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Energy Investing: Buy Gazprom before the (other) election

Posted December 26, 2007

"If you haven’t heard of Gazprom, pardon me for asking, but what rock have you been hiding under for the last five years? The corporation is the largest natural gas company globally, and it looks like that situation isn’t going to change anytime soon, unless they discover natural gas reserves under one of the ethanol-dedicated cornfields in Kansas." — Stephanie Grimmett  

by Stephanie Grimmett 

Baltimore — (TFN): Ever since the first steam engine, energy and politics have been united in an increasingly complex tangle of cross-priorities and relationships. And nowhere has that been better illustrated as of late than in Russia, where natural gas giant Gazprom (OGZPY: OTC) is, if you allow me a little hyperbole, trying to take over the world.

And the unity between Gazprom and the Russian state was verified and strengthened when Czar, er, I mean President Vladimir Putin tapped his successor in recent weeks.

Putin’s endorsement means an almost assured victory for Alexis Medvedev, but it also means an assurance of even stronger energy policy in favor of Gazprom. Alexis, you see, is still the chairman of Gazprom’s board, and the deputy prime minister. He’s a very busy man.

Apparently, Russia doesn’t see any conflict of interests between a government official and a powerful energy corporation. Of course, in Russia that corporation is still controlled by the state, which owns 50% of Gazprom’s shares.

If you haven’t heard of Gazprom, pardon me for asking, but what rock have you been hiding under for the last five years? The corporation is the largest natural gas company globally, and it looks like that situation isn’t going to change anytime soon, unless they discover natural gas reserves under one of the ethanol-dedicated cornfields in Kansas.

We recommended investing in Gazprom way back in 2006, and those of you who took that advice are up 47% in the last four months alone.  

Gazprom is the unofficial energy monopoly in post-Soviet Russian. Officially, the Russian state doesn’t allow monopolies, but, unofficially, Gazprom uses its energy deliveries as a diplomatic bargaining tool with former Soviet bloc countries when they step out of line.

The company spent the last few years buying up all of its competitors inside Russia, some of which the state fed it directly. And outside of Russia, Gazprom has solidified its status by building and controlling natural gas lines to most of Eastern and Western Europe and Central Asia, and it has plans to extend its German pipeline into the Netherlands and eventually reach the English shore where it could more easily send liquid natural gas shipments directly to the United States.

Along with driving the natural gas market in Europe, Gazprom is slowly pushing foreign energy companies out of Russia’s oil and natural gas projects. Venezuelan President Hugo Chavez’s machinations to bring his country’s oil reserves back under local control look like the work of a preschooler when compared with the happenings on the other side of the Urals. Gazprom has quietly gathered control of most of the major projects inside Russia’s borders, with the help of the national government, adding a pound or two of much-needed political pressure, when necessary.

But what looks bad for other oil and natural gas companies is very good for investors. Gazprom’s U.S. stock, traded on the pink sheets, is up 47% in the last four months — delightful profits for those of you who took our advice and bought into the Russian monster way before Putin announced his successor would be the company’s chairman of the board.

Putin has been nothing but good to Gazprom, with or without an official connection.  The Russian citizenry has thrived under the country’s economic rebirth and its youthful key industry. And with Putin at its side and Medvedev at its back, Gazprom will thrive in coming years.

This is only the first of the profits for the energy company. Russia is for it, and as Napoleon and Hitler both demonstrated in their respective centuries, you can’t win against Russia. If the fight doesn’t kill you, the long, cold, dark winter will, especially if the gas company cuts off your fuel supply.

If you don’t own Gazprom (OGZPY: OTC), you should consider the investment now, before Medvedev is confirmed in his new office by the popular vote on March 2.

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Posted by Stephanie Grimmett · Filed Under Oil and Energy 

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