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Gazprom Grapples with Historic Net Loss Amidst Gas Revenue Decline

Russia's Gazprom Group, a state-controlled energy giant, has disclosed its first annual net loss in 23 years, signaling a significant shift in financial performance attributed to dwindling gas shipments to Europe and pricing pressures.

In the wake of restricted gas flows to Europe, historically Gazprom's primary market, and plummeting gas prices exacerbated by geopolitical tensions, Gazprom Group, which encompasses oil and power ventures alongside its core gas operations, reported a substantial 629 billion-ruble ($6.84 billion) loss for the fiscal year, contrasting starkly with the net income of 1.23 trillion rubles in 2022.

The market response has been notable, with Gazprom's shares experiencing a sharp 4.4% decline, reflecting investor concerns over dividend prospects. Gazprom's principal shareholder, the Russian government, faces fiscal strain amidst heightened military expenditures and ongoing Western sanctions.

The decline in gas revenues, underscored by a 40% drop in gas revenue to 4.88 trillion rubles, has led Gazprom to explore revenue diversification strategies. Despite gas revenue setbacks, the group witnessed positive performances in its oil and power segments, with revenue from the oil business rising by 6.7% to 3.88 trillion rubles and sales at its power utilities business increasing by 8.8% to 617 billion rubles.

Despite efforts to increase gas shipments to foreign markets, notably to China, Gazprom continues to grapple with the loss of its traditional European market. While the Power of Siberia link to China is gradually reaching its nameplate capacity, it cannot fully offset the decline in European gas demand.

These financial challenges come amidst a broader context of Gazprom's diminishing profitability, with the first half of 2023 witnessing a significant decline in net profit compared to previous years, highlighting the ongoing economic pressures facing the energy giant.

By Julianne Geiger for Oilprice.com

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