Delivering speeches on various conferences, President Vladimir Putin seldom mentions the Russian stock market. However, on the investment forum “Russia calling!” he made an exception, paying attention to the substantial growth of the stock market, the capitalization of which in 2019 reached 48 trillion rubles (762 billion USD). He specially mentioned Gazprom (LSE: OGZD).
According to Putin, the potential growth of the Gazprom capitalization is hard to evaluate as the company owns the largest reserves in the world, and if we compare it to all enterprises in the world, it will still have the most impressing perspectives.
The Gazprom stocks demonstrated a positive reaction on the President’s words and grew by more than 1.5% during a trading session.
Of course, this is not the reaction we are used to on the US stock market after the speeches of such high-positioned people. However, the Gazprom stocks grew in price by more than 90% in 2019, and most of those who wanted to buy them have already done so, that is why the reaction was so weak.
Perspectives of growth
Gazprom increases gas production
The demand for gas in Europe keeps growing, which motivates Gazprom to increase production. This year, it has recovered 431.9 m3 of gas, which is 0.5% more than the same period last year. Since the beginning of the year, export has increased in such countries as Slovakia (by 43.2%), Hungary (by 40%), Austria (by 33.3%), the Czech Republic (by 29.1%), the Netherlands (by 26%), and France (by 6%).
New gas deposits
In May 2019, the company announced the opening of two new deposits of petroleum on the Yamal shelf. The general deposit size amounts to 500 billion m3.
One of the deposits, named after the former USSR minister of petroleum industry V.A.Dinkov, may be called unique. It amounts to 290 billion m3 of crude material. The second one, called Nyarmeyskoye, is a large deposit with 120 billion m3 of crude material.
This same year, the Turkish Stream pipeline has been completed. In October, gas export began. The overall length of the pipeline is 1,100 km and the capacity is 31.5billion m3 of gas a year. Via the Turkish Stream, Gazprom supplies Turkey and the counties of Southern and South-Eastern Europe.
The trials of the Northern Stream-2
November 15th, the German operator Gascade Gastransport announced that the trials of the pipeline Eugal were successfully finished and that it was ready for exploitation.
Starting January 1st, 2020, Germany is ready to launch its first branch of the pipeline Eugal which is an on-the-ground continuation of North Stream-2, its overall length being 480 km. This will let Europe receive Russian gas directly across the Baltic sea via North Stream-2, which capacity is 55 billion m3 of gas a year.
Risks of investing in Gazprom
Gas directive of the EU
Though Gazprom is a monopoly in Russia, there are still risks of investing in it.
Particularly, the renewed gas directive of the EU may hinder the launch of North Stream-2; according to that, the sea parts of the pipelines going to the EU are subject to the norms of the third energy package. It implies that the company producing gas cannot own the pipeline delivering the gas to the final buyer. However, the entry country in our case is Germany that has decided on making amendments to this package for a term of 20 years because the pipeline was completed before the acceptance of the new rules. So, the final decision of Bundestag is due November 29th, after which the draft will be given to the president for signature, and upon its publication in the media, it will come into force.
The lawsuit of the Ukrainian Naftogaz against Gazprom
Though Putin is not the chairperson of the Gazprom board of directors, he declared that the company is ready to provide gas for Ukraine at the price 20-25% below the one that European companies are charging now. However, the condition is to call back the claim of Naftogaz of Ukraine against Gazprom. The latter is ready to work with the former on the issue of gas transit to Europe.
Earlier, Naftogaz suited Gazprom for incomplete provision of gas for transit; the sum of the claim reached 7 billion USD.
This made Gazprom cancel the placement of Eurobonds in Swiss franks as the company is afraid of losing the money attracted.
The Ukrainian Naftogaz, in its turn, having lost the income from the transit, found it in the lawsuits against Gazprom and sent another one to the Stockholm arbitrage, amounting to 11.8 billion USD. In this case, Naftogaz is claiming the difference between the sum that it received for the transit and the sum that it should have received with the fees revised.
In our case, the actions of the Ukrainian company are the main investment risk.
Gazprom stocks tech analysis
On D1, the stocks are trading above the 200-days moving average, which signifies an uptrend. The beginning of the season of central heating also supports the quotations, so a move to the historical maximums from the current positions is not excluded.
However, the risks connected to the Naftogaz actions may drop the price o 7.130. A bounce off this level may be considered the end of the correction and the renewal of the upward movement.
Gazprom company is a Russian monopoly, working alongside the government. Naturally, it has bright perspectives in these circumstances. Bearing in mind the amount of gas in Russia and the fact that it will be recovered and sold by Gazprom we may be sure it is condemned to grow.
However, more than 50% of the company’s stocks are state-owned, and Western sanctions also affect it.
The claims of the Ukrainian Naftogaz are received as claims to Russia. So, investments in Gazprom will always suffer from negative events, fees, sanctions, etc.
The fact that Vladimir Putin paid attention to the Naftogaz claims supports the idea that they may harm the company so that Gazprom may lose some of its assets abroad or will have to pay billions of compensations. The arrest of Gazprom assets in Luxembourg shows how serious the problem may be.
All in all, if you plan to invest in Gazprom, the beginning of the central heating season is a good time. The decline in the stock price due to the Naftogaz lawsuits will only give a chance to buy more stocks at a lower price.
P.S. You can buy CFDs on Gazprom stocks and other large Russian companies that are listed on the London Stock Exchange (London Stock Exchange) on the R Trader platform.