Russian energy behemoth Gazprom faced its most substantial financial setback in over twenty-five years as gas sales plummeted following the fallout from Vladimir Putin's conflict in Ukraine.
The staggering loss of Rbs 629bn ($6.9bn) in 2023 underscores how the Russian president's military actions in Ukraine have severely impacted the state-owned natural gas giant, resulting in a sharp decline in sales across Europe, its primary revenue source.
Gazprom witnessed a nearly 30% decline in revenues year-on-year, dropping from Rbs 8.4tn to Rbs 4.1tn. This downturn led to a notable 4.4% drop in the company's Moscow-listed shares, a development contrary to the expectations of many Russian analysts who had anticipated a modest profit.
Analysts argue that these losses highlight Gazprom's failure to adapt to the changing dynamics of the European market, once its cash-rich domain where it wielded significant influence over energy supplies as a geopolitical tool.
The company's revenue from gas sales beyond Russia dwindled from Rbs 7.3tn in 2022 to Rbs 2.9tn last year, primarily due to the decline in European sales.
Interestingly, European nations managed to find alternative gas sources more effectively than anticipated. According to EU data, Russia's share of Europe's gas imports plummeted from 40% in 2021 to just 8% in 2023.
This significant decline in Gazprom's core business, selling gas to Europe, resulted in substantial losses that were only partially offset by profits from its oil sales, which increased by 4.3% to Rbs 4.1tn.
Sergei Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center in Berlin, noted Gazprom Neft's emergence as a significant player. Despite having a fraction of its parent company's assets, Gazprom Neft almost matched Gazprom's gas business in sales and generated profits equivalent to two-thirds of the gas segment's 2022 profit.
Despite Gazprom's efforts to diversify its export avenues, they only marginally compensated for the lost European sales, accounting for only 5 to 10% of the decline, analysts say.
The Kremlin and Gazprom have touted increasing Chinese gas purchases as a potential substitute. However, last year's exports to China were a mere 22bn cubic meters, significantly lower than the 230bn cubic meters per year Russia exported on average in the decade before the Ukraine conflict.
While plans for the Power of Siberia 2 pipeline aim to redirect gas from fields once dedicated to Europe, analysts warn that it will take years to construct and still won't offset Gazprom's European losses adequately.
Craig Kennedy, a Harvard-affiliated scholar and former Bank of America vice-chair, emphasised the severity of Gazprom's revenue loss from Europe, labelling it an "unfixable problem" without re-entry into the European market.
The war has rendered Gazprom's pre-conflict business model unsustainable, prompting the Kremlin to eschew liberalising domestic gas prices and instead opt for increased borrowing to cover Gazprom's mounting losses.
