Friday, December 22, 2006

They Shoot Journalists, Don't They?

So, the inevitable happened, and Shell and it's Japanese partners caved in and let the Russian government Gazprom buy a stake in Sakhalin 2. Basically, they had absolutely no choice.

If you ask the Russians, they will say that the West took unfair advantage of them when they were down, and that now these deals will be renegotiated, one way or the other. And to some extent, these events are not a huge surprise, as this Russian re-nationalization of it's resource industry is just another in a fairly long line of re-nationalizations that have happened in resource rich countries.

The scary part though is that at the same time this is happening, other unsettling events are occuring inside and outside Russia, including a takeover/intimidation of the media, murders/intimidation of prominant opposition members, etc. It is basically the Wild West there, and the danger is that something spins out of control at some point, and you get serious foreign capital flight as a result. And with the general popularity of emerging markets these days, you have to wonder if something were to happen in Russia, would it trigger a more widespread sell off in emerging markets in general?

A year ago I suggested Gazprom was worthy of a speculative investment and the stock has gone up since then. There is probably more upside to this stock in the future and to Russia in general.

But seriously here: caveat emptor.

New York Times: Russians Buy Control of Oil Field.

[Note the article headline says "Russians" and not "Gazprom" in a sly reference to the fact that Gazprom is basically an instrument of the Russian government.]


Gazprom, the Russian energy monopoly, bought control of the world’s largest combined oil and natural gas development Thursday after a highly publicized campaign of pressure on its foreign operator, Royal Dutch Shell.

Shell’s sale of 50 percent plus one share followed months of accusations against the project by a Russian environmental regulator — a problem that President Vladimir V. Putin, in announcing Gazprom’s entry, said would now most likely be resolved.

Critics of the sale called it the first effective nationalization of a large foreign oil or gas project in Russia, which this year surpassed Saudi Arabia in oil production.