2024-05-13 15:07:11
Gazprom’s financial difficulties are getting worse, and business in China cannot absorb the losses from Europe. Experts see bleak prospects for Russia’s gas giant.
Russia’s state gas company Gazprom, once the country’s most valuable company, is struggling with the consequences of customer exodus in Europe. Gazprom’s attempts to fill the gaps by increasing sales in its home market and supplying China have met with limited success, data compiled by Reuters shows.
Michal Meidan, an expert on China at the Oxford Institute for Energy Studies, does not believe that the People’s Republic can replace Europe as a highly profitable gas market. “China is a sales market for Russia, but with much lower prices and sales than Europe.” Gazprom could therefore face a long-term business downturn.
For decades, Europe, but especially Germany, was the largest sales market for natural gas from Siberia and other regions of Russia. This has changed with the war in Ukraine that has been raging since 2022. Germany, together with Gazprom’s largest individual customer, the Düsseldorf-based Uniper Group, is completely foregoing pipeline gas from Russia, while other countries have reduced their imports. The collapse in gas business with Europe contributed to Gazprom ending a financial year with a loss for the first time since 1999: the 2023 balance sheet shows a deficit of seven billion dollars.
Planning with China is sometimes making slow progress
According to data from Gazprom and Reuters calculations, Russia exported around 63.8 billion cubic meters of gas to Europe on various routes in the first year of the war, 2022. In 2023, deliveries fell by more than half to 28.3 billion cubic meters. These numbers are a far cry from times like 2018, when Russia pumped a total of 200.8 billion cubic meters of natural gas into the European Union and other countries, such as Turkey. Export capacities were also reduced by the damage to the Nord Stream pipes in the Baltic Sea, where there were still unexplained explosions in September 2022.
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Russia has therefore turned to China. By 2030, 100 billion cubic meters of natural gas are expected to flow into China annually. New pipelines should also contribute to this. However, the planning is sometimes making slow progress because there is no agreement on the price and other things.
Since the end of 2019, Russia has been pumping gas into the People’s Republic through the “Power of Siberia” pipeline. Russia will increase its revenue somewhat through new pipes, says Kateryna Filippenko, gas expert at Wood Mackenzie, an analysis firm that specializes in energy markets. “But all of this will never be enough to compensate for the losses in Europe.”
Ministry of Economic Affairs expects exports to China to fall
Even if Gazprom implements all pipeline projects, revenues with China would be significantly lower than with Europe: according to the Moscow-based trade office BCS, Gazprom’s revenues from gas sales to Europe in the period 2015-2019 amounted to 15.5, thanks to monthly deliveries billion cubic meters to an average of $3.3 billion per month.
According to Reuters calculations, revenue from gas deliveries to China is closer to $6.5 billion for the whole of 2023 – if you use the price of $286.9 per 1,000 cubic meters given by the Russian Ministry of Economy for the 22.7 billion cubic meters of gas , which Gazprom delivered to the People’s Republic last year. The group has not separately reported its revenue from sales to Europe or China for 2023.
Gas prices should fall
According to a document seen by Reuters last month, the Russian Economy Ministry expects the price of gas for exports to China to fall steadily over the next four years. In a worst-case scenario, there is even talk of a 45 percent drop in 2027 to $156.7 per 1,000 cubic meters. A reason for these expectations was not given in the document, but there is competition from Turkmenistan, which also supplies gas via a pipeline to China, or from liquefied natural gas supplies.
Alexei Belogoriyev from the Institute for Energy and Finance in Moscow assumes that Gazprom will be in the red in the gas business for the foreseeable future. “China is unlikely to need increased imports in the 2030s because demand is growing more slowly and China itself is producing more and more gas.”