‘Increased prices will compensate Gazprom for a possible decline in export volumes in the coming years’

Sanctions have not affected gas

The International Energy Agency and the European Commission have already presented their first versions of the plans. Among the key points in these documents — the refusal to conclude new long-term contracts, the search for alternative sources of gas and LNG, accelerated energy transition, increased energy efficiency, and even encouraging a temperature decrease in residential buildings.

According to the calculations of the IEA, the full implementation of the plans will help to reduce the import of Russian gas by 33-50% (that is, by about 46-72 billion cubic metres) by the end of this year. However, such plan is a scenario that is difficult to implement for the EU, given that blue fuel from Russia provides about 40% of the consumption in the eurozone, and some countries depend on it completely. Therefore, at present, gas will be the last to be sanctioned.

Moreover, even before the start of the special operation in Ukraine, gas prices were at record high levels: if earlier the range of $200-300 per thousand cubic metres was considered normal, then since last autumn prices have been steadily holding above $1,000 per thousand cubic metres. And an inevitable decline in the supply of natural gas to the EU countries will lead to an even greater increase in prices and an increase in exports to China.

Gazprom continues to be one of the beneficiaries of abnormally high gas prices. More than 80% of the gas giant's contracts are linked to spot futures of different lengths, so that in January 2022 the average export price of gas reached $686 per thousand cubic metres. The increased prices will probably compensate Gazprom for a possible decline in export volumes in the coming years. According to our calculations, the forecast multiplier P/E 2022 for the gas giant is 1, which even with current risks looks like an understated and attractive value.

Leader of oil production

Russian oil companies also look promising. Currently, Russia produces about 11% of all oil in the world, and exports 7,8 million barrels a day (b/d) of oil and petroleum products, which makes it the leader in this indicator. At the same time, it is worth noting the record price of black gold in rubles since 2013, which is a key positive for the industry. Active recovery in demand, supply disruptions from Russia and Kazakhstan, the commitment of OPEC+ members to the deal, the low level of reserves, and the lack of opportunities for Western countries to quickly increase production are likely to continue to support the high cost of oil in the future. This will largely offset the negative from the temporary decline in export volumes.

It is also worth noting that against the background of record inflation and the lack of an opportunity to quickly replace Russian oil, most countries are trying to refrain from sanctions that would limit exports. The exceptions are the USA, Great Britain, Canada and Australia, which together accounted for less than 14% of Russian exports. At the same time, supplies to these countries were carried out by sea, and therefore they are likely to be redirected to alternative markets: for example, to India and China.

Asian markets in the future

In such situation, the most interesting companies look capable of minimising supply disruptions at the moment, and in the future — to reorient themselves to the markets of the Asia-Pacific region. For example, Rosneft has a high diversification in sales markets — Asia accounts for 47% of revenue from the sale of crude oil and 13% of revenue from the sale of petroleum products, which is comparable to revenue from the European direction. And thanks to its Vostok Oil project, the issuer has a good chance of reorienting towards the markets of China and India, companies from which could enter the project, which together with the support of the state would ensure its successful implementation.

Also, in the conditions of a weak ruble, the preferred shares of Surgutneftegaz look interesting. Now the company has the foreign currency “pot” of more than $50 billion in bank accounts. During periods of weakening of the ruble, the positive currency revaluation of “the pot” goes into profit under RAS, based on which dividends are paid on preferred shares. At the same time, the rights to dividends are enshrined in the charter, which significantly increases the probability of their payment. According to our calculations, if the dollar exchange rate at the end of the year is 100 rubles, then the dividend may amount to 14,5 rubles per share, which corresponds to a 41% yield.