The European Union is taking a serious look at natural gas.
Last week, the EU ratified a "gas solidarity" bill for Europe. The measure is aimed at ensuring steady and adequate natural gas supplies for all member nations.
For the EU, the biggest concern is Russia. Gazprom has showed its willingness over the last few years to use gas as a political lever, cutting off supplies in order to put pressure on Russia's neighbors. Remember January 2006, when Gazprom squeezed the Ukraine, with knock-on reductions in gas supply for several other EU nations.
No one in Europe wants to see this happen again. So last week's bill is calling for a number of important counter-measures.
Under the legislation, EU nations will have to create a plan to deal with a 30 day disruption of normal gas supplies.
This could be accomplished in a couple of ways. Firstly, securing alternative supplies. A good incentive for EU nations to support domestic gas drilling. After all, no supply is more reliable than gas flowing within your own borders.
The other way of dealing with supply disruptions would be building gas storage. By creating underground storage facilities, EU nations could build up strategic reserves as a buffer against any drop in imports.
Both drilling and storage could provide some interesting investment opportunities.
A third way of profiting could be from inter-EU gas trade. Under last week's bill, EU authorities are proposing to legalize the trade of Gazprom-imported gas between EU nations. Something Gazprom has always opposed.
If trading of such gas across Europe becomes widespread it will open up arbitrage opportunities for nimble traders who know these markets. Such trading has been a profitable enterprise for some investors in the U.S., spurred by the development of several new pipelines over the last five years.
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The new bill is still early-stage, but it's an interesting start. We'll keep watching to see what concrete measures governments come up with to support the gas industry.
By. Dave Forest of Notela Resources
