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Russia’s Gas Giant Attracts The Attention Of Merrill Lynch

Credit: Reuters/Fabrice Coffrini/Pool MOSCOW | Thu Oct 17, 2013 1:29pm EDT MOSCOW (Reuters) – International talks this week on Iran’s nuclear program were “quite promising” and Tehran’s new proposals could produce progress toward ending the standoff between global powers and the Islamic state, Russia said on Thursday. “I would not understate the importance of this round,” Foreign Ministry spokesman Alexander Lukashevich said of Iran’s talks in Geneva on Tuesday and Wednesday with Russia, the United States, China, Britain, France and Germany. “In our view, although it was very tough, it was quite, quite promising,” Lukashevich said at a weekly briefing. Iran’s new proposals “could move the negotiating process forward, and are evidence of the Iranian side’s intention to … resolve the issues that are of concern to the six powers,” he said. He gave no details of the proposals. Lukashevich sounded more upbeat than Deputy Foreign Minister Sergei Ryabkov, the Russian negotiator at the talks in Geneva, who said on Wednesday that the sides were far apart and there was no guarantee of further progress. Russia, which built Iran’s first nuclear power plant and sells Iran weapons, has in the past been more positive than the West about Iran’s attitude toward the negotiations and less suspicious that it could be seeking nuclear weapons capability. The United States on Wednesday described two days of nuclear negotiations with Iran as the most serious and candid to date after Western diplomats said Tehran hinted it was ready to scale back sensitive atomic activities to secure urgent sanctions relief. (Reporting by Alexei Anishchuk; Writing by Steve Gutterman; Editing by Alissa de Carbonnel and Patrick Graham)

Bank of America Bank of America Merrill Lynch is advising clients to consider investing in Russias giant gas exporter, Gazprom Gazprom . Strong demand for Russian gas in Europe, and the potential for a deal to pipe gas to China underpins what the investment bank regards as a compelling valuation of Gazprom which is said to be trading on a 2014 price-to-earnings ratio of just 3.4 a fraction of Exxon Mobil Exxon Mobil s PE of 10.9. Enticing as that value gap might look it reflects the risk associated with buying American Depositary Receipts (ADRs) in a company which is 50.1% owned by the Russian Government which has a track record of sometimes erratic behavior and mistreatment of foreign investors. Despite question marks over the country and its government Merrill Lynch has a price target for Gazprom ADRs of $10.50, roughly $1 higher than their recent price of $9.48. Captive Europe What attracts the banks analysts is Gazproms stranglehold on European gas consumption which had been expected to fade, but now looks like being a longer-term factor. Our commodity team believes that there is little alternative to Russian gas in Europe for the near future, Merrill Lynch told clients in a note circulated to clients two days ago. This means that Gazproms volumes should remain strong and prices will stay high for Russian gas in Europe for longer than we initially anticipated. We now expect that higher exports into Europe will be sustainable for most of 2014 and 2015 and increase our earnings estimates (for Gazprom) by 5% to 7% and our price objective to $10.50. Ranked as Russias biggest business, Gazprom is also the worlds biggest producer of natural gas, sitting on the worlds biggest petroleum reserves. Supporting the Merrill Lynch investment thesis is a belief that Europe has worked itself into a corner in terms of energy supplies. Asian demand for liquefied natural gas (LNG) is strong and growing with Japans slow re-start of its nuclear sector requiring extra LNG deliveries which might have otherwise have made their way to Europe. In effect, Russia and Gazprom has come to Europes rescue because of declining alternative gas supplies from sources such as Algeria and Libya, and declining domestic production in most European countries, except Norway. China Deal A wild card in the Gazprom pack is a potential deal to start selling gas to China which Merrill Lynch believes could materialize towards the end of the year. If the China opportunity opens up it will require an investment estimated at $45 billion with first gas delivered in 2018.

Russia Stocks Slump Most in Emerging Markets as Rally Overdone

OAO Severstal, Russia s second-largest steelmaker, dropped 1.2 percent to 295 rubles. OAO Gazprom, the natural-gas export monopoly, declined 1.4 percent to 155.75 rubles. OAO Surgutneftegas, a Russian oil producer, tumbled 2.4 percent. The 14-day relative strength index on the Micex was at 70.3 yesterday, above the level of 70 that suggests to some analysts a security has been overbought and is poised for a decline. U.S. President Barack Obama signed into law a measure ending the 16-day U.S. government shutdown and extending the nations borrowing authority until early next year. The Micex advanced 3.4 percent this month amid optimism a deal would be struck. Crude fell 0.6 percent to $101.73 a barrel in New York . Many investors expected the U.S. government to come to a resolution and hence were buying riskier assets, like Russia, Vadim Bit-Avragim, who helps manage about $4.4 billion at Kapital Asset Management in Moscow, said by phone. And once the decision was made, many decided to fix profits after the rally. At the same time, the U.S. agreement will have to be revisited soon, which creates uncertainty.

Russia calls Sochi ready for Winter Olympics

We had nothing, the mayor said. We constructed everything from scratch. These Olympics, costing an estimated $51 billion, are the most expensive ever . The London 2012 Summer Games were estimated at near $19 billion and Beijings 2008 Winter Olympics at about $43 billion. Activists complain the environment has paid the price. Construction waste has been dumped on hillsides, said Vladimir Kimayev, a leader of Environmental Watch in Sochi, increasing the threat of landslides and sending pollutants into the Mzymta River. And a promenade along the Black Sea was built too close to the water, he said, asserting the beach was now vulnerable to erosion and the promenade might well be washed away. That, said Mayor Pakhomov, was impossible. The project was approved by state experts, he said. If there were violations it wouldnt have been approved. In 2008, after extensive disputes with Russian Olympic authorities, environmental groups had managed to persuade Putin, who was prime minister at the time, to move the bobsled track and mountain Olympic village to a less damaging location. A period of close cooperation followed. That ended in early 2010. We had been having monthly meetings and agreed to many ways in which things could be done better, said Igor Chestin, chief executive of WWF-Russia, part of the World Wide Fund for Nature global network.