Gazprom losses mostly on paper

Gazprom has taken first place in the list of Russia's most unprofitable companies in the year of 2023. For 35 years, the company, which was a symbol of the money that Russia earned from its gas and only ever generated only profits for the state which is its majority shareholder.
However, this trend has now been reversed .Well at least for the year of 2023
Now  What factors have contributed to Gazprom's  unprofitable situation and will the company return to proifts anytime soon?,
Forbes magazine has listed  Gazprom as the most unprofitable company in Russia in 2023. Russia's national gas company  has consistently generated profits over the past 35 years, due to its exclusive right to sell Russian pipeline gas abroad. However, 2023 will be remembered in history as the most challenging year to date.

Gazprom incurred a net loss of 583.1 billion rubles.  ( which is about $7 billion )The primary causes of the loss can be attributed to the depreciation of non-financial assets by 1.15 trillion rubles and the impact of exchange rate differences, which amounted to a loss of 652 billion rubles.So effectively we are talking about accountancy procedures and losses only on paper and not actuall cash  

In addition to Gazprom, the top three most unprofitable companies in Russia also included the Amur Gas Chemical Complex, which has not yet started operations and is being implemented by the Russian Chemicals Sibur and the Chinese corporation Sinopec, as well as the Ozon the internet online marketplace.
So what  actually happened  to cause Gazprom reaching such loses  and how likely are they to coccur in the furure?

Well Gazprom does not provide much in the way of details in its reporting regarding which non-financial assets were subject to impairment. The company just notes that the impact was felt across its gas, oil and electric power businesses, including unfinished construction projects. "It is likely that the impairment affected fields, gas pipelines and other infrastructure that were intended for the export of gas to Europe," states Sergei Kaufman, an analyst at FG Finam.
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Now its obvious that the main causes of the losses in 2023 were the write-off of all assets which were illegally seized by the bandits in the European Union in 2022. Yes those same people who claim that Russia violates International Law while they steal over $300 billion of Russian sovereign assets, but any inteligent person knows that the EU are just puppets of the real gangsters,banksters and mobsters in the USA and  
By rolling up all the different siezures and stealing of their assest plus the blowing on of some of them like the Nord Stream Pipelines, It would appear that Gazprom had already accepted the inevitable and decided not to reinstate these assets on its balance sheet, given that there was no possibility of regaining them.So you could say that Gazprom has effectively given up on Europe and apart from Turk Stream and the small amount of gas transit through Ukraine.

It is probable some of the assests that this refers to is Gazprom's share in the Polish company Europol, which operates the Polish section of the Yamal-Europe gas pipeline. Additionally, the company Gazprom Germania, which had numerous Gazprom subsidiaries, was also arrested and then stolen  by the Germans. "Gazprom wrote off the value of these companies, which resulted in a  large paper loss," states Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund (NESF).
The negative exchange rate differences mentioned in the report are associated with the collapse of the ruble in early 2023. This situation was observed last year by any company whose foreign currency liabilities exceed foreign currency assets, according to Kaufman.

Yushkov also highlights the 600 billion ruble increase in taxes that Gazprom was required to pay last year. By the Russian Govt
"In 2021 and 2022, Gazprom received excess profits from gas sales in Europe, where prices rose from mid-2021 and were above $1,000 per thousand cubic metres, and in 2022 they rose to an exorbitant several thousand dollars. The government opted to take advantage of these 'windfall  profits.

However, this was not done through the normal channel of the payment of dividends, but in the form of taxes, as this is a more straightforward and expedient approach. Gazprom was required to pay an additional premium of 50 billion rubles per month in mineral extraction tax, regardless of the quantity extracted. "Over the course of a year, the amount 600 billion rubles are received,"  by the Russian treasurty states Yushkov
The decline in revenue from gas exports to Europe obviously also contributed to the growth in losses. In 2021, Gazprom supplied approximately 150 billion cubic metres of gas to Europe. In 2022, there was a decrease in supplies, with current figures standing at over 60 billion cubic metres. Due to the continued high export volumes in the first half of the year, there was a significant decline in September following the Nord Stream explosions. Concurrently, prices in the EU reached unprecedented levels in 2021 and 2022, effectively offsetting the decline in volumes.
In 2023, exports fell to 27 billion cubic metres, with a corresponding decline in gas prices across the EU. Prices ranged from $600 to $300 per thousand cubic metres. The situation with the European direction remains similar this year, with Gazprom supplying via two routes: through Ukraine and the Turkish Stream.

