(Reuters) – When the CEO of Russian state fuel big Gazprom, Alexei Miller, opened a lavish Italian palazzo-styled constructing in central St Petersburg to accommodate the corporate’s export arm 11 years in the past, he augured a future funded by European gross sales.
“That is symbolic,” he stated, referring to the fashionable new places of work in Russia’s most European metropolis. “Europe will more and more want Russian fuel.”
As a substitute, the opulent places of work have come to represent Gazprom’s fast decline, dragged down by the virtually complete lack of European markets after the struggle in Ukraine ruptured Russia’s ties with the West.
Reeling below multi-billion-dollar losses and scrambling for financial savings, the corporate is now contemplating placing the palazzo up on the market together with different luxurious properties it owns, in accordance with a Gazprom government and one other supply with information of inside discussions at Gazprom.
Gazprom is arguably the Russian enterprise hardest hit by the worldwide sanctions imposed after Russia’s full-scale invasion of Ukraine three years in the past. Though Russia’s economic system has been resilient, rising indicators of pressure have appeared in a number of industries. Reuters has beforehand reported that President Vladimir Putin is anxious as heavy army spending distorts the broader economic system.
The variety of workers at Gazprom Export, as soon as essentially the most affluent unit of the corporate, overseeing Soviet and Russia’s fuel gross sales to Europe for over half a century, has shrunk to only a few dozen staff, the identical two sources informed Reuters.
That is down from 600 staff 5 years in the past, on the peak of Russian exports to Europe. The potential sale of the constructing and cuts on the unit haven’t been beforehand reported.
Gazprom’s media division and the Russian power ministry didn’t reply to detailed requests for touch upon the story’s findings.
With no European gross sales, the remaining staff are centered primarily on litigation with former EU patrons, the sources informed Reuters. Gazprom Export is “only a shell,” one of many sources stated.
Alexei Grivach, from pro-Kremlin suppose tank the Nationwide Power Safety Fund, stated Gazprom’s much less glamorous focus within the close to future will likely be to carry fuel to extra Russian properties.
“Gazprom has been handed the social job of gasification and safe fuel provide to the economic system and the inhabitants at low regulated costs,” he stated.
Reuters spoke to a few executives and half a dozen former and present staff for this story on the depth of change at what was once Russia’s most respected firm. All requested anonymity, citing concern {of professional} repercussions.
WIDER CUTS
Gazprom’s issues prolong properly past the export unit, the conversations with the staff reveal. Two of the sources informed Reuters that Miller has now accepted plans to chop 1,500 jobs on the dad or mum firm’s headquarters in Russia and Europe’s tallest skyscraper, the British-designed Lakhta Centre, additionally in St Petersburg.
The dismissals at Gazprom headquarters have but to be introduced however workers have been requested to arrange particular person displays about why they need to maintain their jobs, in accordance with one of many sources, who stated staff had been informed to put in writing up an outline of their job features in case of overlaps.
The supply stated the method was anticipated to be accomplished inside a number of weeks.
The cuts add as much as about 40% of the workers at Gazprom’s headquarters, however a small fraction of its half million robust work drive, unfold throughout Russia.
Administration misjudged how resolute European capitals can be, in accordance with one of many executives, who stated the considering inside the corporate was that Europe would shortly be again “begging” for Russian fuel provides to renew.
Regardless of the financial ache of upper power prices, the EU has not rolled again sanctions.
“We proved to be mistaken,” the manager stated.
U.S. fuel exporters shortly moved to switch Russian fuel in Europe. The U.S. has develop into the largest exporter of LNG to the continent, with provides tripling since 2021. Europe nonetheless buys Russia’s sea-borne liquefied pure fuel (LNG), however primarily from Gazprom’s rivals, Novatek’s Yamal LNG plant.
The European Union goals to finish its use of Russian fossil fuels by 2027 and its general fuel consumption has decreased partly on account of a shift to renewable power sources.
Final yr, Gazprom posted a web lack of $7 billion for 2023, its first since 1999, the yr Putin got here to energy. It posted one other loss within the first 9 months of 2024, the newest interval for which figures can be found.
Gazprom’s share value fell in mid-December to its lowest since January 2009, touching 106.1 roubles, a decline of greater than a 3rd because the begin of 2024.
Just a few months after saying the annual loss, Gazprom stated final yr it was promoting a portfolio of high-end properties that embody well-known luxurious accommodations in Moscow and in Armenia’s Valley of Flowers.
Gazprom has an extended historical past of investing in luxurious property, which it makes use of to reward staff with holidays, and to host conferences and occasions such because the 2014 Olympic Video games.
