petroleum energy sources should help drive their values even higher.

This is especially true in the case of the main energy service businesses. Our top picks are Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB), whose present values do not reflect the anticipated demand for their services in the coming quarters.

We should also note the outstanding values that can be found in Canadian businesses, many of which have been highlighted in previous publications. Tourmaline Oil Corp, Canada's largest gas producer, is still trading at a single-digit earnings multiple, but that will change as winter comes. Canadian Natural Resources is another firm that we admire. CNQ's long-life, low-decline heavy oil production assures strong net backs, driving profits higher as demand for oil rises in transportation, industry, and as a gas alternative for electricity generation in the event of high gas prices. CNQ's stock has risen 60% this year, and we believe it still has more to grow while paying out generous dividends to shareholders.

In certain organizations, the necessity for brevity limits alternative recommendations. The energy sector has been hampered in recent years, and it has only lately regained popularity. As previously said, we believe that discounts may still be found in the new energy pricing period that has recently arrived on the global energy market.

We'd want to conclude by saying that we see the whole North American energy complex, both above and below the 49th parallel, as a target-rich environment with few poor options in today's market. Before making any financial decisions, the reader is recommended to conduct their own research and speak with an investment professional.