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On March 8, the European Union made the stunning announcement that its members will hit Russian energy far harder than the world expected. The communique was aimed specifically at the bloc's gigantic imports of Russian natural gas. Until then, it was widely believed Europe would keep the cargoes flowing pretty much as usual for now, given that those feedstocks form a bulwark of Europe's economies.

Natural gas accounts for about one-quarter of the region's total energy consumption, and Russia provides no less than 35% of those volumes. What most amazed energy experts and investors wasn't so much that Europe wants to wean itself from such a heavy reliance on Russian energy over time, but the astounding reductions planned for this year, and the remarkable target of ultimately axing its biggest supplier. In the statement, the EU pledged to reduce its consumption of Russian natural gas by two-thirds, from 150 billion cubic meters per year to 50 bcm/year, on the fastest of fast tracks by the end of 2022. By the close of the decade, the goal is lowering Russian imports to zero.

The EU's road map includes such measures as substituting renewables for natural gas overall, but the biggest span in bridging the transition is a blueprint to vastly increase imports of liquefied natural gas (LNG) from other nations. And the country poised to benefit most by far is the U.S. Says Emily McClain, a senior analyst at Rystad Energy: "The opportunity for American LNG is one of the few positives from this tragic situation."

Europe's pullback from Russian gas leaves a huge hole

Until the March 8 bombshell, the biggest threat to Europe's long-term supplies was Germany's suspension in February of Nord Stream 2, the nearly completed pipeline that runs alongside its twin under the Baltic. Nord Stream 2 was slated to balance Europe's consumption by furnishing additional volumes that would satisfy around 10% of its nations' total usage by 2025. But Europe was already facing a crunch before Germany nixed Nord Stream 2.

Late last year, Russia started severely curtailing shipments through its Kapusany and Mallnow pipelines (the former traverses the Ukraine, and the latter flows to German and Poland). Its apparent motive was to show Europe how much pain it could inflict, and hence discourage its nations from imposing tough sanctions following its already planned invasion of Ukraine. Despite tailwinds from a relatively warm winter, European inventories sank to extremely low levels, and now sit 40% below their five-year average. From the start of 2021 to late January of this year, the benchmark TTF price for natural gas soared from $17 per million Btu to $90.

The second source of Europe's natural gas imports is LNG. Pipeline supplies flow and arrive in gaseous form. But LNG comes in different, eminently exportable packaging. The rise of LNG made natural gas a long-range, transocean, globe-spanning product by shipping the fuel in liquid form. LNG arrives at giant terminals on the Baltic or Australian or Louisiana coasts, where it's chilled to minus 152 degrees and transformed into liquid. The leaders in LNG exports have long been Qatar and Russia, together typically capturing over 50% of the market. But in 2021, Russia lowered its LNG volumes to Europe, perhaps as part of its orchestrated energy squeeze.

The biggest beneficiary of Russia's pullback was the U.S. From tiny levels as recently as 2018, the U.S. captured 26% of Europe's LNG market in 2021, edging Qatar to finish in the top position, and waxing Russia's 19%. The reduction in Russia's pipeline shipments also aided the U.S. by deepening Europe's shortage. Now, the EU's new plan mandates greatly increasing foreign LNG shipments to compensate for what will be a huge cutback in both Russia's pipeline and LNG volumes. In fact, for January, February, and thus far in March, the U.S. is supplying almost 60% of all LNG to Europe, more than double its share last year. "U.S. processors have riskier but more flexible contracts that enable them to shift supplies more readily from Asia to Europe than Qatar and big foreign exporters," says McClain.

The new jump in U.S. exports to Europe, however, doesn't mean the U.S. industry will enjoy a quick spike in revenues. Indeed, the LNG model operates on a long time line. For shareholders, the industry's appeal is that plants are operating at full capacity, and since it takes around four years for a new facility to win approvals and get built, new competition arrives slowly. As a result, LNG generates consistent, high-margin cash flow and benefits from formidable barriers to entry. The industry isn't huge, at revenues of around $32 billion in 2021, but it offers some of the best growth prospects and promising stock picks in the energy universe.

Below are five companies that offer exposure to an array of size, risk profiles, and approaches to capitalizing on the LNG phenomenon.

Cheniere, the king of U.S. LNG

Cheniere Energy has experienced the most careening, daredevil ride in the annals of all LNG. Its colossal facility in Sabine Pass in the Louisiana mud flats was the first U.S. LNG plant ever built outside Alaska. But Sabine was designed and constructed as an import terminal. When contractor Bechtel completed the project in 2009, the fracking revolution was underway, and the import business was nowhere. "We were practically bankrupt," Cheniere then-CEO Charif Souki told me a few years later. Souki got Bechtel to redo the entire project an an export facility, and today Cheniere is thriving, courtesy in large part to heavy demand from Europe. In early March it announced that its output is more than 90% presold on long-term contracts through the 2030s.

