Gazprom sells property to make up for losses, and the more it fights, the richer it becomes, what difficulties does it encounter?

Mars macroscopic

2024-05-12 06:00Posted in Hunan Finance and Economics Creators

Executive Summary:

Gazprom, which has special money, suddenly announced the sale of a large amount of real estate. Gazprom suffered its first loss in 25 years, a record loss. It turned out that the house was sold to survive with a broken arm. The increase in gas exports to China will not compensate for the loss of the European market by Gazprom. The sharp decline in natural gas export revenues has added a lot of trouble for Putin to raise funds for the war.

1. Gazprom, which has special money, suddenly announced the sale of a large amount of real estate.

On May 8, Gazprom announced in the official account of its Telegram channel that it plans to look for large real estate buyers in the city of Moscow and the Moscow region. Because the company is ready to sell a part of the real estate. Among the properties included in the scope of sale are office buildings on Stroiteley Street, the Imperial Park Hotel & Spa sanatorium and resort in the settlement of Pervomayskoye, non-residential premises on the first floor of a house on Novocheremushkinskaya Street in the village of Rogozino, as well as a parking lot for 96 cars near the company's headquarters in Moscow.

Gazprom's press release explained that the decision was made "taking into account the completion of Gazprom's relocation to St. Petersburg."

2. Gazprom suffered its first loss in 25 years, and the loss hit a record high. It turned out that the house was sold to survive with a broken arm.

In fact, it is because in 2023, Gazprom suffered its first loss in 25 years, and the loss reached a record high. The loss is expected to continue to widen in 2024, and the company must rely on the sale of properties to generate cash flow and keep the company afloat.

As a result of the invasion of Ukraine, Europe and the United States have imposed multiple rounds of economic sanctions on Russia. Europe, the main market ----for Russian natural gas, has implemented a strategy of de-Russification of energy, quickly shifting natural gas procurement channels from Russia to the United States, Australia, the Middle East and North Africa, thereby depriving Gazprom of its main market, destroying the supply chain that Gazprom has spent nearly half a century building with Europe, and several Russian-European gas pipelines that have invested heavily in the construction of them have also fallen into idleness.

The Russian state-owned gas giant reported that last year, the company posted a loss for the first time in more than 20 years. This comes after Russian gas companies remained profitable during the Great Recession, Covid-19 and more than a year of Western sanctions against Moscow for its 2022 invasion of Ukraine.

In 2023, Gazprom posted a net loss of 629 billion rubles ($6.9 billion) according to International Financial Reporting Standards (IFRS), a far cry from the forecast profit of 447 billion rubles, while gas revenues also fell by 27% and EBITDA (earnings before interest, taxes, depreciation and amortization) halved, according to the company's financial statements released publicly on May 2.

The losses quickly pushed up Gazprom's debt. At the end of 2023, the company's debt reached a record 6.65 trillion rubles, surpassing the 5 trillion rubles in the current portion of Russia's state welfare fund.

Third, the increase in natural gas exports to China cannot compensate for the loss of the European market by Gazprom.

By the end of 2023, Gazprom exported only 69 billion cubic meters of gas, a third less than in 2022 and two-thirds compared to the pre-war level of 2021. This is the lowest level since 1985.

Among them, gas supplies to Europe fell to 28 billion cubic meters per year, to the level of the second half of the 1970s. That's down two-thirds from pre-war levels.

In the fourth quarter of 2023, the EU purchased only 13% of its gas from Russia, down from 33% in the same period in 2021, according to Eurostat.

Exports to China, although they have increased, have not been able to compensate for the losses in the European market due to discounted prices.

Since the start of the war in Ukraine, Russia's gas and oil exports to China have increased significantly, offsetting some of Moscow's lost business in Europe, but failing to make up for all of the lost sales. As this relationship will be further strengthened, the Power of Siberia pipeline is expected to reach full capacity in 2024, delivering 38 billion cubic meters of natural gas per year to China. But this alternative trade is far from what was expected.

Meduza reported that Famil Sadigov, deputy chairman of Gazprom's management board, had predicted that previously predicted gas sales would bring Russia 4 trillion rubles in gas revenues, supported by Chinese demand. But in reality, this number is only three trillion at most by 2024.

In 2024, the price of Russian gas to China will be $257 per 1,000 cubic meters, which is one-fifth lower than the $320 for shipments to European destinations. According to the current negotiations between the two sides, it is expected that between 2025 and 2027, the price of gas paid by China will be further reduced.

With nowhere to sell, Gazprom produced only 404 billion cubic meters of gas last year, the lowest level in the company's 34-year history. Although the company has the largest natural gas reserves on the planet, the wealth beneath the ground becomes unprofitable if no one buys it.

Fourth, the sharp decline in natural gas export revenues has added a lot of trouble to Putin's efforts to raise funds for the war.

As a result of the huge losses, Gazprom's share price on the Moscow Exchange fell from the previous day's close of 164.97 to 157.65 on the day, a decline of 4.5% on the day, and since then it has continued to decline, closing at 154.49 on May 10, a cumulative decline of 6.4% compared to before the results were announced.

Between 2011 and 2020, gas and oil accounted for more than 40% of Russian government revenues. In the past two years, Russia's oil and gas revenues have decreased significantly, which has indeed added a lot of trouble to Putin's war funding.

In order to increase domestic revenues and make up for the military spending gap caused by the decline in oil and gas revenues, Russia has raised the prices of natural gas and refined oil products for domestic users since last year, increased the windfall profits tax, raised the income tax on enterprises and individuals, and confiscated the assets of some private enterprises and foreign-funded enterprises.

[Author: Xu Sanlang]

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