In its latest financial report, Russia’s energy giant Gazprom revealed a net loss of 18.6 billion roubles ($197 million) for the second quarter of 2023. This marks a significant shift from the net profit of 1.03 trillion roubles recorded in the same period last year. The downturn is attributed to the disruption in gas exports to Europe, once Gazprom’s primary revenue source.
Gazprom’s decision to suspend the disclosure of its exports data has led to calculated estimates by Reuters, indicating that supplies to Europe were approximately 15 billion cubic metres (bcm) between January and July. This figure pales in comparison to the 62 bcm delivered throughout the entirety of 2022.
Famil Sadygov, Deputy CEO of Gazprom, acknowledged the decline in European exports while highlighting growth in supplies to China. He cited contractual obligations and operational efficiency as drivers behind the expanding Chinese market presence. Sadygov communicated this information via the Telegram messaging app.
Several factors have influenced Gazprom’s earnings, including a 24% depreciation of the Russian rouble against the U.S. dollar within the first half of the current year. The financial impact has been substantial, causing the company’s net income for the first six months of 2023 to plummet to 296 billion roubles, a stark contrast to the 2.5 trillion roubles recorded during the same period in 2022.
Gazprom’s dividend framework, traditionally based on 50% of adjusted net income, is influenced by these financial fluctuations. The company’s dividend payment base for the recent period stands at 618 billion roubles.
The underlying reason for this financial turmoil is Gazprom’s strategic shift in gas flows, particularly to Europe. Ongoing geopolitical tensions involving Russia and Western nations have prompted Gazprom to significantly curtail gas deliveries to Europe, a market that was once its cornerstone. The geopolitical standoff, particularly related to the conflict in Ukraine, has led to disruptions in pipeline routes and halted gas flows to several European countries.
To offset the decrease in European exports, Gazprom has focused on bolstering its supplies to China, leveraging contractual commitments and favorable operational conditions. However, it’s important to note that the quantities supplied to China remain a fraction of the volumes historically directed towards Europe.
Gazprom’s pipeline exports to China are projected to reach 22 billion cubic meters in the current year, up from 15.5 billion in the previous year. By comparison, pre-conflict estimates show that the company supplied around 177 billion cubic meters of pipeline gas to Europe (including Turkey) in 2021. This year, expectations are that westbound flows to Europe might reach just 51 billion cubic meters, as forecasted by investment bank Sinara in June.
Information for this briefing was found via Reuters, Bloomberg, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.