That says a lot, because Cheniere's adding fast, with more to come. Early this year, it made its first shipments from the new “train” in Sabine. (A train is a series of heat exchanges that lower the temperature of the gas.) It's also growing big time at its second facility in Corpus Christie. Between the two, it's already increased capacity by almost 30% in the past year. Since December, management has raised its guidance for 2022 Ebitda from a top estimate of $6.3 billion to $7.5 billion, versus $4.9 billion in 2021. "[Cheniere] is one of the best positioned stocks in the entire market for ramifications of the Russia/Ukraine conflict," Raymond James wrote in a recent report. At a multiple of less than five times Ebitda, Cheniere still doesn't look pricey.

Ben Nolan of Stifel notes that Cheniere is now deriving 95% of its revenues in the regular liquefy-for-fee business, but reserving the 5% balance for capacity "not spoken for" to sell its LNG, primarily to profit from the huge price differential between the U.S. and Europe. "If international prices stay high compared to the U.S., Cheniere could make a lot of additional money on that portion," notes Nolan.

To get stability plus an LNG kicker, look to Sempra

Giant utility Sempra (SRE) operates two LNG plants. It holds a majority stake in the Cameron facility in Louisiana; that's one of America's largest plants, featuring around 10% of all U.S. capacity. But Sempra also has four other projects that are either in construction or under consideration. If all of them go forward, Sempra's plans rank among the industry's most ambitious.

It's building a facility called ECA LNG 60 miles south of San Diego in Mexico slated to become operational in 2024. A second plant on Mexico's Pacific coast that would draw feedstocks from the Permian is in the early stages of development; Sempra hasn't disclosed a target date for completion. It's also weighing a large expansion at Cameron, a facility in Port Arthur on the Texas Gulf Coast. Another even larger facility at ECA is also under consideration. If all the projects Sempra is considering get built, it would add an incredible 35 million tons a year in capacity by the early 2030s, equivalent to around one-third of the current U.S. total.

Sempra's unique in operating plants on both the Atlantic and Pacific. Its CEO, Justin Bird, claims the bicoastal strategy gives Sempra a "competitive advantage" due to its "ability to dispatch to both Europe and Asia." Although LNG is still a small portion of Sempra's almost $13 billion in sales, it's viewed as a big ticket to future growth.

Sempra is also a powerhouse in the two largest utility markets in America, California and Texas. In the Lone Star State, it runs Oncor in one of the nation's fastest-growing electricity markets, encompassing 13 million customers across Dallas, Fort Worth, Midland, and Waco. The Oncor rate base, together with that of a smaller nearby utility, says Sempra, should grow 8% a year to $28 billion by 2026. At a $48 billion market cap and 38 P/E, Sempra might appear pricey. There's a danger its multiple could shrink. But if it manages to hold that P/E, its returns should be excellent. It's predicting annual EPS expansion of as much as 8% a year going forward, and it's paying a 3% dividend.

Tellurian: Betting on the second coming of Souki

Compared to the safety of Sempra, Tellurian (TELL) is the most daring of bets on LNG's future role in global energy and on one of the industry's most swashbuckling pioneers. Its CEO is none other than Charif Souki, the visionary Cheniere founder who performed the near miracle of transforming Sabine Pass from an import facility to an export hub. Souki has secured financing to erect the $17 billion Driftwood plant on the Louisiana coast. He's slated to start construction in April. When Driftwood starts producing in a couple of years, it will probably add more than 10% to then-existing U.S. production at a capacity of 16 bcm/year. Investors are betting on Souki to repeat: Although it's still a concept and not yet a project, Tellurian has garnered a market cap of over $2 billion.

In fact, the concept is highly original for a fee-based industry, and hence alluring. Souki wants to capture the upside of the market, and for good reason. That upside now is huge because of the gulf between U.S. and European prices. "He wants to produce LNG based on the price prevailing where he sells it," says Liam Burke, an analyst with B. Riley Financial. "He's open to sending gas to wherever the highest prices are and getting a share of the differential." Tellurian says that it can acquire natural gas and liquefy it into LNG at total current cost of roughly $6 per million Btu.

The expense of shipping to Europe and Asia is approximately $1.00 and $1.50 respectively. So his all-in cost would be a fraction of Europe's or Asia's current rates. “Charif’s view is that natural gas will be a key component of the global energy supply going forward. He doesn’t see it as just a ‘bridge’ fuel,” says Burke. “He thinks European and Asian prices will stay high for a very long time. Charif notes that natural gas is plentiful, clean, and meets ESG goals.”

But who knows how long that huge gap will last? A wager on Tellurian makes sense if you believe in both the man and share his confidence that Europe and Asia will keep wanting loads of LNG, and that the time and money it takes to bring on new supply will prevent a flood of the fuel from hammering prices and destroying Souki's dream.

