The Energy Letter: Old Europe's New Energy Challenge

Natural gas has always been a major energy source, and although the US is still among the largest consumers of natural gas, the bigger story lies in Europe, according to Elliott Gue, editor of The Energy Letter (www.energyletter.com), an investment newsletter covering the energy patch.

With anti-nuclear sentiment still present and alternative power sources comprising a minimal percentage of total energy use, Europe will be relying more heavily on natural gas going forward.

According to Gue, “The long-term outlook for natural gas prices in Europe is even more bullish than in the US. With EU demand for gas rising, the obvious question is: ‘Where will it all come from?’ This is becoming an increasingly large problem and one that's politically touchy to say the least in Europe.”

Although still the source of two-thirds of natural gas in Europe, the North Sea no longer produces at the same capacity it did upon discovery in the 1970s. The rate of decline in UK gas production from this source has actually accelerated in the past few years, causing the formerly energy independent nation to start importing gas in 2004. Benefiting from increased imports are local European companies, such as BG Group (OTC:BRGYY), and domestic producers with exposure abroad, such as US-based Nabors Industries (NYSE:NBR).

Out of those imports, however, the biggest importer of natural gas to Europe is Russia. Currently, the European Union (EU) imports about half of its gas imports from Russia.

As the largest natural gas company in Russia, Gazprom (OTC:OGZPY) has privileged access to the world's largest gas reserves. It’s also partnered with foreign firms in the development of key projects, giving the company access to advanced foreign technologies and capital as well. The firm currently makes most of its money by exporting gas to Western Europe, the region of highest demand.

Gue provides a more-detailed commentary on Gazprom and the Russian gas market in his recently released “2008’s Top Russian Energy Stocks.” For your own copy, click here or go to http://www.kciinvesting.com/lp/tel/108/tel_lp2.asp?src=SURPASS&rep=RUS SIAN (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists).

Until a viable alternative can replace it, natural gas will continue to be a major energy source. And by following Gue’s recommendations, his subscribers profit handsomely from it.

For more information on The Energy Letter, contact KCI Communications, Inc., Editor Elliott Gue at energyletter@kci-com.com.