Gazprom, the Kremlin-owned energy giant and once Russia’s most profitable company, is facing a prolonged period of poor performance as it struggles to fill the gap left by the steep decline in its European gas sales. The company recently announced an annual net loss of $7 billion, its first since 1999, following a sharp reduction in trade with Europe.
Gazprom’s troubles reflect the deep impact that European sanctions have had on Russia’s gas industry, as well as the limitations of Moscow’s growing partnership with China. While the impact of international sanctions on oil exports has been easier for Moscow to absorb, as it has been able to redirect sea-borne oil exports to other buyers, the same cannot be said for gas.
Gazprom relied heavily on Europe as its largest sales market until 2022, when Russia’s conflict with Ukraine prompted the EU to cut Gazprom gas imports. In 2022, Russia supplied a total of around 63.8 billion cubic metres (bcm) of gas to Europe, a significant decline from the peak of 200.8 bcm pumped in 2018. The mysterious blasts at the Nord Stream undersea gas pipelines from Russia to Germany in September 2022 further undermined Russian gas trade with Europe.
To offset these losses, 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 late 2019 and plans to reach the 38 bcm annual capacity of Power of Siberia by the end of this year. Moscow and Beijing also agreed in 2022 about exports of 10 bcm from the Pacific island of Sakhalin.
However, Kateryna Filippenko, a research director on gas and LNG at Wood Mackenzie, cautioned that while Gazprom will see some additional export revenues when all those pipelines are operational, it will never be able to completely offset the business it has lost in Europe.
The company’s biggest hope is the Power of Siberia 2 pipeline via Mongolia, which is planned to export 50 bcm per year. But even that project has hit some pitfalls due to the lack of agreement over pricing and other issues.