Golar: Making LNG on shipboard

Unlike startup Tellurian, Golar's been in the LNG business for many years. From mid-2014 to July of last year, its shares dropped from $66 to $7.50. But since then, they've staged a strong comeback to $19, notching a $2 billion market cap. The reason: Golar's costs are high, so it does great when the world's prices are elevated. And now it's following Tellurian's course by deploying a model to grab the upside from the price jump in Europe.

Golar's production expenses are well above those at an onshore U.S. plant because it's an oceangoing LNG production and processing plant. It deploys a unique process called floating LNG, or FLNG. Its custom-designed vessel produces natural gas drawn lifted from the seabed and liquefied on the ship. That gigantic vessel, the Hilli Episeyo, stretching the length of three football fields, is parked off the coasts of Mauritania and Nigeria.

It's producing for a Anglo-Franco utility called Perenco. So far, Golar's main business has been processing at fixed-fee agreements that generate built-in high returns. Over the past few years, its revenues have barely budged. But now, Golar wants to transform that steady, profitable franchise into a go-go profit-spinner.

Over and above the fixed-fee part of the business, it's selling LNG to the customer based on European benchmarks. Right now, high European prices make those for-risk cargoes extremely profitable, without adding any capital costs. "Golar is highly cyclical," says Burke. "But now, the cycle is working in its favor." Golar expects a big payoff. In a new investor presentation, it posits that the strategy will help lift its FLNG Ebitda from $100 million last year to $260 million in 2022. This a wild one, to be sure. But if you believe high LNG prices are here to stay in Europe and Asia, it could be a big winner.

Woodside would give international diversification, a focus on Asia, and a potential big upside

For the fifth choice, let's go down under. Woodside Petroleum (WPL.AX) (2021 revenues: $7.1 billion) is Australia's largest independent producer of LNG, accounting for 5% of the world's supply in 2021. It operates two major plants in Western Australia, Pluto LNG and North West Shelf, both of which process offshore natural gas. It also holds an interest in a third major facility it doesn't run.

It recently won approval to produce gas in the giant offshore Scarborough field 225 mile from the Pluto project in the Indian Ocean, as well as permits to expand Pluto to handle the new feedstocks flowing to Pluto by undersea pipeline. The Scarborough-Pluto expansion project would should start producing in 2026, and add five million tons per year of LNG capacity, equivalent to 50% of today's levels. The project will also extend the life of the original Pluto project.

In a recent report, Daniel Butcher of CLSA predicts LNG will generate 75% to 80% of Woodside's revenues this year. What makes the Aussie giant such an intriguing bet is the potential upside if LNG prices remain elevated for a long time. Up to 25% of Woodside LNG production is sold at spot prices, and those prices started skyrocketing because Putin squeezed Europe's gas supplies last year, and rose even further after the invasion.

On those spot sales, it's now collecting a large part of the huge gap between its cost of production and the extremely high prices in Europe and Asia. Butcher has run numbers showing the strong correlation between oil and LNG prices, and Woodside's revenues. He estimates that every $10 increase in LNG prices raises annual sales by about $1 billion, adds roughly $650 million a year in free cash flow, and lifts Woodside's market cap by 3%.

Woodside occupies an unusually strong position because it will continue to feed the rising hunger for LNG in Asia, its traditional market. The increased demand in Europe will mostly be filled by producers that are geographically closer, such as the U.S. and Qatar. But the diversion of cargoes from Europe to Asia will help keep prices elevated, aiding Woodside's profitability. The war will is also likely to depress shipments from Russia to one of its biggest customers and a huge LNG market, Japan. It's probable that Japan will turn to Woodside to help fill the void.

Woodside's also diversifying heavily into oil by merging with the petroleum business of Australian natural resource colossus BHP. The $28 billion deal, expected to close in July, will double Woodside's sales and make it the largest publicly listed energy company on the Australia Stock Exchange—and a top 10 publicly traded oil and gas company worldwide. It also offers the edge of being the cheapest stock on the list at a P/E of just 11, and it offers a fat, 6% dividend yield. Adding Woodside to an LNG portfolio would increase risk because of its sensitivity to today's careening oil and gas prices. But if you think the LNG boom is just beginning a long run, it's an excellent choice. As a kicker, you'd get extra exposure to Asia, the biggest growth market for the future.

This gang of five runs the gamut between conservative (Sempra) to two of the most extreme bets in the energy universe, Golar and Tellurian. Actually, combining them into a single portfolio might strike the right balance. It's the cataclysm in Ukraine that caused the spectacular rise in LNG, but the smart money says that it has legs. And best of all, it's providing crucial relief that could prevent the ultimate in economic collateral damage, that dreaded energy siege in Europe.