Gazprom suffers its worst loss for decades due to a collapse in sales to Europe

Gazprom, the Russian energy giant, has suffered its worst loss in more than 25 years after gas sales have been cut in half as a result of Vladimir Putin’s Ukraine war.

The Russian president’s invasion in Ukraine, which has caused the natural gas monopoly to suffer, is evident in the loss of Rbs629bn (6.9bn), in 2023. This will lead to a drop in sales in Europe, the main source of revenue for the company.

Gazprom revenues dropped by almost 30% year-on-year, from Rbs8.5tn to Rbs4.1tn. Gas sales fell from Rbs8.4tn down to Rbs4.1tn.

On hearing the news, shares of the company listed in Moscow fell by more than 4,4%. The majority of Russian analysts expected the company to make a modest profit.

Analysts say the losses show how Gazprom has failed to adapt after losing the EU energy market. Gazprom was once a “national champion” with a large cash reserve that used this as a weapon to control Europe’s supply of energy.

Gazprom’s revenues from gas sales outside Russia dropped from Rbs7.3tn to Rbs2.9tn, analysts say. This drop was primarily due to the decline in European sales.

According to EU data, European countries have found alternative gas sources with greater success than they expected. The share of Russia in Europe’s imports of gas dropped from 40% in 2021 (the last year full before the invasion) to 8% in 2023.

Analysts said that the results revealed that what used to be Gazprom’s main business — selling natural gas to Europe — has become a loss-making millstone, only partially offset by its oil sales.

The profit from oil, gas, condensate, and petroproducts increased to Rbs4.1tn in the past year, a 4.3% increase. This shows how Russian exporters were able to navigate the western attempts to reduce the Kremlin’s revenue from sales of energy.

These efforts weren’t enough to prevent Gazprom from making a loss.

Sergei Vakulenko is a senior fellow with the Carnegie Russia Eurasia Center, Berlin.

Vakulenko stated that despite only having a quarter the assets of its parent, Gazprom neft had generated nearly as much revenue as Gazprom’s gas business, and brought in profits equal to two thirds of 2022 profit for the gas segment.

Gazprom’s operating costs, as well as capital expenditures, increased last year even though the headwinds facing the company were becoming more evident, adding to the losses.

Analysts say that Gazprom’s exports through other channels grew slightly in the past year but only represented 5-10% of its lost European sales.

Both the Kremlin, and Gazprom, have hailed China’s increasing purchases of Russian Gas as a potential replacement. These exports were however only 22bn cube metres last year, compared to the 230bn cube metres Russia exported in average per year during the decade prior to the invasion of Ukraine.

Analysts say that the Power of Siberia 2 pipe, which has been delayed for years, is intended to transport gas from fields once supplying Europe. However, it would take many years to complete and not compensate Gazprom’s losses in Europe.

Craig Kennedy, former vice-chair of Bank of America and Harvard-affiliated scholar, said that the loss of revenue from Europe was an insurmountable problem. “It’s cross-subsidising other businesses and they finally have to show it in their accounts .”

He said that the losses were proof of how war made this model from prewar unsustainable.

Gazprom has been forced to borrow money to cover its growing losses because the Kremlin is trying to avoid a liberalisation of domestic gas prices.

He added, “The state response to them would be just let’s borrow more.”

Post Disclaimer

The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.

This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.

The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.