Russian state natural gas giant Gazprom is trying to diversify its export markets to compensate for the market decline it has experienced in Europe.
Gazprom, which recorded a loss of 629 billion rubles (about $6.9 billion) last year for the first time since 1999, saw its revenue fall from 11.7 trillion rubles relative to 8.5 trillion in 2022.
The company's sales revenues decreased to 364 billion rubles in 2023 from 1.9 trillion rubles the previous year.
Before the Russia-Ukraine war, Gazprom's natural gas shipments to Europe reached a record high of over 200 billion cubic meters in 2018, but last year shipments fell below 30 billion cubic meters.
The main pipelines carrying Russian gas to Europe, Nord Stream 1, Nord Stream 2 and Yamal-Europe, have become inactive, and one of the two pipelines that distributes gas via Ukraine has been disabled.
Today, Gazprom continues to deliver an average of 42 million cubic meters of natural gas per day through a single line to Europe via Ukraine. However, Ukrainian authority statements reveal that the gas shipment agreement with Gazprom will not be extended, while also being indicative of a trend of further decreases in gas volumes from 2025 onwards.
In order to compensate for these losses, Gazprom is planning to increase its export capacity through the TurkStream gas pipeline and through liquefied natural gas (LNG), as well as a new pipeline project to China.
The company also aims to prioritize the expansion of natural gas consumption in its own country.
- Gazprom wants to increase energy shipments to China
Gazprom, which has significantly lost its dominant position in the European market and is not expected to regain this position in the medium term, has pivoted its export priority to China, the world's second-largest economy.
With a consumption rate seen last year of 430 billion cubic meters of natural gas, China is gas hungry.
The company exported 22.7 billion cubic meters of natural gas through the Power of Siberia pipeline to China, but plans are afoot to expand this annual capacity to 38 billion cubic meters in 2025.
An extension to the pipeline by building the Power of Siberia 2 line will see Gazprom’s aim of increasing its total natural gas shipments to approximately 100 billion cubic meters.
Although China imports large amounts of natural gas and LNG, particularly from Turkmenistan, Gazprom's difficulty in finding alternative market share is a factor that weakens the company's hand in negotiating gas prices with the Asian country.
Russia has long been negotiating the construction of the Siberian Power 2 pipeline, which will transport 50 billion cubic meters of natural gas annually to China via Mongolia.
Russian Deputy Prime Minister Alexander Novak said on May 17 that they expect to get project approval soon.
- Shipments to Central Asian countries expected to increase
Aleksandr Frolov, an energy expert at the Russian-based data and analysis center InfoTech, attributes deregistered assets worth more than 1.1 trillion rubles as the main factor in Gazprom's losses last year.
"If we do not take into account the assets that have fallen from the records, the company's current operations have generated profits," Frolov said.
He also perceives that China will be the main target area for Gazprom’s gas export expansion. He forecasts that shipments will rise to at least 48 billion cubic meters annually by 2030, along with increases in gas exports to Central Asian countries, to the extent that by the second half of the 2020s, supply will grow by at least 10 billion cubic meters, or even higher.
However, Frolov also drew attention to some ambiguities as to the timing of when the Power of Siberia 2 line would be signed off. Nonetheless, he foresees that if the project is signed off next year or in 1.5 years’ time, Gazprom could deliver an additional 50 billion cubic meters to China by 2030.
As for the possibilities of expanding gas supplies to China via the Central Asian route, Frolov emphasized Gazprom's agreement with Kazakhstan while also noting that the possible volume of shipments remains unknown.
- Türkiye is important for Gazprom
Frolov advised of the difficulty in fulfilling India’s request for pipeline gas from Russia due to the technical difficulties in doing so and the financial infeasibility as a direct pipeline would be costly, but suggested that a more realistic option would be to supply gas through Iran under a swap agreement.
“Under existing agreements, Gazprom will supply gas to the north of Iran, which in turn will send gas from the south of the country to India. However, Iran is experiencing difficulties in building the capacity to transport gas to India via Pakistan. At the moment, this process has come out of the dead spot, but the circumstances of its occurrence are unknown," Frolov said.
As for Türkiye’s role as a natural gas hub, he anticipates that this would be a feasible option in not only helping the country to make a profit but as an excellent tool that will ensure that Russian gas remains on the EU market.
Frolov advised that a "Turkish corridor" could deliver up to 47.5 billion cubic meters of Russian gas, but this could be increased by another 31.5 billion cubic meters and by up to a total of 79 billion cubic meters if the necessary conditions are met.
- Gazprom should continue on same path of last 10 years
Frolov believes that the loss in volumes that Gazprom experienced in Europe was due in the most part to falling demand for natural gas on the continent, with reduced consumption as a result of high gas prices.
"Therefore, in order to compensate for its losses in Europe, Gazprom itself needs to cope with the economic difficulties that have caused gas consumption in the EU and the UK to decrease by about 100 billion cubic meters since 2021," he said.
He said that building LNG facilities would be a good step, but warned that the issue is more about incentives for the development of Russian shipbuilding and cryogenic (freezing) technologies to enable the further development of LNG production than trying to find new Russian gas consumers.
"Gazprom must continue on the path it has been on for the past 10 years. It also should develop shipments in the eastern direction, invest in the direction of Türkiye, and further increase Russia's domestic gas demand, including small-tonnage LNG production and consumption," he said.
Commenting on the future of the Russian company, Frolov said that Gazprom's net profit in the coming years, taking into account the current price conditions, could be up to $5 billion.
He expanded on this by saying that due to shipments mainly to the east, production volumes would recover and exports would increase.
“The oil business, which focuses primarily on the domestic market and has little dependence on external conditions, will continue to play a high role in the company's revenue," he concluded.
Reporting by Emre Gürkan Abay
Writing by Duygu Alhan
Anadolu Agency
energy@aa.com.tr