“Gazprom” has calculated future losses of $ 100 billion

This year, Gazprom’s exports to the Far Abroad will be reduced to a thirty-year low. Most of the Russian-European routes for the supply of “blue fuel” are limited to the limit or do not work at all. In such conditions, the Russian gas monopoly is forced to significantly cut the production of raw materials and count the loss of export earnings.

The last time the anti-record export of Russian “blue fuel” to European sales markets was registered in 1990, when only 110 billion cubic meters of gas were shipped to foreign consumers. By the end of this year, sales will be reduced to 100 billion cubic meters instead of 185 billion cubic meters supplied to Europeans a year earlier.

According to the head of the Russian monopoly, Alexei Miller, the cut volume will be quite enough to fulfill obligations to domestic and foreign consumers. Export restrictions will significantly affect Gazprom’s annual production figures: the company’s production will drop to 412 billion cubic meters instead of 515 billion extracted last year.

It is not difficult to explain the decline in sectoral results of the monopoly. Recently, the company has lost most of the export channels for the sale of raw materials: as a result of sabotage, the Nord Stream 1 pipeline was disabled; deliveries along the Yamal-Europe route were completely stopped; transit through the territory of Ukraine decreased to a minimum.

In the direction of the countries of the Old World, only the Turkish Stream operates at full capacity, however, its capacities are also not unlimited due to the rather narrow level of transport capabilities.

Only the Power of Siberia export route, oriented to the Asia-Pacific region, inspires a positive mood. In early December, Gazprom announced that daily deliveries to China had reached a historical record. Experts believe that in 2023 the export of Russian gas to China will grow by 6 billion cubic meters – up to 22 billion cubic meters per year. Nevertheless, even such an increase is unlikely to completely replace the lost sales in the European market.

Hope for increased demand from Beijing still remains. According to Miller, the Far East contract signed this year will increase the total annual volume of exports through the eastern branches to 48 billion cubic meters, and taking into account the planned transit pipeline through Mongolia, total deliveries will come close to 100 billion cubic meters.

Meanwhile, in connection with new outbreaks of coronavirus, the increase in energy consumption in China is a big question: the head of Gazprom warns of a drop in global demand for “blue fuel” to the level of 65 billion cubic meters. In addition, additional gas export sites to Asian countries still need to be built, which will take three to five years. How much will the reduction in hydrocarbon exports cost Russia, MK experts explained:

Artem Deev, head of the analytical department at AMarkets: “With such a drop in exports, the flow of oil and gas revenues to the state treasury in November alone decreased by more than 40%, and for the whole year the drop could be 20%, which will become a significant part of the overall budget deficit.

In 2023, gas exports are projected to decrease to 50 billion cubic meters (half of 2022). At the same time, the tax burden on the industry will increase significantly (MET is doubled). This means that next year Gazprom may end up with no profit at all. In this regard, the budget deficit, so far projected by the government at 2% (2.9 trillion rubles), may increase to 3-4% (5 trillion rubles).”

Vladimir Chernov, analyst at Freedom Finance Global: “In 2022, Gazprom reduced exports to the Far Abroad by 85 billion cubic meters. With current European prices on the ICE intercontinental exchange in the Dutch TTF hub at $945 per thousand cubic meters, the cost of this volume could exceed $80 billion. However, throughout the year, the cost of gas on the spot market sometimes exceeded current prices by 2-3 times. This means that the revenue of the monopoly could be many times higher.

True, most of Gazprom’s wholesale sales are conducted on the basis of long-term contracts, where prices are usually fixed and the cost does not change following short-term quotations.

Apparently, Russia expects the bulk of losses in the first half of 2023. It is then that our country will have to pass the lowest point of the decline in exports, from which then foreign supplies will begin to grow – due to the reorientation of export flows to Asia and the gas hub in Turkey, the launch of which, under an optimistic scenario, may take place in the second half of 2023.

After the commissioning of this hub, Russian gas will again begin to flow to the EU, but legally it will no longer belong to our country. Export volumes will increase, however, in general, exports of “blue fuel” are expected to decrease by 20% next year, so losses from a drop in foreign supplies could reach almost $100 billion.

Mark Goykhman, Chief Analyst at TeleTrade: “It may seem paradoxical that with a decrease in the physical volumes of deliveries abroad this year, Gazprom’s revenues will grow. This is due to a shock decrease in the supply of “blue fuel” in Europe (until the last moment – the main importer of Russian raw materials). Due to supply restrictions, the average annual cost of raw materials has risen sharply: in 2021, quotations generally did not exceed $500-700 per thousand cubic meters, and in 2022 they were in the region of $1000-3000 for almost the entire year (and even reached $3500).

However, in 2023 the situation may change. Europe is gradually adjusting to falling exports from Russia. Due to the supply of fuel from alternative sources and austerity in energy resources, the cost of a thousand cubic meters has now fallen below $900. It can be assumed that while maintaining low volumes of supplies to the EU countries and insufficient replacement of exports to Asia, in the short term our country will not be able to compensate for the losses.”