The gas giant Gazprom, which has been an engine of Russia's economy, will pay a decadelong price for Russian leader Vladimir Putin's invasion of Ukraine.
The U.K. newspaper Financial Times reported Wednesday that it had seen research commissioned by the energy group's leaders that predicted Gazprom probably will not be able to recover for years the gas sales it lost due to the war started by Putin. Newsweek has contacted Gazprom for comment.
The 151-page report cited by the newspaper added that China, whose economic ties with Russia have increased over the course of the war, will not offset the losses from the lucrative prewar gas market in Europe.
The Financial Times said the report found that the main consequence of sanctions for Gazprom and the energy industry in Russia has been the contraction of export volumes, and these will be restored to their 2020 level "no earlier than in 2035."
"The fact that Gazprom actually has lost its profitable European markets greatly contributes to the shrinking abilities of Putin to finance the war," Vladimir Milov, Russia's deputy energy minister between May and October 2002 and an opposition figure, told Newsweek.
Even before his invasion, Putin had been accused of using energy as a weapon, with Gazprom restricting flows to Europe in what was considered a move to pressure Kyiv's allies and retaliate against Western sanctions.
However, the European Union has found alternative long-term sources of gas imports to free itself from most Russian piped-gas imports, without imposing sanctions, although some countries, including Austria and Hungary, still rely on Russia's gas.
Following decreasing gas prices due to mild weather, sluggish demand and full inventories, Gazprom Group posted a net 2023 loss of 629 billion rubles [$6.9 billion], the first for 25 years.
Hopes that Gazprom could revive exports with the stalled Power of Siberia-2 pipeline to supply China appear increasingly unlikely. Beijing has been able to extract significantly lower prices than Europe had paid, while a deal over the pipeline's construction has not even been reached.
China's capacity will be only 50 billion cubic meters (bcm) a year, and prices there are much lower than in Europe, the Financial Times said.
"Gazprom's reporting for 2023 of heavy losses is the biggest material proof so far that we have that exports of gas to China is loss-making," said Milov.
He added that expansion of gas exports from Eastern Siberian fields closer to China, which are therefore cheaper to transport there than from Western Siberia, will struggle to turn a profit, "which means that effectively the Western Siberian gas is stranded now."
"China is clearly not ready to accept higher prices and, for Gazprom, that means heavy losses," said Milov. "If they build Power of Siberia-2, clearly they won't be able to sell the gas at a profitable price, which means it makes no sense economically."
The Financial Times said Gazprom's share of Russia's energy exports will decline as pipeline gas is overtaken by liquefied natural gas (LNG), which can be transported by sea rather than via pipeline.
Meanwhile, Western sanctions have cut off Russia's energy industry from the technology such as turbines that move gas through pipelines and the spare parts to maintain them.
However, Gazprom did not have its own proven technology for producing LNG at large capacity, meaning its "role in the gas industry is accordingly expected to decrease," the report said.
The Financial Times estimates that Russia's LNG exports will nearly triple from 2020 to 98.8-125.8 bcm in 2035, making up almost half of its gas exports, increasing the influence of Novatek, the country's main LNG producer.
Regarding LNG offsetting losses from pipeline gas, Milov said, "Russia is really constrained because critical technology is mostly in the possession of the West."
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About the writer
Brendan Cole is a Newsweek Senior News Reporter based in London, UK. His focus is Russia and Ukraine, in particular ... Read more