In 2023, Gazprom's revenue (before excise taxes and export duties) from all gas exports decreased from 7.3 trillion to 2.9 trillion rubles. The reduction in revenue is attributable to a decline in export volumes to EU countries and a partial normalisation of gas prices in relation to the elevated levels observed in 2022, according to Kaufman.

In 2024, Gazprom's outlook is more promising. However, the company will need to demonstrate profitability in the wake of the challenging 2023 market conditions.

Gazprom is set to boost its pipeline gas exports to Europe by 3-6 billion cubic metres, reaching 30-33 billion cubic metres. Meanwhile, the projected average price for the year is estimated to be within the range of $380-$400 per thousand cubic metres.
So it might have cut its deliveries by 60% but it gets double the revenue that it used to get from the supplies.
Furthermore, additional shipments of several billion cubic metres are planned for Uzbekistan. Additionally, China is increasing its purchases under the Power of Siberia 2, which will result in an additional 8 billion cubic metres, bringing the total to 30 billion. It should be noted that this does not represent the tens of billions of cubic metres lost on the European market. However, in 2024, the write-off of European assets will no longer be applicable, although the increased mineral extraction tax will still be in effect, according to Yushkov.

Additionally, the domestic market has a target of increasing gasification to 86% by 2030.
It would be unwise to rely on Gazprom to increase its revenue significantly as a result of the gasification of Russian regions. Domestic gasification is a gradual process with limited market potential. The target of 86% gasification represents a maximum potential growth of 10%. "This equates to several tens of billions of cubic metres of additional demand for gas across Russia, rather than hundreds of billions," the FNEB expert elaborates.

The company has already received a net profit of 1.1 trillion rubles in the first half of 2024.( $15 billion) While Gazprom did report a strong performance for the first half of the year, it would be inaccurate to say that the company "coped." The company's adjusted free cash flow remained close to zero for the six-month period, while net profit in dollar terms was significantly lower than the figure recorded prior to the onset of the coronavirus crisis. The gas sector saw revenue growth of just 9.3% year-on-year, with the oil sector driving the main increase in revenue due to higher ruble oil prices. "The recovery of export volumes to the EU from the low base of early 2023, the planned increase in supplies to China and Central Asia, together with a weaker ruble, only enabled the decline in gas prices to be compensated for," Kaufman believes.

Analysts project that Gazprom will have a significantly higher probability of generating profits in 2025. In 2025, Gazprom will likely cease paying the increased mineral extraction tax, as the surcharge is no longer included in the draft budget for that year. This will have a positive impact on the company's economic performance.

It is, of course, possible that the situation could deteriorate further if the company is unable to pump 15 billion cubic metres per year through the Ukrainian pipeline. As there is no alternative destination for these volumes. However, Yushkov anticipates that neither Europe nor Ukraine will benefit from this, and that transit will continue even after the expiration of the transit agreement with Ukraine in December of this year.
"The United States is in a unique position to exert pressure on Ukraine, but there is currently no appetite for that within the US government. It is possible to extend transit without the need to sign an additional commercial contract. Mr. Yushkov believes that Ukraine can distribute transit capacities through the simple expedient of holding auctions.

"From 2025, the cancellation of the additional mineral extraction tax will enable Gazprom to generate positive free cash flow, alleviating concerns about the gas giant's financial position. In a positive scenario, we can anticipate dividends," predicts Kaufman.

However, even allowing for Gazprom's plans to gradually restore exports, it will be challenging for the company to achieve dollar-denominated profit levels comparable to those seen in 2021 or at least in the 2018-2019 period, according to FG Finam.
Still Russia does not mind as its earnings from Non Energy Non Resource exports are growing rapidly while Europe has not benefited at all from boycotting Russian gas,in fact Europe has suffered much more than Gazprom's paper losses with its economies destroyed and its citizens impoversished.