- Gazprom posted a loss of $7 bln in 2023, first since end-1990s - Gazprom’s pipeline gas sales to Europe slump - Russia banks on business with Asia - Price of Russian gas for China seen gradually declining
Kremlin-owned energy kingpin Gazprom, once Russia’s most profitable company, could face a long period of poor performance as it struggles to fill the gap of lost European gas sales with its domestic market and Chinese exports.
The company recently announced an annual net loss of $7 billion, its first since 1999, following a steep decline in trade with Europe.
Gazprom’s troubles reflect the deep impact the European sanctions have had on Russia’s gas industry, as well as the limitations of Moscow’s growing partnership with China.
The impact of international sanctions on oil exports has been easier for Moscow to absorb because Russia has been able to redirect sea-borne oil exports to other buyers.
Gazprom relied on Europe as its largest sales market until 2022, when Russia’s conflict with Ukraine prompted the EU to cut Gazprom gas imports.
Russia supplied a total of around 63.8 billion cubic metres (bcm) of gas to Europe by various routes in 2022, according to Gazprom data and Reuters calculations. The volume decreased further, by 55.6%, to 28.3 bcm last year.
That’s compared to a peak of 200.8 bcm Gazprom pumped in 2018 to the EU and other countries, such as Turkey.
Mysterious blasts at Nord Stream undersea gas pipelines from Russia to Germany in September 2022 also significantly undermined Russian gas trade with Europe. Russia has turned to China, seeking to boost its pipeline gas sales to 100 bcm a year by 2030. Gazprom started pipeline gas supplies to China via the Power of Siberia in the end of 2019.
It plans to reach the 38 bcm annual capacity of Power of Siberia by the end of this year, while Moscow and Beijing also agreed in 2022 about exports of 10 bcm from the Pacific island of Sakhalin.
Russia’s biggest hope is the Power of Siberia 2 pipeline via Mongolia, which is planned to export 50 bcm per year. But that has hit some pitfalls due to the lack of agreement over pricing and other issues.
“While Gazprom will see some additional export revenues when all those pipelines will be up and running, it will never be able to offset completely the business it has lost to Europe,” Kateryna Filippenko, a research director on gas and LNG at Wood Mackenzie, said.
Chinese pipedream?
Russia has also struggled so far to establish a gas trading centre in Turkey, an idea first floated by President Vladimir Putin in October 2022. No significant development has been reported since.
Even if Gazprom can get its pipeline supply to China up and running, sales revenues will be much lower than from Europe.
According to Moscow-based BCS brokerage, Gazprom’s revenue from gas sales to Europe in 2015-2019 averaged at $3.3 billion per month thanks to monthly supplies of 15.5 bcm.
Taking into account a price of $286.9 per 1,000 cubic metres, as reported by the Russian economy ministry, and Gazprom’s gas exports of 22.7 bcm last year, the total value of the company’s gas sold to China could have reach $6.5 billion for the whole of 2023.
Gazprom did not reveal its revenue from sales to Europe or China for 2023 separately.
Dr Michal Meidan, head of China Energy Research at Oxford Institute for Energy Studies, said China is unlikely to replace Europe for Russia as a highly profitable gas export market.
“China gives Russia an outlet but at much lower prices and revenue than Europe,” she said.
In 2023, Russian pipeline gas was sold at $6.6 per million British thermal units (mmBtu) to China and slightly lower than that in the first quarter 2024 at $6.4/mmBtu.
That’s compared to an average price of Russian gas in Europe of $12.9/mmBtu last year.
According to a document seen by Reuters last month, Russia expects its gas price for China to continue gradually declining in next four years, while a worst-case scenario does not rule out a 45% fall to $156.7 per 1,000 cubic metres (around $4.4 per mmBtu) in 2027 versus 2023.
It didn’t say what might drive prices down, but Russia is facing rivalry from other pipeline gas suppliers to China, such as Turkmenistan, as well as sea-borne liquefied natural gas.
The financials of Gazprom, which also include its oil and power units, showed that the revenue from the natural gas business more than halved last year, to just over 3.1 trillion roubles, while oil and gas condensate sales amounted to 4.1 trillion roubles, up 4.3%, according to BCS brokerage.
Alexei Belogoriyev of Moscow-based Institute for Energy and Finance said it would be impossible for Gazprom to restore profitability relying solely on its gas business. He said strategic shift to production and export of ammonia, methanol and other gas processing products for Gazprom is possible, but it will not give a quick return.
“At the same time, the prospects for the Power of Siberia 2 remain vague: China most likely won’t need for so much additional imports in 2030s due to the likely slowdown in demand growth and high domestic gas production rates,” he said.
And you can be sure that if Gazprom is reporting a 7 billion loss, you can be sure they worked as hard as possible to make that number as small as possible. I’m willing to bet a lot of money the actual loss is a lot bigger.
Good.
Excellent.
The West and our allies should deploy all covert means and most overt means, short of a shooting war, to destroy the russian state. Fuck the blyats.
A key piece missing here: many EU nations were working for a long time towards reducing their reliance upon gas & oil in general and on it coming from Russia as a source specifically. iirc Germany was even on target to reduce that to zero by 2025, before the Ukraine invasion started? So how much of this dip in revenue was already likely, regardless of the war?
It would seem disingenuous to call it a “loss” even in that case, if it was less than a prior year but it wasn’t expected to begin with - that’s generally not how that word works, when the identical revenue stream projected into the future was not “expected”.
Gazprom may even be okay with everything that is happening as part of the overall restructuring / realignment plan to shift from EU to more Asian markets where impending climate change may be considered to be less of an impediment to future purchases than the EU market was becoming. e.g. when faced with market changes, rather than pivot to meet the newer challenges of green(-er) energy, Gazprom may welcome this doubling down on old ways of doing business in the Asian sphere.
This week, the Kremlin issued a decree to halt Gazprom dividends this year. A strange move if it ‘was expected to begin with’, especially if we cpnsider that the Kremlin relies heavily on Gazprom to fuel its war machine.
And the alternative markets in Asia may or may not come for Russia’s future, but they don’t come anytime soon as Russia simply lacks the infrastructure to these destinations. According to an Analysis by the Atlantic Council, building the pipelines would cost USD 100 billion, and you can’t build them overnight. That takes a very long time, time Moscow doesn’t seem to have.
So call it a loss or whatever you want, but Gazprom is in big trouble, and so is the Kremlin.
There’s nothing ‘disingenuous’ about calling it a ‘loss’. It clearly states they posted a 7 bill NET loss. Not projected, not relative to the past… net. loss. They paid $7 bill to stay in business this year and are cancelling dividends. Their sales of gas reduce by more than 50% in 1 year. They aren’t ‘welcoming’ anything. They are praying doing business in Asian markets will be enough to bring them back to profitability and the latter half of the article makes it clear this is very unlikely for a few years at least.
This is imo the best news I’ve read all year in that it shows strong evidence the sanctions are working. I just hope they hurt enough that Russia retreats from Ukraine, and gives up their plan of continental conquest for good, but I’m not holding my breath.
A key piece you forgot to mention is Nordstream 2, which was only completed in 2021. Prior to the war, both Russia and Germany were planning to increase natural gas delivery to Europe, not decrease it, and certainly not to eliminate it by 2025!
