Russia is the dominant natural gas exporter in the world, with the largest endowment of the fuel in its territory.
Natural gas prices are up (rising over 90% in the U.S. since August 2007), and so is its popularity as energy icons like T. Boone Pickens are pushing for liquefied natural gas to become a viable transportation fuel to replace refined oil.
Below, I'll tell you about a Russian ETF that is capitalizing on Russia's prime position in the important international natural gas trade.
First, check out the following chart on natural gas futures.
As you can see in this chart, natural gas prices run in cycles. But the trend is heading up.
You see, leading European consumers are eager to secure steady supply on favorable terms, which means dealing with Russia. For years, that has meant dealing with one leader—Vladimir Putin.
That's about to change when a new president takes power May 7.
President-elect Dimitri Medvedev's first official trip was announced this week, and it will take him to Russia's two biggest neighbors and major energy allies, Kazakhstan and China.
Kazakhstan is expected to come out with at least a jump of 1 million barrels of oil per day after 2011, and China is the world's second largest energy consumer, with a growing appetite for natural gas that pollutes less than coal.
But right now, current President Vladimir Putin is putting ink to paper in Greece, a country that doesn't even border Russia, and was never a Soviet satellite state. Greece will however be an integral part of Russia's export future and a key transit point for European energy.
Russian Natural Gas and the South Stream Pipeline Project
The South Stream pipeline project, which will carry some 10 billion cubic meters of natural gas through Greece every year (of 30 billion in potential capacity), is a joint venture of Russia's gas export monopoly Gazprom and Italy's energy titan, Eni.
From a Russian compressor station, natural gas will be pumped under the Black Sea to Bulgaria, and then overland to Greece and Italy.
And it turns out that, when all is said and done, Medvedev's first jaunt as president to Kazakhstan and China, and Putin's Mediterranean connection in his closing days may not be so far apart in terms of Russia's national economic interest.
Buried in the news reports of Tuesday's Russian-Greek bilateral agreement on the South Stream pipeline was a hint that Central Asian gas would soon be transported through the conduit, in addition to original Russian fuel.
"Central Asian" is code for "Kazakh" in energy circles, because Kazakhstan is one of the last and best hopes for traditional fossil fuel.
By bringing millions of barrels of oil online, Kazakhstan is sure to see gas production ramp up as well. After all, the new wave of fossil fuel production and profit means new facilities built in the country may take advantage of gas byproducts rather than burning it off in wasteful flares.
And with tight connections confirmed by a new Russian president, even as the old one hangs around, Gazprom's got the bead on Kazakh gas, making it not only a Russian gas export giant but a king in international transport as well.
The Russian ETF on a Long Run
... Which leads me to why I'm sticking with my recommendation of the Market Vectors Russia ETF (NYSE:RSX).
The RSX ETF has continued its rise since I last told you about it in March, not rising directly in line with natural gas prices but certainly tied to fuel. The Russian ETF's top holdings include:
- Gazprom
- Rosneft (Russia's national oil exporter), as well as
- Nickel giant Norilsk... and a few non-resource plays like mobile phone service provider Vimpel (NYSE:VIP) to boot.
You can bet on the RSX ETF, with Russia poised to maintain its perch on top of the world's natural gas industry.
Regards,
Sam Hopkins
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