Gazprom Rallies on Ukraine Export Deal: Russia Overnight

OAO Gazprom rose for a fourth day as the Russian natural-gas producer’s temporary agreement with Ukraine on payments eased concern a standoff may disrupt exports to Europe shipped through the country.

The stock rose 2.4 percent to $5.14 in London on Tuesday, capping the longest streak of gains since late December. The rally pushed this year’s advance to 11 percent.

State-run Gazprom uses pipelines traversing Ukraine for about 40 percent of its shipments to Europe. The company had threatened to cut off supplies to the former Soviet republic, where pro-Russian separatists have been fighting the government for a year, when prepaid volumes run out. The shares rallied after officials confirmed during talks over a dispute about deliveries to rebel-held areas that Ukraine will keep paying for the fuel in advance under an interim deal signed in October.

“Smooth exports to Europe, Gazprom’s main market, mean a great deal to the company, and the agreement is positive for the stock,” Kirill Yankovskiy, the director of equity sales at Otkritie Capital Ltd. in London, said by phone on Tuesday. “Gazprom and Ukraine have proven yet again that both parties realize there is no alternative but a rational solution, and they find ways to reach an agreement.”

About one third of Europe’s gas comes from Russia. The country stopped deliveries to Ukraine in 2006 and 2009 during winter because of payment disputes, leading to supply disruptions in Europe.

‘Basket Case’

Ukraine confirmed it will keep paying in advance for natural gas deliveries for its domestic needs, Russian Energy Minister Alexander Novak said in Brussels on Tuesday. Russia agreed, for now, not to charge for gas delivered directly by Gazprom this month to the conflict zones in Ukraine, he said. The two countries plan to discuss who will pay for the rebels’ gas later, he said.

The European Union will seek a new gas accord between the two countries this month, said EU energy union chief Maros Sefcovic, who presided over the talks. Russia cut off Ukraine for six months in June amid a dispute over unpaid bills. A temporary deal brokered by the EU in October allowed supplies to be restored for the cold season. It expires at the end of this month.

While the eased tension in Ukraine and a weaker ruble, which has dropped 12 percent in the past three months, may boost Gazprom in the short term, other factors including Russia’s contracting economy and the company’s shrinking domestic market share will weigh on the stock, according to Farid Abasov, an analyst at SBG Securities in London.

“Gazprom is like a basket case,” Abasov, who rates the stock sell, said by phone Tuesday. “It’s next to impossible to find anything positive about the stock longer-term.”

Export Outlook

A weaker ruble helps Russian exporters, including Gazprom, who collect revenue in foreign currencies and cover costs in rubles.

The Moscow-based company’s American depositary receipts rose 3 percent to $5.15 in New York, pushing the gain this year to 14 percent. The Bloomberg Russia-US Equity Index increased

0.8 percent, ending a two-day decline. The Market Vectors Russia ETF rallied 3.2 percent to $17.93. United Co. Rusal added 1.7 percent to HK$5.54 at 10:57 a.m. in Hong Kong.

Gazprom’s shipments outside of the former Soviet states fell 27.5 percent in January and February from the same period a year ago, the company’s Moscow-based spokesman Sergei Kupriyanov said on March 2.

Exports to Europe are expected to recover later this year, as declines in oil prices make natural-gas supplies more affordable, Elchin Mammadov, an analyst at Bloomberg Intelligence in London, said by e-mail Tuesday. Gazprom links most of its gas prices to oil and refined products with a time lag, a method that dates back to the 1970s, when the fuels were more commonly used in power generation.

Shrinking Inventories

Gas inventories in the European Union’s 28 member states were 35.2 percent full on Monday, the lowest level for this time of year since 2009, according to Gas Infrastructure Europe, a lobby group in Brussels. Lower inventories signal potential demand, according to analysts including Mammadov.

“Revenues from sales abroad will be a particularly important driver for the company given the weakness of the ruble,” Mammadov said. “As the current winter gas supply deal expires at the end of the month, Moscow and Kiev, with the help of Brussels, will need to focus on reaching agreement for gas deliveries from April onward. This will be particularly important as we go into the refill season, which typically runs from April until October.”

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