Despite sanctions, windfall taxes, the loss of European markets, and other troubles that have befallen Gazprom since Russia’s invasion of Ukraine, the company’s financial reports suggest that it is doing just fine. The state gas giant’s recently published figures for 2024, calculated according to International Financial Reporting Standards (IFRS), indicate a net profit of 1.2 trillion rubles ($15 billion). The year before, it had reported a loss of 629 billion rubles.
There is much that is interesting and incomprehensible in Gazprom’s financial reports. On the one hand, the company looks much stronger than talk of record losses and the prospect of bankruptcy would suggest. On the other hand, its stability appears to lie not in the skillful management of the gas business, but in the profits of several successful acquisitions.
The first question to ask is how Gazprom went from major losses in 2023 to impressive profits in 2024. It might seem that the concern’s main problem in 2023 was a 3.4 trillion ruble drop in revenue from gas sales compared with 2022, but that drop was mainly due to the fact that 2021–2022 was a time of record high gas prices. Compared with the prewar and pre-COVID 2019, Gazprom’s total revenue actually grew in 2023: from 7.6 trillion to 8.5 trillion rubles, despite the loss of most of the European gas market.
The roots of the 2023 losses lie elsewhere. The first factor was that the government had dramatically increased the mineral extraction tax (MET) to raise money for military spending, costing the company 1.3 trillion rubles. The second factor was losses from the write-off of nonfinancial assets (mainly in Europe), which in 2023 amounted to a record 1.15 trillion rubles (compared with just 29 billion in 2019).
At that time, Gazprom admitted that its European assets—shares in joint ventures, pipelines, and storage facilities—had lost their value in the new political circumstances, and wrote them off in its IFRS accounting. It is possible that the concern lumped in other unprofitable projects at the same time in order to seize the moment when it would not attract much attention.
The next question is how Gazprom achieved such enormous profits in 2024. First and foremost, the concern significantly increased gas production from 359 billion cubic meters in 2023 to 416 billion cubic meters, according to CEO Alexei Miller. An additional 4 billion cubic meters were supplied to Europe via pipelines, 8.5 billion to China via the Power of Siberia pipeline, and another 15 billion to the Russian domestic market to meet increased demand.
Additional revenue from deliveries to China in 2024 amounted to 300 billion rubles, while sales on the domestic market brought in 77 billion. The additional volume sold on the European market brought in 1.2–1.6 billion euros, or about 120–160 billion rubles.
Production was also boosted by the fact that in March 2024, Gazprom acquired Shell’s former stake in Sakhalin Energy, the operator of the Sakhalin-2 project. From then on, as the majority shareholder, it began to count all the project’s production as its own. In 2024, that amounted to 10.2 million tons of LNG.
The consolidation of Sakhalin Energy also meant that while in 2023 and the first quarter of 2024 Gazprom only had 50 percent of the profit of Sakhalin-2’s operator on its books, from the second quarter of 2024 all of Sakhalin Energy’s revenue began to be taken into account, ultimately amounting to 464 billion rubles.
Gazprom paid 94 billion rubles for a 27.5 percent stake in Sakhalin Energy, but immediately recorded a profit from the deal of 191 billion rubles. Meanwhile, Shell—the stake’s previous owner—wrote off $1.6 billion.
However, Gazprom’s 2024 windfall wasn’t limited to its increased gas production and acquisition of Shell’s share in Sakhalin Energy. The concern received an additional 1 trillion rubles from the sale of oil, gas condensate, and oil products. The physical volume of sales remained virtually unchanged, but in 2024 the average price of a barrel of Urals was $6 higher than the previous year. Here, too, the inclusion of all Sakhalin Energy’s results in Gazprom’s accounts made an impact.
A reduction in expenses also contributed to the growth in profit. In 2024, write-offs amounted to 286 billion rubles: 860 billion less than in 2023. No new taxes were introduced, and production costs (materials, salaries, repairs, maintenance, etc.) increased by 10 percent, roughly in line with inflation.
