Energy Crisis: This stock market is ready for a giant crash!
Today's Financial News - Posted January 14, 2009
For Gazprom (OGZPY), the Russian gas crisis is about to take a turn for the worse..
by J. Christoph Amberger
It’s day 14 of Russia’s natural gas embargo of Ukraine. And a good week since Europe stopped receiving natural gas via Ukrainian transit pipelines.Europe is experiencing record-setting, bone-rattling, teeth-chattering winter chill, with some countries cut off entirely from their main source of energy. That must is unpleasant… and infuriating!
For Russia, however, it is downright debilitating.
Because the Kremlin depends on these gas sales just as much as Europe. If not more.
Last year, Gazprom (OTC:OGZPY) revenues provided 20% of Russia’s entire central budget. The natural gas monopoly was responsible for 9% of Russia’s total GDP. Its export shipments to Europe alone made up 15% of Russia’s overall export revenues.
And last year, Gazprom was just one of a number of top producers in what turned out to be a bumper year for Russia: $147 oil and record prices for other commodities provided plenty of revenues diversification.
But this year is different. Stripped not only of what U.S. liberals love to call “windfall profits”, oil is now trading at close to half the “conservative” amount of $70 per barrel that Russia had budgeted. And even at half price, global demand destruction virtually guarantees that they’ll be selling less of it.
Which makes Gazprom Russia’s single most important revenues earner.
And the good times are coming to an end here, too. Natural gas tends to track the price of oil with a delay of about six months. Right now, gas prices are still high. But they will begin to fall soon. As will demand. Even in Eastern Europe, Old Man Winter packs his bags at some point.
It could start as soon as April.
If oil is any indication, both the drop in price and in demand could be spectacular.
European gas prices will not be re-calculated until April. Hence the urgency for Russia to lock Ukraine into a new, high-priced export agreement for 2009. If Ukraine can hold out, the “market price” the Russians demand maybe below what they used to pay.
No wonder Ukraine claims it has enough gas stored to last until early April. It can afford to be patient (or so it says).
Meanwhile, Gazprom is losing precious revenues. It’s like Ukraine is parking a semi trailer truck in front of Macy’s on Black Friday. Every day that gas is not delievered to EU customers means one day of top dollar revenues lost at peak season.
Prime Minister Vladimir Putin said last Sunday that Gazprom had lost $800 million because of the dispute. On Wednesday, Russian President Dmitry Medvedev said the company was down $1.1 billion. Analysts of Renaissance Capital brokerage now estimate that the amount is rising by $127-141 million every day.
If Ukraine holds tight, losses could tally up to $2, $3, maybe even $5 billion or more… maybe even 10% of the $70 billion in total revenues it reported for 2007. That’s before new, potentially dramatically lower gas prices were to bite!
That’s not just bad for shareholders… who now have started to sell their Gazprom shares in droves. It’s bad for the Russian economy and the Russian ruble, which is plummeting against most other currencies, forcing the Kremlin to liquidate 27% of its foreign-currency reserves since the start of August.
We’ve made our bets on the outcome last November. The three energy companies we recommended are completely independent of Russian gas and in the past have made investors a bundle in just this kind of situation. Our official deadline to get in on them has passed…. but they are still well within our buying range. (Meaning that for a mere $79 you, too, could—and should!—be in on this crisis play of truly historic proportions.)
In addition, readers of our premium service Hot Stock Confidential are currently up 22% on their Market Vectors Russia ETF
position we recommended a few days ago as the upside for Russia began to melt.
We think it’s still time to get short on Russia… because this stock market is poised for a painful crash!
And despite all negotiations in Brussels and Moscow and Kiev, I say we’ll see military fireworks in Russia and Ukraine before you remember that you almost forgot to buy chocolates for Valentine’s Day!
Next Article: Greed and corruption in the name of economic stimulus
Posted by J. Christoph Amberger · Filed Under Featuring..., International Investing
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