The impact of sabotage at Nord Stream on the Russian budget was assessed

Russia has lost the status of the main supplier of energy resources to Europe. Gas deliveries have fallen to a minimum, and it is impossible to return to their former volumes in the near future due to sabotage on the Nord Stream gas pipelines. We asked financial experts to evaluate the estimated losses of the Russian budget.

– Can you estimate the losses of Russia (the budget and Gazprom) from the shutdown of the Nord Streams? Until the end of the year and in the future – until the pipes are repaired?

Freedom Finance Global Leading Analyst Natalya Milchakova:

– The loss suffered by Gazprom and the Nord Stream operators may be equal to the value of the investments invested in these projects: that is, 7.4 billion euros in Nord Stream 1 and 9.5 billion euros in Nord Stream 2 ”, in case they cannot be restored at all.

Europe will lose the most from a complete shutdown of Nord Stream 1. Gazprom will also suffer losses: its actual losses, based on the volume of supplies via Nord Stream 1 and approximate contract prices, which are much lower than the market, may amount to 1.5-2 billion euros by the end of 2022.

Next year, if the gas pipeline is not restored, Gazprom’s losses in the European market could amount to about 8 billion euros per year, but it is possible that the gas corporation will redirect export flows to Asia to mitigate the effect of these losses. But this does not mean that Gazprom will completely stop receiving export earnings, as it continues to transport gas to Europe through Ukraine and through the Turkish Stream.

Well, Poland still has a chance to lift sanctions on the Yamal-Europe gas pipeline, then gas supplies from Russia to Europe may increase again.

Artem Deev, Head of the Analytical Department at AMarkets:

– In the first half of this year, Gazprom showed a record net profit of 2.5 trillion rubles, which was the result of high prices for raw materials in Europe, where Russia’s share was 40% at the beginning of this year.

Now the share of our country in the EU gas market has decreased to 9%, and since the second half of the year, exports to non-CIS countries have fallen by more than 50%.

It can be assumed that budget revenues from the sale of raw materials to the EU will fall accordingly. Next year, Gazprom’s foreign exchange earnings are projected to fall by 19%, while net profit for the entire year will amount to only 3.5 trillion rubles.

True, these forecasts were made before the extraordinary events on the “streams”. It is likely that in the first half of 2023 these figures will be far behind forecasts. Budget losses will amount to billions of rubles, while the damage to Gazprom risks reaching 1 trillion rubles.

The state intends to compensate for such losses by raising the mineral extraction tax (MET) – the monopoly will pay about 600 billion rubles to the budget. Therefore, the drop in exports will be offset to some extent by an increase in tax for the industry.

– And what will happen to gas prices? Experts said that Russia would compensate for the decline in supplies due to sanctions due to high prices. And now, will Russia be able to compensate for the financial losses from the decline in foreign supplies of hydrocarbons?

Dmitry Alexandrov, Head of Analytical Research Department at IVA Partners Investment Company:

– Estimated contract prices are such that the costs of creating Nord Streams have already been largely compensated, even despite the decline in volumes that has occurred – precisely due to ultra-high gas prices.

Whether prices will continue to remain high depends on how deep the economic downturn in the European Union will be. The ongoing money emission in the countries of the Old World and problems with the supply of energy resources speak in favor of maintaining high prices for energy resources.

After a clear sabotage at Nord Stream, the situation with the income from pumping gas through them will not change: from the end of August, Nord Stream 1 was completely stopped, and Nord Stream 2 was never put into operation. Now “blue fuel” from Russia to Europe comes only through Ukraine and along the “Turkish Stream”. The average price of gas in Gazprom’s supplies to non-CIS countries has increased by more than 3.5 times over the first six months. Net profit increased by 2.6 times, while debt was more than halved.

– What will Europe do in the absence of Russian gas, which was supplied earlier through the Nord Streams?

Yaroslav Ostrovsky, expert of the Strategic Research Department at Total Research:

– In the conditions of the impending winter, there will not be enough gas in Europe – even taking into account the storage facilities filled by 85-90%. We’ll have to buy expensive fuel in the US. At the same time, LNG supplies from the US to Asia will decrease: this is an excellent opportunity to increase the share of the Russian market in the Asia-Pacific region, which will make it possible to compensate for most of the losses from the “collapse” of the European market. Given the strong demand, gas prices will remain high, which again will help Gazprom in terms of making a profit.