(Reuters) – When Alexei Miller, CEO of Russian gas giant Gazprom, opened a luxurious Italian palace-style building in central St. Petersburg to accommodate the company's export agency 11 years ago, he unveiled the future of European sales funding.
“It's symbolic,” he said. “Europe will increasingly need Russian gas.”
Instead, the luxurious office symbolized the rapid decline of Gazpromise, which was delayed by the loss of almost all European markets after the Ukrainian War, which broke Russia's ties with the West.
According to executives at Gazprom and another source of knowledge, it was learned in internal discussions at Gazprom that billions of dollars in losses and scrambled to save billions of dollars in losses.
Gazprom is arguably the biggest blow to international sanctions after Russia's full invasion of Ukraine three years ago. Despite Russia's economy being resilient, there are increasing signs of pressure in several industries. Reuters has previously reported that President Vladimir Putin is concerned that large military spending distorts the wider economy.
The same two sources told Reuters that the number of employees exported by Gazprom is the company's most prosperous sector, responsible for the sales of gas from the Soviet Union and Russia to Europe for more than half a century, and has shrunk dozens of employees.
That's lower than the peak of Russia's exports to Europe five years ago. Buildings and cuts have not been reported before.
Gazprom AG and the Russian Ministry of Energy did not respond to detailed requests for discovery of the story.
Sources told Reuters that the remaining workers are mainly concentrated in lawsuits by former EU buyers because there is no sales in Europe. A source said the export of Gazpromium Gazpromium Gazpromium shares is a “shell”.
Alexei Grivach of the pro-Kremlin think tank from the National Energy Security Foundation said that Gazprom's less fascinating focus in the near future will be to bring gas to more Russian houses.
“Gazprom has handed the social task of gasification to the economy and the population to ensure the supply of gas at low regulatory prices,” he said.
Reuters conducted the depth of change with three executives, as well as six former and current employees in the story about the most valuable companies in Russia. Everyone asked for anonymity, citing fears of professional influence.
A wider incision
The dialogue with employees revealed that Gazprom AG has far exceeded the export units. Two of the sources told Reuters that Miller now approved plans to cut 1,500 jobs at the headquarters of the UK-designed Lakhta Center, the tallest skyscraper in Russia and Europe.
According to one of the sources, the dismissal of the Gazprom headquarters has not been announced, but staff have been asked to prepare personal speeches on why the job is to be kept, the latter said that if there is overlap, they were told that employees were told to describe their job functions.
The process is expected to be completed within a few weeks, sources said.
These cuts have increased to 40% of the employees at the headquarters of Gazprom, but a small portion of its strong workforce is spread throughout Russia.
According to an executive, management misjudged the firmness of the European capital, saying the idea inside the company was that Europe would soon “beg” for the recovery of Russian gas supplies.
Despite the economic pain of higher energy costs, the EU has not lifted sanctions.
“We were proven to be wrong,” the executive said.
U.S. natural gas exporters quickly took action to replace Russian gas in Europe. The United States has become the largest exporter of liquefied natural gas, with supply tripling since 2021. Europe still buys Russia's sea-out liquefied liquefied natural gas (LNG), but mainly comes from Russia's rival, Russia's Russian state, the Yamal LNG plant in Novatek.
The EU aims to end the use of Russian fossil fuels by 2027, with its overall gas consumption attributed in part to the shift in renewable energy.
Last year, the Russian Gazprom reported a net loss of 2023, the first loss since 1999, and it was Putin's coming to power. It has another loss in the first nine months of 2024, the latest period for available numbers.
Gazpromium shares fell to its lowest level since January 2009 in mid-December, hitting 106.1 rubles, down more than a third since early 2024.
Months after Ohio announced its annual losses, Gazprom said last year that it was selling portfolios of high-end properties, including Moscow’s famous luxury hotels and Armenia’s Flower Valley.
Gazprom has a long history of investing in luxury properties, which is used to reward holiday employees and host conferences and events such as the 2014 Olympic Games.
