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Gazprom’s contract with China already priced in — experts

May 21, 2014, 17:01 UTC+3 MOSCOW
The gas holding’s stocks have already rocketed more than 20%
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© ITAR-TASS/Alexei Druzhinin

Infographics Supplies of Russian natural gas to China Supplies of Russian natural gas to China
May 21, 2014, Gazprom and CNPC have signed a deal on gas supplies to China
MOSCOW, May 21. /ITAR-TASS/. No strong growth in Gazprom stocks is to be expected over the short term as the contract with China had already been priced in, said analysts polled by ITAR-TASS.

“Significant growth in Gazprom shares is hardly to be expected as strong growth had been recorded before the event,” said oil and gas analyst at Raiffaisenbank Andrei Polishchyuk.

The gas holding’s stocks have already rocketed more than 20% from the local low of 122.8 rubles ($3.559 exchange rate fixed at May 21) per stock on April 28 to 149 rubles ($4.3) on Tuesday.

“Many investors will want to take profit now, so the upside potential is small — about 2%,” Polishchyuk says.

Buying Gazprom’s shares at 150 rubles per stock is unprofitable, says Deputy Director General for Investment Analysis at Zerich Capital Management Andrei Vernikov, as the next resistance level is at 153 rubles ($4.4).

“It is not worth risking for the sake of two percent profit that can miss investors’ pockets because of Ukraine’s unwillingness to make prepayment for gas,” he said.

Vernikov assumed Gazprom shares could rise to 185 rubles ($5.36) this year but not until there was some positive news for the company.

Gazprom went up 0.83% to 146.55 rubles ($4.2) on Moscow Stock Exchange as of 15:45 Moscow time. The shares soared two percent to 148.55 rubles ($4.3) immediately after the Chinese deal report.

Take or pay terms included

The contract signed between Russian gas monopoly Gazprom and the Chinese National Petroleum Corporation (CNPC) includes a take-or-pay condition, says a news release from the Russian operator.

It has been signed on mutually beneficial terms and includes key parameters such as a price formula pegged to an oil basket and the take-or-pay clause, the statement says.

The 30-year contract for eastern-route supplies stipulates annual export of 38 billion cubic meters of Russian gas.

“Russia and China have signed the largest gas contract in the history of the Soviet Union and Gazprom — for more than 1 trillion cubic meters of gas over the term of the contract,” said chief executive Alexei Miller. “We have opened a brand new sales market with huge potential for Russian gas.”

Arranging pipeline supply to China was the major investment project, with $55 billion to be invested in production and transportation facilities in Russia alone, said Miller. Large-scale gas infrastructure planned in Russia’s east was bound to spur the region’s economy, he added.

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