Putin’s Gazprom Plunges into a $6.9 billion loss
Despite the war, Europe wanted to continue. It was Putin who forced Europe to drop Gazprom. One of the worst own goals ever.
As I was reading about the disastrous fall from grace of Gazprom, a Russian multinational energy corporation headquartered in Moscow, my mind wandered back to an exchange between two politicians in India. It occurred a long time ago.
One politician boasted that if reelected, he would transform his state into Japan within five years. His opponent retorted sharply, saying, “No, no, no… give Japan to this guy for five years, and he’ll turn it into the state he’s governing.”
Ouch!
There’s no one in this world capable of running an energy corporation with access to the largest gas reserves into the ground, except Putin.
It’s still baffling to me that Russia, a nation with abundant natural resources and the largest reserves of oil and gas, has an economy only slightly larger than Mexico’s. Russia’s GDP per capita is even lower than that of Lithuania, Estonia, and Latvia. How do you even do that?
Hand over Lithuania, Estonia, and Latvia over to Putin, and he’ll surely turn them into Russia.
His ability to govern is unbeatable, and to prove my point, I present Gazprom, a corporation that used to operate in 30 countries with access to the largest gas reserves in the world, now plummeting into a mind-boggling loss.
Its first in 20 years.
Kremlin-owned gas giant Gazprom said on Thursday it plunged to a net loss of 629 billion rubles ($6.9 billion) in 2023, its first annual loss in more than 20 years, amid dwindling gas trade with Europe, once its main sales market.
The results highlight the dramatic decline of Gazprom, which since the collapse of the Soviet Union has been one of Russia’s most powerful companies, often used as a leverage to solve disputes with its neighbors, such as Ukraine and Moldova.
I think Putin will bless Gazprom with many more record breaking years in the future.
Will Gazprom go bankrupt?
No.
At the end of the day, gas is still gas, even if it’s managed by someone like Vladimir Putin. There will always be demand for energy products, so they can sell. The reason Gazprom fell into the sinkhole is that they lost access to wealthy customers. Russia tried to weaponize gas after they invaded Ukraine. Europe was forced to find alternative sources, which due to their arrogance, the Russians simply assumed would never happen. But Europe dug in, found a way out, and said no thank you to Russian production.
Russia thought it was a seller’s market. But the buyers prevailed due to their economic might. The end result: The cost of running Gazprom is now higher than the revenue it can bring in.
Gazprom is not going to file for bankruptcy, as the state will be able to cover the gaps and keep it operational. However, what the state cannot do for Gazprom is help the company recover its lost position. That is unlikely to happen, regardless of the resources available.
Global Natural Gas Capacity Realignment is Happening
Due to Putin’s special military operation, he will not be in a position to funnel money into his cash cow. Gazprom is no longer capable of taking care of itself; it is losing money.
→Lack of money will shrink its ability to invest.
→Lack of investments will reduce the amount of natural gas the will be able to extract and halt any technological advancements they can achieve to reduce costs.
Gazprom was one of the biggest weapons Russians used for a very long time. They would lock their neighbors into buying their gas. They would be cordial in the early years, allowing that dependency to grow. Then, one fine day, when they knew the client had become dependent on them, they would unveil their true colors.
Gazprom had a history of bullying smaller countries such as Moldova, the Baltic states, Bulgaria, and Macedonia. In 2021, Gazprom asked Moldova to pay twice as much as before for the supply of gas. However, beneath the surface, money was not what Russia was truly after.
It was some thing else.
Bullying appears to be the natural resting state of this Russian administration led by Vladimir Putin. So, when he invaded Ukraine and Europe started to rally behind Ukraine, the Kremlin quickly resorted to weaponizing the supply of gas. Europe, at that point, was heavily dependent on Russia for its energy supplies, with Russia supplying more than a third of its gas.
As a result, Europe kept gas outside of their sanctions list. They had no intention of pulling the plug, firmly believing they could not handle such a move.
