OREANDA-NEWS. November 21, 2012. Renaissance Capital, the leading emerging markets investment bank, has initiated coverage of the Russian gas sector, with a report, Russia’s position in global gas: Big potential, big challenges, authored by oil & gas analysts Bradley Way and Artem Kvas. The report sets out Renaissance Capital’s views on the key issues facing Russian natural gas exports, how Russia has positioned itself relative to these changes, and from this, what its long-term outlook is on global gas markets.

With the report, Renaissance Capital initiates coverage of Novatek with a BUY rating and target price (TP) of USD 150/GDR, based on a discounted cash flow (DCF) analysis; and of Gazprom with a BUY rating and a DCF-derived TP of USD 13/GDR.

The report focuses on Russia’s position as a country in global gas markets, dealing with the key issues of increasing competition from LNG and piped gas, increasing liquidity in European gas trading hubs, the liberalisation of electricity markets in Europe and opportunities in Asia and other new markets.

Bradley Way said: “In Renaissance’s view, major changes are coming to Russia’s natural gas space and investors should watch closely. The expected changes in the next 6-12 months could include an announcement of capacity additions to Nord Stream and Sakhalin; results of the Vladivostok LNG study as well as some compromise in taxes applied to difficult geographic and geological conditions, designed to incentivise investment in Russia’s frontier areas, among other happenings.”

Renaissance also expects Indian national oil companies to emerge as financiers and buyers of new projects, like Shtokman and possibly Yamal LNG.

The Firm’s analysts are counter-consensus in their long-term view of Russia’s position in global gas markets. They regard the EU probe into Gazprom as a sign and symptom of the company evolving into a large-scale piped gas version of the ‘aggregator’ business model operated by many LNG players.