Who Benefits When China Buys Clean Energy from Russia?

China buy-recommendations PetroChina (PTR) and CNOOC Ltd (CEO) account for an unlevered 6% and Russia buy-recommendations Gazprom (OGZPY.PK) and Lukoil (LUKOY.PK) account for 14% of the illustrative McDep Energy Portfolio.

Meeting in Moscow on March 26, President Hu leads the world’s largest coal polluter and President Putin leads the world’s largest natural gas producer. Russia has the solution for China’s pollution, yet bilateral natural gas projects are stalled, perhaps because of price.

Under wasteful price controls reminiscent of the U.S. in the 1970s, PTR, CEO and OGZPY receive about a fifth of the refined oil equivalent price for production of the cleanest fossil fuel. China would be naïve to expect to buy natural gas at a cheap price and Russia would be foolish to sell for less than the oil equivalent.

Expecting smart leaders to recognize economic and environmental trends, we are betting that shareholders of the recommended companies will participate in the ultimate benefits of China buying clean energy from Russia. Strengthening the symbolism, the six-year global benchmark price for oil joins that for natural gas to capture renewed positive momentum above the 40-week average of $67.30 a barrel and $7.83 a million btu (see chart below).