Russia's Gazprom loses US$1.4bn after shares plunge following Putin's visit to China

Shares in Russian state energy giant Gazprom fell sharply after Kremlin leader Vladimir Putin concluded his visit to China.

Source: The Moscow Times, an independent Amsterdam-based news outlet

Details: The decline was attributed to the lack of concrete agreements on the construction of the Power of Siberia 2 gas pipeline.

None of the 40 documents signed following the visit concerned oil and gas cooperation. They also contained no reference to Power of Siberia 2, a project that the Kremlin has been negotiating with China for more than a decade.

At the start of Putin's visit, Gazprom shares rose to RUB 123-125 (US$1.74-1.77). After the trip ended, they fell to RUB 118.25 (US$1.67) on 20 May.

Overall, Gazprom shares declined by more than 3.5%. The company lost around RUB 100 billion (US$1.41 billion) in market value in a single day and more than RUB 120 billion (US$1.70 billion) compared with levels seen before Putin's trip to Beijing.

"Investors were expecting concrete progress on Power of Siberia 2 but once again received uncertainty," analysts said.

One of the main sticking points in negotiations remains the price of gas. China is demanding a price close to Russia's domestic rate.

That would amount to about US$50 per thousand cubic metres – five times lower than the price China currently pays and 8.5 times lower than Gazprom charges other customers.

Alongside Gazprom, shares in TMK fell by 6%. The company had hoped to supply pipes for the gas pipeline and was viewed by investors as a potential beneficiary of the project.

Shares in Rosneft fell by 2%, while Gazprom Neft lost 1.5% and Novatek dropped 1.3%. The MOEX Russia Index, which tracks 40 of Russia's largest companies, ended 20 May down 1% at 2,637.3 points.

Background:

• The Power of Siberia 2 project would require extensive construction work, negotiations and planning, with the pipeline expected to take 8 to 10 years to complete.
• China has instead sought to increase purchases of Russian gas through the existing Power of Siberia pipeline, as talks on the second route have stalled, undermining Moscow's efforts to secure new export markets.

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