Unlock the Editor’s Digest at no cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Russian vitality large Gazprom plunged to its largest loss in no less than 1 / 4 of a century after gasoline gross sales greater than halved within the fallout from Vladimir Putin’s conflict in Ukraine.
The lack of Rbs629bn ($6.9bn) in 2023 underlines how the Russian president’s invasion of Ukraine has ravaged the state-owned pure gasoline monopoly, resulting in plummeting gross sales in Europe, its fundamental supply of revenue.
Gazprom’s revenues fell nearly 30 per cent year-on-year to Rbs8.5tn, with gasoline gross sales dropping from Rbs8.4tn to Rbs4.1tn.
The firm’s Moscow-listed shares fell greater than 4.4 per cent on the information. Most Russian analysts had anticipated it to make a small revenue.
Analysts stated the losses confirmed how Gazprom, as soon as a cash-rich “national champion” that used its robust maintain over Europe’s vitality provide as a geopolitical weapon, had didn’t adapt to dropping the EU market.
Gazprom’s income from gasoline gross sales exterior Russia fell from Rbs7.3tn in 2022 to Rbs2.9tn final yr, a drop analysts stated was principally pushed by the lack of its European gross sales.
European nations, in the meantime, have had higher success than anticipated find various sources of gasoline: Russia’s share of Europe’s gasoline imports dropped from 40 per cent in 2021, the final full yr earlier than the invasion, to eight per cent in 2023, in line with EU knowledge.
The outcomes confirmed that what was as soon as Gazprom’s core enterprise — promoting gasoline to Europe — had change into a lossmaking millstone solely partially offset by income from its oil gross sales, analysts stated.
Profit from oil, gasoline condensate and petroproducts rose to Rbs4.1tn, up 4.3 per cent on the earlier yr, exhibiting how Russian exporters have efficiently navigated western makes an attempt to restrict the Kremlin’s income from vitality gross sales.
But these efforts weren’t sufficient to cease Gazprom making a loss.
“Gazprom used to be a huge gas company with an oil business, Gazprom Neft, on the side,” stated Sergei Vakulenko, a senior fellow on the Carnegie Russia Eurasia Center in Berlin.
Last yr, nonetheless, Gazprom Neft generated nearly as a lot in gross sales as Gazprom’s gasoline enterprise and introduced in a revenue equal to two-thirds of the gasoline section’s 2022 revenue, Vakulenko stated, regardless of having only a quarter of its father or mother’s belongings.
Gazprom’s working prices and capital expenditure additionally went up final yr, even because the headwinds for the corporate grew to become clear, additional contributing to the losses, he added.
Gazprom’s different avenues for its exports grew barely final yr, however nonetheless solely accounted for five to 10 per cent of the misplaced European gross sales, in line with analysts.
The Kremlin and Gazprom have trumpeted rising Chinese purchases of Russian gasoline as an eventual alternative. Those exports, nonetheless, have been solely 22bn cubic meters final yr in opposition to the 230bn cubic meters a yr Russia exported on common within the decade earlier than the Ukraine invasion.
The long-delayed Power of Siberia 2 pipeline is deliberate to ship gasoline from the fields that when equipped Europe, however would require years to construct and nonetheless not compensate Gazprom’s losses in Europe, analysts say.
“The loss of revenues from Europe is an unfixable problem without going back into Europe,” stated Craig Kennedy, a Harvard-affiliated scholar and former vice-chair at Bank of America. “It was cross-subsidising the rest of the business and they are finally being forced to show this in their accounts.”
The losses confirmed how the conflict had made this prewar mannequin unsustainable, he added.
The Kremlin has sought to keep away from liberalising home gasoline costs, forcing Gazprom to borrow to cowl its mounting losses.
“The state’s response to them is just, let’s go borrow more,” he added.
This article has been amended to appropriate Gazprom’s total gasoline gross sales