It was only logical, therefore, that Gazprom showed a profit. That profit of 1.219 trillion rubles was slightly higher than the 1.203 trillion in the prewar, pre-COVID 2019. However, when converted into dollars, the picture is a less rosy $13.2 billion compared with $18.6 billion. And if the 2019 results are adjusted for inflation, the gap is even greater: $13.2 billion compared with $23.3 billion.
These aren’t the only financial problems Gazprom is facing. In 2024, out of the concern’s 1.2 trillion rubles of profit, about 500 billion came from the oil company Gazprom Neft, which is 95 percent owned by Gazprom. Accordingly, 95 percent of Gazprom Neft shares are listed on Gazprom’s balance sheet. In other words, Gazprom itself made a profit of just 719 billion rubles.
Moreover, a more practical indicator—net cash from operating activities—makes it clear that the flow of money into the concern has noticeably decreased since 2021. Meanwhile, the scale of capital investments remains extremely high, amounting to 2.9 billion rubles in 2024. That is significantly more than that of the biggest oil and gas companies such as Exxon Mobil, Shell, and TotalEnergies, whose level of activity is significantly higher.
It’s hard to say where exactly the concern is directing these enormous investments. Major foreign projects such as the TurkStream and Nord Stream 2 pipelines have long been completed, and no new ones are expected in the current climate. The Amur gas processing plant, which has been estimated at 20 billion euros, only inched toward completion in 2024, from 90.84 percent to 93.15 percent.
Gazprom had planned to develop the Bovanenkovo and Kharasavey gas fields on the Yamal Peninsula, but they were intended to supply the Nord Stream pipelines to Europe that were damaged by underwater explosions in late 2022. Accordingly, there should be excess capacity there now, even without additional investment.
As a result, there are only a few projects left that could require investment. The new Belogorsk-Khabarovsk pipeline is due to connect the Power of Siberia pipeline to China with the earlier Sakhalin-Khabarovsk-Vladivostok pipeline. It is expected to come online in 2026 at a cost of up to 300 billion rubles, or about 150 billion per year.
Gazprom representatives had also spoken of plans to construct two new buildings next to the company’s St. Petersburg headquarters, the Lakhta Center skyscraper. But even the original construction only cost 155 billion rubles, so it would be hard to spend a trillion rubles on two more skyscrapers—especially since there was no active construction at the site in 2024.
Finally, together with another gas company, Rusgazdobycha, Gazprom is building an LNG plant with a capacity of 13 million tons per year and a gas chemical plant in Ust-Luga that are due to be completed by 2027. Gazprom owns 100 percent of the LNG plant and 50 percent of the chemical plant, and each of them is estimated at about 1.5 trillion rubles. The concern could be spending up to 500 billion rubles per year on Ust-Luga, but even that would not be enough to account for 2.9 trillion in capital investments in 2024.
The only other area of investment is Russia’s gasification, for which Gazprom allocated 270 billion rubles in its 2024 budget. So the question of where 2.9 trillion rubles of investment went in 2024 remains without an obvious answer.
Ultimately, Gazprom is using its oil arm, Gazprom Neft, to fund gas projects, covering the deficit between operating and investment cash flows. But there is still not enough revenue to finance its entire ambitious investment program, so the concern continues to increase its net debt.
For now, that debt is moderate: 5.7 trillion rubles, and the debt to EBITDA ratio is below 2, which is considered safe. Investors should start worrying when the ratio is above 4, which is still a long way off. Still, the dynamics are negative, and without the masking effect of a successful oil business, everything would look far worse. Meanwhile, the cost of debt service has grown very noticeably, from 171 billion rubles in 2019 to 719 billion in 2024, which is due to both higher interest rates and the debt itself growing.
For now, Gazprom still has a large safety margin. Many projects could be frozen without inflicting too much damage on the company’s future cash flows, which will improve its financial position. But the concern seems to have gotten into the habit of carrying out several expensive and lengthy construction projects at the same time, and it is virtually impossible to stop even some of them without major reforms within the company. Gazprom has likely begun to recognize this problem, but the reforms being discussed may be too modest and too late.
