Gazprom faces major crisis, recovery expected to take a decade

The Russian aggression on Ukraine has led to a partial stop of the import of Russian gas into Europe and the implementation of Western sanctions, causing great difficulty for the Russian energy sector. This sector was the main source of revenue for Gazprom before the war. It is estimated that it will take at least a decade for Gazprom to recover the lost revenues from gas sales to Europe following the Russian invasion of Ukraine.

A report commissioned by Gazprom itself, as cited by the Financial Times, predicts that the company’s exports to Europe will average 50-75 billion cubic meters per year by 2035, just a third of pre-war levels. Gazprom had hoped that a new gas pipeline to China, called Power of Siberia 2, could help offset the loss of European export volumes. However, negotiations with China have come to a halt due to significant disagreements over price terms.

According to the report, the Western sanctions have resulted in a contraction of export volumes for Gazprom, with exports not expected to return to 2020 levels until 2035. The report highlights that LNG exports could be a more reliable source of export revenue for Russia, but would require diversification beyond China.

There are concerns that Russia’s dependence on Western-designed turbines could hinder efforts to increase export capacity. The report warns that without a domestic alternative to these turbines, Russia may be forced to close power plants across the country. Additionally, Gazprom may struggle to finance its investment program without a significant increase in revenue.

In conclusion, the report commissioned by Gazprom underscores the challenges facing the Russian energy sector in the wake of the conflict in Ukraine and the resulting Western sanctions. The company will need to explore new avenues for export revenue and develop domestic alternatives to Western technology in order to navigate these challenges successfully.