Gas production like in the Cold War: Putin destroyed Gazprom

Gazprom was the Kremlin’s cash cow for years. In 2021 alone, Vladimir Putin received a payout of $20 billion from his “national treasure.” But after the attack on Ukraine, Gazprom is committing economic suicide. The only hope? China.

Xi Jinping’s tie was conspicuously crooked, but otherwise everything was peace, joy and pancakes at the meeting between the Chinese and Russian heads of state. The New Silk Road is a complete success, Vladimir Putin praised the global builder China at the Silk Road Forum in Beijing. Xi Jinping returned the praise: He had met Putin 42 times in the past ten years and had developed a “deep friendship” with the Kremlin chief. But in one case, Xi has been letting his best friend down for months: Putin is still waiting for the Chinese go-ahead for the Power of Siberia 2 – the billion-dollar prestige project that is supposed to save Gazprom’s future.

Beijing and Moscow usually cannot stop boasting about how well their economic relations have developed: Chinese exports to Russia are rising and rising. To compensate, China buys more fossil fuels from Russia than any other country in the world. The Chinese yuan is now the foreign currency with which by far most foreign transactions are carried out in Russia. The share was still a tiny 0.4 percent in 2022. There are now almost 50. But none of these developments help Gazprom, because the gas giant needs new pipelines.

Previous customers complain

Gazprom was the Kremlin’s cash cow until the Russian attack on Ukraine. In 2021, the state-owned company delivered around 141 billion cubic meters of gas to its largest customer, Europe. That was two thirds of all pipeline exports. A year later, Putin was able to secure a $20 billion payout.

But the attack on Ukraine has changed the situation: customers like Germany, Italy and Poland are out of business with Russia. Only Hungary and Austria are still really connected to the Russian gas tap. This year, Gazprom can only deliver 25 billion cubic meters of gas to the West, compared to before Minus of more than 80 percent.

There are also lawsuits from companies such as the German Uniper. After the war began, Gazprom turned off their gas supply in order to blackmail European suppliers and thus European governments. A breach of contract that could cost billions and destroy the company: “Gazprom’s importance to the Kremlin is no longer what it used to be. So can this company be sacrificed from a political and strategic point of view?” asks energy analyst Andreas Schröder in “What Again learned” podcast from ntv. “I can imagine that in a few years Gazprom will no longer exist in this form. You experience this again and again when a company gets into trouble and demands arise: through splitting up, a part with a future is saved, the demands end up in one Bad bench.”

Gas production like in the Cold War

Gazprom’s exact financial situation is unknown because the gas giant has not published any business figures since the start of the war. But the figures that are known paint a bleak picture: In September, Gazprom reported that it had produced 179 billion cubic meters of gas in the first half of the year. That’s according to the independent Russian news site Agentstvo the lowest production rate since 1978.

This is reflected in the share price: in the record year of 2021, Gazprom reached an all-time high of almost 370 rubles. Currently it is 170 rubles, the equivalent of 1.66 euros. “Thousands of Russian small investors believed in the narrative of Gazprom as a ‘national treasure’. Now they could watch as their investment becomes worthless,” writes Russian energy analyst Mikhail Kruschikin for the independent Russian investigative media “The Insider”.

His conclusion is devastating: Gazprom committed economic suicide on behalf of Putin, says Kruschikin. To date, gas deliveries to Europe are not subject to sanctions and are therefore prohibited. Gazprom voluntarily turned off the tap and the EU drew the consequences: from 2027 it no longer wants to buy any fossil fuels in Russia.

China ignores Gazprom

The only major customer remaining abroad would be Turkey – and China, if the Power of Siberia 2 is built. There is no lack of need. In the past twelve months, Chinese companies long-term LPG contracts concluded with Qatar. The emirate is expected to supply the People’s Republic with around 11 billion cubic meters of natural gas annually.

China also buys from the USA, Australia and Turkmenistan: the People’s Republic already purchases 55 billion cubic meters of natural gas per year from its Central Asian partner. After ten years of construction, China and Turkmenistan also want to finally put the fourth route of the Central Asia-China pipeline into operation: Strand D is expected to deliver a further 30 billion cubic meters of natural gas per year.

Gazprom has to be content with less. Last year, China purchased 16 billion cubic meters of natural gas via the only existing Russian pipeline to China, the Power of Siberia 1. This year it should be Information from Gazprom boss Alexei Miller 22 billion will be. The full capacity of 38 billion cubic meters is expected to be achieved in two years. A year later – in 2026 – the Far East tube is scheduled to go into operation and deliver 10 billion cubic meters from Sakhalin Island to China.

Pipeline with Nord Stream dimension

Peanuts compared to the Power of Siberia 2: The 100 billion euro, 2,600 kilometer long superpipe could transport 50 billion cubic meters of natural gas every year from the resource-rich Yamal Peninsula in the far Russian north through the west of Siberia via Mongolia to China. Nord Stream dimensions that would bring new money into the coffers of Gazprom and thus the Kremlin.

But China simply doesn’t want to approve the tube, even though Russian media did so six months ago Enforcement reported when Xi Jinping visited his best friend in Moscow. There has been no progress since then and the new mega pipeline is still in limbo today.

Confident Putin

Why China is hesitating is unclear. The People’s Republic is taking great care to ensure that it does not repeat Germany’s mistake and become dependent on another country for its energy supply. That is known. Maybe it’s a negotiating tactic that Xi uses to get a better price from Putin.

In any case, he remains confident that the Power of Siberia 2 will soon become a reality: “Everyone involved wants the project,” said Putin, according to the Russian news agency TASS during his visit to Beijing. “We’re still working on implementation, but I think we have good momentum.”

There will be hope in Gazprom’s executive suite that Putin is right, but even then Andreas Schröder cannot imagine a comeback for the Russian cash cow. “In the press releases you get the impression that Gazprom is delivering huge quantities,” explains the energy specialist in the “Learned something again” podcast. Deliveries will increase in the future, he explains. “But compared to the European business, which has collapsed, the volumes are still relatively small. It is also not foreseeable that the volumes will double or triple, because this terrain is difficult and makes the construction of pipelines complicated.”

Gazprom has built its empire on gas exports to other European countries, says Russian energy analyst Kruschikin in “Insider”. The East or the huge home business were neglected. But not only European customers, but also domestic customers are angry, because they also suffer from Gazprom’s low production – and are taking them to court for breach of contract. Putin killed his “national treasure”.