While Russian oil giant Rosneft and LNG giant Novatek are holding down the fort for shareholders, Gazprom is feeling the bite of Western sanctions, based on its full-year profit reporting this week.
Gazprom has posted a huge drop in its FY 2022 profits as sanctions from Russia's Western customers take a toll. The company's profits for the year clocked in at 1.226 trillion rubles ($15.4 billion), 41% lower than in 2021 with the company citing a windfall tax imposed by Moscow last year as the reason for the decline. The state controlled company has decided not to pay dividends for the entire year 2022, having previously paid an interim dividend of 1,208 billion rubles ($15 billion) last autumn for the results recorded in the first half of 2022. Gazprom's Deputy General Director Famil Sadygov has tried to put a positive spin on the bad situation:
"We did not wait for the results for the whole year, but offered the shareholders the opportunity to receive, in advance, a significant amount. Due to this fact, the received dividends have a real value higher than the amount paid at the end of the previous exercise," he told shareholders.
The weak results have sunk Gazprom's shares another 6%, bringing 12-month losses to nearly 40%. However, shares of its Russian oil and gas peers have fared better, with Rosneft shares up 13.5% while Novatek has gained 38.4%.
It's more likely that western sanctions, and not a windfall tax by Moscow, are the main reason behind Gazprom's falling profits. Although Gazprom's natural gas exports were not directly affected by the sanctions, export volumes were still cut in half to 101 billion cubic meters in 2022 as Europe dramatically cut gas imports from Russia. Gazprom is the world's largest producer of natural gas, having produced more than 18 trillion cubic feet in 2021, and is also one of the largest contributors to the Russian budget.
Gazprom announced on Thursday that it plans to increase natural gas reserves in its internal storage capacities to record levels next winter, hardly a surprising move given the huge decline in exports. The company plans to store 72.842 billion cubic meters in its operational gas reserves in underground storage facilities, with a maximum daily capacity of 858.8 million cubic meters. Related: Commission Recommends EU To Stop Energy Bills Support By Year-End
According to calculations by Reuters, Gazprom's deliveries have continued to fall in the current year, dropping to 67 million cubic meters per day in the first half of May, down from 75.6 million cubic meters per day in April. Russian gas deliveries to Europe this year are so far averaging ~9.1 billion cubic meters, way lower than the 62 billion cubic meters average in 2022.
Gazprom no longer publishes statistics on its own exports and has not commented on Reuters' figures.
It's going to be interesting to see whether Gazprom will be able to continue with its lavish spending plans with profits in a tailspin.
Back in December, Gazprom approved a record spending of 2.3 trillion rubles ($33.1 bln) for the current year.
"The Board of Directors approved the investment program and the budget of Gazprom for 2023. Investment program indicators did not check if compared to the version approved by the Executive Committee of Gazprom in November of this year. Funding of the investment program for 2023 will total 2.3 trillion rubles," the company has said. Gazprom is the world's largest natural gas producer with more than 18 trillion cubic feet in 2021.
The latest set of results also suggest that the natural gas price caps set by the EU last year are working. After initially hitting a dead-end amid deep divisions, EU ministers finally reached an agreement to implement a gas price cap of â¬180/MWh, lower than the â¬275/MWh trigger originally suggested by the European Commission.
Pro-cap countries including Poland, Belgium and Greece had dismissed the original cap proposal as too high, arguing that it needs to be below â¬200/MWh if it is to tackle the high gas prices that the continent has grappled with this year. Interestingly, Germany also voted to support the price cap despite having reservations that the price cap will negatively impact Europe's ability to attract gas supplies in tight and price-competitive global markets. Under the price cap, prices would not fall below â¬188/MWh, even in the event that the LNG reference price falls to far lower levels. However, the EU gas price cap would move with the LNG reference price if it increased to higher levels, while remaining â¬35/MWh above the LNG price. This system is designed to ensure the bloc can bid above market prices in order to attract gas in tight markets.
Not everyone is convinced of the efficacy of the price cap though, with Citi's Global Head of Commodities Research Ed Morse terming it as silly, impractical and unlikely to work when markets are tight as they were in the early part of 2022.
A progress report by the U.S. Treasury says that price caps on Russian oil are working as intended with Russia's oil revenues ~40% lower than they were pre-war despite export volumes rising as much as 10%.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
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