TRUMP TRADE
The return of Donald Trump to the White Home has helped Gazprom’s share value recuperate to round 180 roubles on hopes a swift Ukrainian peace deal would result in the restoration of exports to Europe, Alpha Financial institution stated in a word final month.
Nevertheless, there are few indicators the continent will rush to once more tie itself to Russian fuel, regardless of a Monetary Occasions report {that a} long-time ally of Putin is lobbying the US to permit buyers to restart the $11 billion Nord Stream 2 pipeline that carried fuel from Russia through Germany. Germany says it’ll stick to its coverage of independence from Russian power.
Even when there have been urge for food, Nord Stream is out of service and partly broken.
Cederic Cremers, government vice chairman of built-in fuel at Shell, stated in late February on the Worldwide Power week convention in London in response as to if Russian pipeline fuel may return to Europe: “That is dependent upon a number of issues.”
He cited a number of arbitration circumstances with Gazprom and requested “will prospects and Europe nonetheless need the identical dependence on Russian fuel?”
Gazprom’s share in EU markets has shrunk to 7% from over 35% earlier than EU sanctions, European Fee information reveals.
Its market capitalisation as of Wednesday stands at round $46 billion, down from the all-time excessive of $330.9 billion in 2007, in accordance with the Moscow inventory change, Gazprom and Reuters calculations.
MILLER’S TIME
As the corporate adjusts to its new function as a home fuel provider, the lofty ambitions of CEO Miller have been dashed. In 2007, Miller stated the corporate would ultimately have a market capitalisation of $1 trillion.
On the time this appeared potential. Russia holds a fifth of the planet’s fuel assets, rendering Gazprom the world’s largest pure fuel firm by reserves.
At its peak, Gazprom – shaped within the Soviet Union from the Ministry of the Fuel Trade – generated revenues that accounted for over 5 p.c of Russia’s $2 trillion annual gross home product.
The corporate has been run by Miller, an in depth good friend of Putin because the Russian president was mayor of St Petersburg in Nineties, for the previous 24 years. Miller has been on the U.S. sanctions listing since 2018, barring U.S. residents and entities from any dealings with him.
Gazprom controls whole cities in Siberia and the Arctic resembling Nadym the place tens of hundreds of staff and their households rely on it as the only real employer. Yury Shafranik, Russian gas and power minister from 1993 to 1996, informed Reuters in 2023 that Gazprom had been a “state inside a state.”
The sources Reuters spoke to didn’t describe plans for job cuts or the closure of manufacturing belongings in such firm cities.
A STEPPE TOO FAR?
Putin’s long-term promise to switch Europe’s markets with exports to China look optimistic at greatest. Even essentially the most formidable initiatives at present being thought of to pipe fuel eastward wouldn’t quantity to half of the earlier annual peak exports of 180 billion cubic meters (bcm)
A lot of Russia’s fuel went by way of pipelines to Europe. When Germany and different European international locations stopped shopping for it, there was nowhere else for the excess to go.
In distinction, Russia’s oil exporters have been in a position to redirect tankers to refineries in Asian international locations that haven’t imposed sanctions.
Though fuel manufacturing recovered barely final yr from a document low in 2023 on elevated home demand and exports to China, there may be little pipeline capability to increase that commerce.
For now there is just one route for Russia to provide pipeline fuel to China – the Energy of Siberia pipeline, which transports 38 bcm per yr.
A second smaller pipeline with a capability of 10 bcm per yr is below building, set to attach the Pacific island of Sakhalin to China by 2027.
Russia and China have been in talks for over a decade about constructing a 3rd pipeline, the Energy of Siberia 2, to hold 50 bcm and meet over a tenth of Chinese language fuel consumption. This plan would take years to totally develop and discussions have stalled on account of value variations, in accordance with media studies.
In Could, Russian Deputy Prime Minister Alexander Novak stated Russia and China anticipated to an indication a contract “within the close to future” on the Energy of Siberia 2 fuel pipeline.
Putin and China’s President Xi Jinping mentioned Energy of Siberia-2 in January, information company Interfax reported, however no settlement has been reached.
China Nationwide Petroleum Company, which is coping with Gazprom, declined to touch upon the talks. The federal government of Russia didn’t reply to a request for remark.
Even when the Energy of Siberia 2 pipeline had been accomplished shortly, volumes and pricing phrases are prone to be a lot decrease than previous exports to Europe, analysts from the Heart on International Power Coverage at Columbia College.
“By 2030, Russian fuel export revenues may fall by 55–80 p.c in comparison with 2022, a yr of record-high revenues for the Russian fuel business, at $165 billion,” they stated in a analysis word final yr.
(Reporting by Reuters; Enhancing by Frank Jack Daniel)