But Putin, the master strategist, simply assumed that by dialing up the pain through choking the supply of natural gas to Europe, he could force them to withdraw their support for Ukraine.
According a report by German publication DW, “State-owned Gazprom arbitrarily cut flows via Nord Stream 1, Russia’s largest gas pipeline to Europe, before closing the pipeline indefinitely a year ago allegedly over an engine oil leak in a gas turbine at a key Russian compressor station”.
It wasn’t an easy task for Europe to wean itself out of Gazprom.
At the time of the Russian invasion, Germany relied on Russia for 55% of its natural gas imports, which flowed into German territory via pipelines. While Germans, German businesses, and policymakers were preoccupied with the potential catastrophic effects of an embargo on the economy, Russia began reducing the flow of gas. Gazprom intentionally depleted its terminals to low storage levels.
CEO of BASF, Martin Brudermüller, predicted that a cut-off from Russian gas “could bring the German economy into its worst crisis since the end of World War II and destroy our prosperity”, adding “Do we knowingly want to destroy our entire economy?”
BASF, valued at €87.3 billion, stands as the largest chemical manufacturer globally, boasting over 100,000 employees. The CEO’s remarks at the onset of the invasion epitomized the prevailing sentiment within Germany. Uncertainty loomed, and Russia’s exploitation of its leverage in gas supply intensified. Some think tanks even discussed the potential for a catastrophic contraction of the economy.
The pressure mounted. The Scholz administration, aided by fellow members of the European Union, embarked on a dual approach to address the situation. Germany diversified its energy sources by importing LNG from Norway and the United States, addressing the supply side. Simultaneously, the German government mobilized both the public and the industry to curtail consumption, tackling the demand side of the equation.
The Germans dug in and forced their way out. And they prevailed.
“The whole Russian strategy has been self destructive, a complete failure,” Simone Tagliapietra, an energy expert at the Bruegel think tank in Brussels. “The Kremlin thought that by weaponizing gas against the EU, the bloc would be forced to immediately scale back its support for Ukraine, and that proved to be completely wrong.”
“Russia has lost its position as a major international gas exporter, and it has lost it forever,” Tagliapietra told DW in August last year.
Her prediction has already come true. As you can see from this image below, Europe is buying gas from alternative sources. Putin forced Europe to diversify its energy sources. Even if the future Russian Czar tries to sneak itself into the European market, they will only be one of the many suppliers. They will never enjoy the dominant supplier status ever again.
The new alternative sources from which Europe is buying natural gas, such as Norway, are investing in their capacity. Oil and gas companies in Norway have invested more than $40 billion in the last two years.
Gazprom’s competitors are rapidly increasing their capacity, while Gazprom is simply sitting there unable to take action. Once these additional capacities come online, why would anyone pay top dollar to buy gas from a company that threatened its biggest customer with a harsh winter? Can you really belive that they actually did this in Sepetmber 2022.
Russia’s state-controlled energy giant Gazprom has taunted Europe with a sinister video warning about a long winter with snow and ice sweeping across the continent.
The two-minute clip titled Winter will be Long shows how Europe will freeze amid the exorbitant energy prices caused by Vladimir Putin’s savage invasion of Ukraine.
The footage shows a worker turning off the supplies, sending the gas pressure needle to zero, as icy clouds ominously creep across the screen, interspersed with aerial shots of Brussels, Berlin, Paris and London.
It may have had Kremlins blessing. But it was Gazprom that relased the advert.
Unbelievable….
Germany and Europe escaped the winter of 2022. Now it is Gazprom that is paying for that arrogance by falling from the top of the world.
The Impact on the War
Gazprom’s glory days will never return unless Europe decides to resume doing business with Russia after the war is over.
But whatever direction Gazprom takes from here, one thing is abundantly clear: they will not contribute to the rainy day funds Putin had amassed to fund his war machine. Instead of helping the Kremlin save money, Gazprom is going to drain it.
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