Trump Trade
Alpha Bank said in a note last month that Donald Trump returned to the White House to help Gazprom's share price return to about 180 rubles, hoping that a quick Ukrainian peace deal would lead to a resumption of exports to Europe.
But despite a Financial Times report that Putin's long-time allies are lobbying the United States to allow investors to restart the $11 billion Nord Stream 2 pipeline, a sign that the mainland will be eager to reconnect with Russian gas again, although that sign is rare. Germany said it would stick to its independence policy of detachment from Russian energy.
Even with appetite, Nord Stream is unusable and partially damaged.
Shell Integrated Natural Gas Executive Vice President Cederic Cremers said at the London International Energy Week meeting in late February whether Russian pipeline gas can return to Europe: “It depends on a lot of things.”
He cited multiple arbitration cases with Gazprom and asked: “Does the client and Europe still want to have the same dependence on Gazprom?”
According to the European Commission, Gazprom's share of the EU market has shrunk to 7% from 35% before the EU sanctions.
According to calculations by the Moscow Stock Exchange, Gazprom and Reuters, its market value was worth about $46 billion as of Wednesday, from its all-time high of $330.9 billion in 2007.
Miller's time
With the company's new role as a domestic gas supplier, CEO Miller's lofty ambitions have been undermined. Miller said in 2007 that the company will eventually have a market capitalization of $1 trillion.
This seemed possible at the time. Russia holds a fifth of the planet's gas resources, rendering Gazprom the world's largest natural gas company by reserves.
Gazprom was founded in the Soviet Union by the Department of Natural Gas Industry – generating revenue, accounting for more than 5% of Russia's annual GDP of US$2 trillion.
The company has been run by Putin's close friend Miller since the Russian president became Mayor of St. Petersburg in the 1990s, for the past 24 years. Miller has been on the U.S. sanctions list since 2018, banning U.S. citizens and entities from engaging in any dealings with him.
Gazpromise controls entire towns in Siberia and the Arctic, such as Nadim, where thousands of employees and their families rely on it as their sole employer. From 1993 to 1996, Russian Fuel and Energy Minister Yury Shafranik told Reuters in 2023 that Gazprom has been a “state within the state.”
Sources spoken by Reuters did not describe plans to cut work plans or plans to close production assets in towns such as companies.
Is the grassland too far?
Putin's long-term commitment to replacing European markets with Chinese exports looks optimistic at best. Even the most ambitious project currently being considered to bring natural gas is not half of the previous year's peak exports, or 180 billion cubic meters (BCM)
Most of Russia's natural gas reaches Europe through pipelines. When Germany and other European countries stopped buying, the surplus had nowhere to go.
By contrast, Russian oil exporters were able to redirect tankers to refineries in Asian countries where sanctions have not been imposed.
While gas production recovered from a record low in 2023 last year, domestic demand increased and exports to China, there was little capacity to expand the pipeline capacity of the trade.
Currently, Russia has only one route that can provide China with pipeline natural gas-the power of Siberian pipelines, transporting 38 bcm per year.
The second smaller pipeline is being built at a capacity of 10 bcm a year and will connect the Sakhalin Pacific Island to China in 2027.
Russia and China have held talks for more than a decade to establish a third pipeline, the power of Siberia 2, to carry 50 bcm and meet in one tenth of China. According to media reports, the plan will take years to fully develop and stagnate due to price differences.
In May, Russian Deputy Prime Minister Alexander Novak said Russia and China are expected to sign contracts “in the near future” on the Siberia 2 natural gas pipeline.
News Agency Interfax reported that Putin and Chinese President Xi Jinping discussed Siberia 2's power in January, but no agreement has been reached.
China National Petroleum Corporation, which is dealing with Gazprom, declined to comment on the negotiations. The Russian government did not respond to a request for comment.
Even if the power of the Siberia 2 pipeline is completed soon, analysts at Columbia University’s Center for Global Energy Policy may be much lower than the volume and pricing terms that have been exported to Europe in the past.
“By 2030, Russian gas export revenue could fall by 55-80%, while the revenue of the Russian gas industry is $165 billion in 2022,” they said in a research note last year.
(Reuters report; editor of Frank Jack Daniel)
