June 20. 2024. 1:36

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Gazprom’s export revenue may fall by 50% in 2023

Lost European sales could halve the export revenues of Russia’s Gazprom this year, meaning a steep reduction in tax income for the state, according to analysts, export data and Reuters calculations.

Exports made by Gazprom, one of the country’s largest taxpayers, shrank after President Vladimir Putin’s “special military operation” in Ukraine triggered Western sanctions and as some supplies of gas to Europe from Russia declined.

Moscow’s decades-old gas ties with Europe ‘flushed in the toilet’

Meticulously crafted over decades as a major revenue stream for the Kremlin, Moscow’s gas trade with Europe is unlikely to recover from the ravages of military conflict.

According to Reuters calculations, based on export duties and volumes, Gazprom’s revenues from overseas sales may have declined in January to $3.4 billion from $6.3 billion in the year-earlier period following a fall in gas supplies to Europe.

If the trend continues, Gazprom’s export revenues for the whole year could be halved compared to 2022 when its export volumes also declined by nearly half.

The world’s largest producer of natural gas, which no longer publishes its earnings, did not respond to a request for comment. Neither did Russia’s finance ministry.

Gazprom is one of Russia’s largest contributors to the budget, which saw a deficit of 1.76 trillion roubles ($24 billion) in January, prompted by a slump in energy revenues and soaring expenditure.

Moscow relies on income from oil and gas – last year around 11.6 trillion roubles – and has been forced to start selling international FX reserves to cover a budget deficit increased by the cost of the conflict in Ukraine.

Lower revenues

In 2022, Gazprom’s export volumes fell by 46%, according to the company. Reuters calculations found it still could have earned record revenue of $80 billion due to higher prices, helping to bolster tax revenues to the state, which also benefited from gas tax hikes and Gazprom’s generous dividends.

Gazprom earned a record-high 2.5 trillion roubles ($34 billion) in net profit in the first half of 2022, boosted by gas prices, which surged on international markets because of concerns of supply disruption. After that the company, in common with many Russian firms, stopped disclosing its financial results.

Gazprom’s Chief Executive Officer Alexei Miller, an ally of Putin, has said the company paid 5 trillion roubles in taxes to federal and regional budgets last year, accounting for almost a fifth of federal budget’s proceedings.

But 2023 may be tougher as international gas prices have fallen and the amount of gas supplied to Europe is far below that for the first few months of last year.

Gazprom has not provided forecasts for gas exports for this year. According to projections by some analysts, exports outside ex-Soviet Union may reach some 50-65 billion cubic metres (bcm), excluding supplies to China.

“Supplies to Turkey (some 30-32 bcm), China (15.5 bcm with an increase to 25-30 bcm in 2023) and CIS (ex-Soviet Union) of some 25 bcm will not be able to replace the EU market,” Moscow-based Loko-Invest said in a review.

Gazprom’s exports outside ex-Soviet Union fell by more than 45% to 100.9 bcm in 2022 from 185.1 bcm in 2021.

The Economy Ministry forecasts Gazprom’s export price for 2023 at $700 per 1,000 cubic metres. If the calculations are right, Gazprom’s exporting revenues could reach between $35 billion and $46 billion this year.

BCS brokerage analyst Ronald Smith said if the average price is closer to $615, “then European revenues would drop to only $40 billion.”

Russia has turned away from the West and will develop new markets for its oil and gas, Putin says. But that will take time.

He mooted the idea of gas hub in Turkey last October, to redirect gas from the Baltic Sea to the Black Sea region.

Analysis: Europe wary of Turkish hub to hide gas ‘made in Moscow’

Putin’s plan to make Turkey a hub for Russian gas in theory could allow Moscow to mask its exports with fuel from other sources, but that might not be enough to persuade Europeans to buy, analysts and sources said.

“To realise full potential of the concept, Russia will have to do a lot of work with partners in the region, which is still possible, but requires time,” said Sergei Kapitonov from Skoltech Project centre for energy transition and ESG.