Gazprom Shares Will Return to Bullish Territory Because of Synergy of Factors

For the first time in history, the net profit of Gazprom's (MCX: GAZP, OGZPY) parent company based on the RAS, Russian Accounting Standards, for the elapsed 9 months of 2021 exceeded 1 trillion rubles. The number has pointed to an absolute record across all 9-month period profits in the company’s history. The annual profit of the parent company has also never exceeded a trillion rubles before. “Given the record-high expectations for the parent company's profit under RAS, we can expect similar consolidated financial results for the whole Gazprom under IFRS. This will allow the company to also pay record dividends for 2021 FY, to the tune of 35-40 rubles per share. Gazprom reached the target inventory level in Russia's UGS facilities of 72.6 billion cubic meters and over the past weekend expedited a sizeable gas injection into the Jemgum storage facility in Germany. We expect at least a little short-term relief for the market, but the situation with the balance of supply and demand remains very tense, and the expected winter gas prices in the Eastern Hemisphere are likely to return to the level of $ 1,000 per cub. m (around 36 mil BTUs) or higher.

Meanwhile, according to FT, European natural gas futures surged yet another 11% on Monday to a high of €117.25 per megawatt-hour, up from €105.35 on Friday and just under the record high of €117.50/MWh in October after German foreign minister Annalena Baerbock said the Nord Stream 2 pipeline could not be permitted in its current form because it did not fully comply with EU law. Nord Stream 2 can only go into operation once it has been approved by Germany’s regulator, the Bundesnetzagentur, or Federal Network Agency, and the European Commission.

That is European gas futures returned to their highest levels since early October, making the region’s energy consumption stress and a threat of blackouts, earlier voiced by Goldman Sachs energy analysts, unabated.

Spells of cold weather and stable but weak pipeline loads towards Western Europe have resulted in an accelerated depletion of already low gas inventories. Across Europe, gas storage facilities are now just 62.8% full, more than 10% below multi-year seasonally-adjusted averages. If the drawdowns continue at current rates, storage levels will reach critically low levels by March/April next year. Analysts say there is no obvious reprieve for Europe’s gas market outside of a mild winter.

We expect Gazprom shares to remain in the bullish territory at least through January 2022, even though the overall global stock market trend remains muted at best.