How did Gazprom lose money (in 2023)?

Question

With Nord Stream Shut, Gazprom Posts its Biggest Lost in Two Decades

May 2, 2024

Gazprom made more than $22 billion in net profit in 2021, the last year before the war. That dropped to $13 billion in 2022, the year that Russia invaded Ukraine and then throttled down its pipeline gas exports to Western European customers. Despite the disruption, Russian energy analysts had expected the gas giant to post a profit in 2023 - a smaller profit, but still about $5 billion. Instead, Gazprom swung to a net loss of nearly $7 billion, driven down by plummeting sales of pipeline gas to Europe.

The piece isn't terribly clear how Gazprom is losing money though. Are they selling below production costs to their remaining customers for political reasons, i.e. subsidizing Russia's (remaining) "sphere of influence"? Or did they just write off Nord Stream for accounting purposes, and that's the posted loss? Or were they required to make 'voluntary' contributions to Russia's war effort?

N.B. another piece mentions that Gazprom made $31 billion of investments in 2023, apparently an increase despite lower revenues. I guess this refers [mostly] to the investments to develop new fields/pipeline for/to China, but that's not too clear either (as they apparently didn't disclose figures for those specific investments).

Answer 1

This is a partial answer, but some of the losses are due to price regulation on Russia's internal market. Gazprom has been lobbying the Duma to lift these to some extent:

According to Gazprom representatives, the loss of the European export markets last year prompted the company to turn to the domestic marketplace, which has since become its core source of revenues while it works to establish alternative gas supply routes to China and Central Asia. Gazprom representatives said that state-regulated prices “do not ensure the profitability of gas sales on the domestic market and it cannot be a full-fledged source of revenues” for the company’s new gas developments and infrastructure investments, according to the minutes of the talks with parliament published in the Moscow-based Russian Energy & Industry Journal.

Alas we don't know how much is due to that because...

Gazprom stopped disclosing its revenues from different market segments soon after the Russian invasion of Ukraine in February 2022 and the subsequent introduction of international sanctions against Russia and its corporations.

Answer 2

When Famil Sadygov predicted four trillion rubles in revenue from gas sales in 2023, he specified: "These results will be ensured, among other things, by growing gas supplies to China." However, one trillion rubles less was received, and it is already clear that supplies to China and Central Asia are not an adequate replacement for the European market.

The financial results for 2023 turned out to be significantly worse than forecasts — a loss of 629 billion roubles (somewhat 6.621 billion dollars) versus an expected profit of 450 billion roubles (somewhat 4.737 billion dollars).

China seems paying only the half of the European price. (Meduza).

Answer 3

Short answer

While other answers describe why the company could be losing money in the broader sense, in the narrow sense, the company is losing money because its expenses exceeded its revenues for accounting purposes.

The three main factors seem to be (1) a significant decline in revenues from 2022 to 2023 (presumably for the reasons stated in the other answers), (2) a dramatic increase in debt service payments after a previous great decline in debt service post-war (presumably because debt payments were suspended post-war and then resumed), and (3) a surge in non-operating losses other than debt services (presumably write offs from Ukrainian military strikes on oil and gas facilities in Russia that destroyed company property).

The growth in the value of the company's investment portfolio is probably not reflected in its profit and loss statement, because that growth reflects an increase in investment security prices rather than actual sales and purchases of investment seccurities.

Long answer

The financial statements of the company through 2022 and with a partial year financial statement for 2023 are available here.

It's costs of goods sold is about 40% of revenue. It's overhead expenses are also about 40% of revenue. So, its operating income is about 20% of revenues. Its interest expenses less interest income (i.e. net debt service) is about 11% of revenue. So, its operating income less debt service is about 9% of revenues.

Presumably the bottom line goes from a 9% of revenues net profit to a roughly 9-10% of revenues net loss at the bottom line, due to other non-operating losses net of other non-operating income.

Costs of goods sold and overhead expenses were both fairly stable pre-war v. post-war. Falling revenues from 2022 to 2023 cut operating income (i.e. gross revenue less cost of goods sold less overhead expenses) roughly in half.

Debt service fell dramatically post-war prior to 2023, presumably because Russia stopped paying interest on its bonds to foreign investors. But debt service surged in 2023, presumably because Russia starting making interest payments on its bonds to foreign investors again (although I have no evidence other than its financial statements that this is actually what happened). This article (pay per view) tends to confirm that bond payments have resumed, although I was not able to read the whole thing.

The other net non-operating losses could include sanction related impacts on the company's investment portfolio. But, this probably isn't the main factor because its investment portfolio has actually increased in value. Instead, the growth in the company's investment portfolio to $31 billion probably isn't reflected in the financial statements, because the $31 billion figure is probably a fair market value of the portfolio, while the profit and loss and balance sheet figures for the company would be on a cost basis and wouldn't change due to increasing investment security prices in the absence of the sale of those investment securities. How to account for investment securities with a readily determinable fair market value is an ongoing point of controversy among financial accountants.

Non-operating losses could also include, as the question suggests, things like writing off Nord Stream for accounting purposes (although that write off should have been taken in the year it occurred, since the company has an accrual rather than cash based financial accounting system). There has, however, been an upswing in Ukrainian military attacks on Russian oil and gas infrastructure (which is a point of contention with U.S. politicians who don't like this tactic), and there may be write offs of the facilities damages in that way that account for the bulk of the company's non-operating losses that don't involve debt service.