Putin Suffering ‘Enormous Difficulties’ Selling Russia’s Gas: Analysis

Gazprom cannot find new profitable markets for its natural gas, cutting a valuable revenue generator for Vladimir Putin‘s war machine and impacting his ability to use energy as a weapon against the West, according to a new analysis from the Atlantic Council think tank.

One of the world’s largest publicly listed natural gas companies, the state energy giant Gazprom is central to the Russian economy, but the war in Ukraine has hurt it badly. Newsweek has contacted Gazprom for comment.

In mid-2022, Gazprom restricted gas flows to Europe in what was seen as a move by Putin to get both leverage against Kyiv’s allies ahead of the winter season and retaliate against Western sanctions and support of Ukraine.

But the EU managed to find alternative long-term sources of gas imports and free itself from most Russian piped-gas imports, without even imposing sanctions, although some countries, including Austria and Hungary, are still reliant on Russian gas.

Gazprom’s revenue fell by 41 percent year-over-year in the first half of 2023, while sales profits dropped 71 percent and gas production by 25 percent. Gazprom Group, which also includes oil and power businesses, announced a net loss of 629 billion rubles [$6.9 billion] for last year, prompting the Russian government to order that it does not pay out dividends for 2023.

The report for the Atlantic Council think tank by former Russian deputy energy minister and opposition figure Vladimir Milov said the company has struggled with the consequences of decoupling from the EU market and “lacks a viable business model to compensate for the loss.”

The report said the company’s upstream gas-production base is now isolated because infrastructure connecting its main western Siberian fields with alternative Asian markets is lacking. It also failed to build LNG (Liquified Natural Gas) plants in western Siberia to reroute natural gas to alternative markets.

Building a new pipeline to China would cost around $100 billion, the Atlantic Council said, and this price tag might be difficult to turn a profit from Moscow’s ally given that it is “most likely selling gas to China at a significant loss.”

China, which can count on domestic supplies and imports from Central Asia, is not expected to need additional gas supply until after 2030 and does not want to give Gazprom any kind of price premium for new gas-supply contracts, the analysis said.

Other difficulties such as Russia’s domestic market where gas prices are much lower and the technical and political difficulties in building a pipeline to South Asian countries “leaves Gazprom in limbo for the foreseeable future.”

Berlin-based energy analyst Thomas O’Donnell told Newsweek that Gazprom’s woes have shown Putin’s tactic to use Russian gas as a lever against Europe had backfired.

“It was intended to shock Europe and force them into submission with an energy war to prevent their acting in solidarity with Ukraine to his surprise, this did not happen,” he said, “Putin has a lot of gas and he can’t sell it.”

The Atlantic Council report said the Russian oil industry had weathered sanctions better than Gazprom, mostly because it does not require the same infrastructure. The commodity can be shipped via seaports although a $60 price cap imposed by the G7 countries has seen Russia use shadow fleets to hide links to Moscow.

Milov concluded that while Russian oil and gas industries and Russia’s public finances are too resilient to collapse, “they are suffering enormous difficulties due to sanctions and decoupling from the Western energy markets.”