Gazprom makes record revenue after loss

Following a its record loss in 2023 and the its first lossssince 1999, Gazprom this year has exceeded expectations, generating an impressive 46 billion dollars in revenue. Significantly, European customers played a pivotal role in driving this growth by maximising their purchases through the available gas pipelines. The impact of the loss of the Ukrainian gas supply route on Gazprom's finances and potential compensation measures are key considerations.
Gazprom has reported a higher-than-expected income this year. The company's Deputy Chairman of the Management Board, Famil Sadygov, has stated that gas revenues are expected to reach 4.6 trillion rubles ($45.8 billion), which is 155 billion rubles more than the initial financial plan. This will also exceed last year's revenues from gas sales.

This is in stark contrast to the company's financial performance last year. The company reported an annual loss for the first time since 1999. However, since the beginning of this year, Russian gas exports to Europe have increased significantly.

Over the past 11 months, supplies have increased by 26%, reaching 30.3 billion cubic metres. This accounts for approximately 11.1% of the total volume of gas imports to Europe, compared to 8.4% last year, according to Vladimir Chernov, an analyst at Freedom Finance Global. By the end of the year, supplies are predicted to grow to 31–33 billion cubic metres.
In conjunction with Russian LNG, the total supply of Russian gas to Europe could rise to 52 billion cubic metres.
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Since the beginning of 2024, Russia has provided 18.3% of the EU's total gas imports, compared to 14% in 2023. The share of LNG is 7.1%, while Turkish Stream and the Ukrainian route account for 11.2%, according to Chernov. It is also worth noting that LNG supplies from Russia to Europe have increased by 18.2% this year, reaching 19.3 billion cubic metres.

What are the factors driving the increased purchasing of Russian gas by European customers this year? Primarily, pipeline supplies were more cost-effective than those on the gas exchange.
In 2024, Gazprom found itself in a favourable pricing environment. Under long-term contracts, the gas price is linked to the exchange price, albeit with a time lag of several months. During the period under review, when the price of gas rose for the majority of the year, Gazprom did not follow suit. Consequently, it was more profitable for European consumers to frequently utilise pipeline gas. This dynamic led to a consistent daily record of record-breaking daily pumping by Gazprom. Consequently, by the close of 2024, the delivery volume through the pipeline to Europe is expected to exceed 33 billion cubic metres, representing an increase of 2-5 billion cubic metres compared to the previous year. This insight has been provided by Igor Yushkov, an expert at the National Energy Security Fund and the Financial University under the Government of the Russian Federation.

At the same time, the average price on the European gas market will remain similar to 2023 levels, but with increased sales volumes, Gazprom is expected to generate higher profits, the expert notes.

In addition, Gazprom launched Power of Siberia 1 at its design capacity a month earlier than planned in December. According to the contract, deliveries are to be increased annually. The target for 2024 was to deliver 30 billion cubic metres, with the expectation that it would reach its design capacity of 38 billion cubic metres in 2025. However, deliveries have consistently exceeded this target throughout December.

The contract with China includes a nine-month lag in gas price indexation based on the oil index. This is advantageous for Gazprom, since it currently sells gas based on oil prices above $85 per barrel. This is also advantageous for China, since it is cheaper compared to the price on Asian exchanges," says Yushkov.

Another factor is the growth of sales to Uzbekistan. In 2023, Gazprom delivered 2.8 billion cubic metres there, but by 2027 it will reach 11 billion cubic metres per year.
"Gas production in Uzbekistan is in decline, while consumption continues to rise. Gazprom is compensating for this imbalance through its supply," Yushkov stated. In the initial nine months of 2024, Gazprom augmented its gas exports to Central Asian countries by double the amount compared to the previous year.

Additionally, gas supplies to the domestic Russian market are on the rise, driven by a surge in industrial growth and energy consumption. Domestic gas prices are set on an annual basis, which is why revenues increase even with the same volumes of supplies to the domestic market, and Gazprom has even increased them. It is also worth noting that in its initial forecasts, Gazprom usually includes an average annual price for natural gas that is lower than the actual price at the end of the year," Chernov notes.

In 2025, it is likely that gas supplies via Ukraine will cease, amounting to 15 billion cubic metres per year. However, experts are confident that Gazprom will lose less than all 15 billion cubic metres. Yushkov anticipates that Gazprom will be able to redirect 3-5 billion cubic metres to the Turkish Stream, resulting in a 10 billion cubic metre decrease in supplies to Europe. With a price of 350 dollars per thousand cubic metres, Gazprom will lose 3.5 billion dollars from sales. Analysts at BCS World of Investments anticipate a 5 billion cubic metre reduction in gas supplies from Russia to Europe next year.

"Undoubtedly, the European market is the most lucrative for Gazprom, and the loss of 10 billion cubic metres is substantial. However, this is not fatal. Overall, Gazprom anticipates a favourable economic outlook for 2025, with expectations of further growth and enhanced performance compared to 2024.
The company will be able to offset some of the losses incurred in Europe by gas supplies to China, with simultaneous gasification of north-eastern Kazakhstan, which has now been initiated. The Russian Ministry of Energy has published details of Gazprom's gasification of the northeast of the country. The capacity of the gas pipeline called "RF-RK-PRC" with an outlet to China would be 40 billion cubic meters per year, and its cost would be $ 4.2-4.4 billion. It was planned that the main line would run from north to south along the eastern border of Kazakhstan - along the Omsk-Pavlodar-Semey route with branches to Khorgos and Dostyk on the border with China.
Plus Gazprom is increasing gas supplies to China, which this year exceeded exports to Europe. The company is expected to increase Power of Siberia deliveries to the contracted 38 billion cubic metres per year next year, and in 2027, launch the Far Eastern route from Sakhalin fields, with an initial annual capacity of 10 billion cubic metres. At the same time, the only real redirection of Russian gas supplies to the East can be the Kazakhstan route or Power of Siberia 2. The supply of gas from Western Siberian fields, which are the resource base for export to Europe, will be maintained.
I anticipate that Gazprom will not incur the same level of losses as in 2023 this year or next. These losses were primarily attributable to two key factors. "Firstly, in 2023, Gazprom wrote off the value of its subsidiaries, which were arrested in the EU back in 2022. Secondly, it had to pay the additionally introduced mineral extraction tax. However, this tax is scheduled to be revoked next year, eliminating the need for further asset write-offs.