Despite surrounding sanctions, losing a majority of the European market and a series of problems to bear, Gazprom still announced net interest of up to 15 billion USD in 2024, according to the standard financial report IFRS. This is a remarkable comeback, as Gazprom will lose $8 billion in 2023.
This recovery does not come from more efficient gas trading, but mostly from asset sales deals, combined with accounting adjustments.
In 2023, Gazprom suffered great losses due to two factors: the Russian government sharply increased resource exploitation taxes to finance conflicts (equivalent to 17 billion USD), and erased the debt from the books (write-off) of 15 billion USD in assets in Europe.
In 2024, Gazprom reversed the situation with 3 main pillars.
First, increase gas production. Gazprom has increased its production from 359 billion to 416 billion cubic meters of gas. Of which, an additional 4 billion m3 will be exported to Europe, 8.5 billion m3 will be exported to China and 15 billion m3 will be exported to the domestic market. China alone brought in 3.6 billion USD in revenue, 925 million USD in the domestic market, and about 1.4 billion USD in Europe.
Second, "buy cheap and sell expensive" Shell's assets. In March 2024, Gazprom bought a 27.5% stake in Shell in the Sakhalin-2 LNG liquefaction project for just $1.1 billion but recorded an accounting profit of up to $2.4 billion.
The total profit from the consolidation of all Sakhalin Energy business results in 2024 will reach 5.8 billion USD.
Third, oil prices increased and contributed by Gazprom Neft. Revenue from oil, condensed gas and oil products skyrocketed by 12.5 billion USD thanks to the average increase in Urals oil prices of 6 USD/barrel. Of which, Gazprom Neft - a subsidiary of Gazprom Neft - accounting for 95% of its ownership - contributed up to 6.2 billion USD in profit to the parent corporation.
In addition, the sharp decrease in operating and debt collection costs also helps improve results. In 2024, write-offs will be limited to $3.5 billion, down nearly $11 billion from the previous year.
However, the financial report still leaves many questions. Gazprom's total investment in 2024 will reach 39 billion USD - higher than that of major energy groups such as Exxon Mobil or Shell - while it is unclear which projects will spend that huge amount.
Implemented projects such as the Ust-Luga LNG plant, the Belogorsk-Kbarovsk gas pipeline and the Belogorsk-Kbarovsk gas pipeline could cost up to 6-7 billion USD/year, but have not yet fully explained.
It is worth noting that most of the profits come from the oil sector, not gas - Gazprom's core industry. If separated, the net profit from gas activities is only about 9 billion USD. The actual cash flow from business activities is also decreasing, while net debt increased to 77 billion USD, although it is still at a safe level.
Gazprom appears to be relying on oil for gas Supply and to compensate for investment. But if oil prices fall or borrowing costs increase, this model will face great risks. And so far, the question Where is Gazproms $39 billion investment flowing to? still has no clear answer.
