Gazprom's Strategic Rebalancing Amid European Market Losses and Rising China Ties

Gazprom’s strategic rebalancing in response to its collapsing European market has become a defining narrative in global energy markets. Since Russia’s 2022 invasion of Ukraine, European demand for Russian gas has plummeted from 150 bcm in 2021 to an estimated 43 bcm in 2025, representing just 13% of the EU’s total gas imports [1]. This collapse, driven by EU sanctions, the REPowerEU Plan, and the end of transit via Ukraine in early 2025, has forced Gazprom to pivot aggressively toward Asia. For investors, the question is whether this shift can offset Europe’s loss and sustain long-term growth—or if it exposes new vulnerabilities.

The European Exodus: A Structural Decline

Gazprom’s European market share has fallen from over 40% in 2021 to 11% by 2025 [2], with pipeline exports via TurkStream—the sole remaining major route—struggling to compensate for lost volumes. In Q2 2025, Gazprom delivered just 9.93 billion cubic meters (bcm) to Europe, a 50% drop from the same period in 2024 [3]. The EU’s rapid diversification, including LNG imports from the U.S., Qatar, and Norway, has rendered Russia a marginal player in its own once-dominant market. By 2027, the EU aims to fully phase out Russian gas [4], leaving Gazprom with a structural revenue gap.

The Asian Pivot: China as a Lifeline

China has emerged as Gazprom’s most critical market. The Power of Siberia 1 pipeline, operational since 2019, now delivers 38 bcm annually, with plans to expand to 48 bcm by 2027 through the Far East route [5]. In 2024, Gazprom increased deliveries to China by 36% year-over-year, driven by long-term contracts and infrastructure upgrades [6]. However, the proposed Power of Siberia 2 (PoS-2) pipeline—designed to add 50 bcm/year—remains stalled due to pricing disputes. Russia seeks gas prices near its former European rates (~$350 per 1,000 cubic meters), while China insists on domestic levels (~$60) [7]. This impasse highlights the financial risks of the pivot: lower margins in Asia compared to Europe, coupled with high infrastructure costs.

Financial and Geopolitical Risks

Gazprom’s financial resilience is underpinned by a 2024 net profit of $15 billion, driven by domestic sales and acquisitions like Shell’s Sakhalin Energy stake [8]. Yet, its Asian pivot faces headwinds. China’s energy strategy prioritizes diversification, including LNG and renewables, reducing its reliance on any single supplier [9]. Additionally, geopolitical tensions—such as U.S.-China competition and the Red Sea crisis—could disrupt energy security dynamics, complicating Russia’s role as a stable supplier.

For investors, the key uncertainty lies in Gazprom’s ability to secure new markets beyond China. While the Sakhalin-to-China pipeline (10 bcm/year by 2027) offers incremental growth [10], it cannot fully offset Europe’s loss. Moreover, Mongolia’s exclusion of PoS-2 from its 2024–2028 development plan underscores the geopolitical fragility of cross-border infrastructure [11].

Investment Implications: A High-Stakes Gamble

Gazprom’s long-term viability hinges on three factors:
1. Resolving PoS-2 negotiations to unlock 50 bcm/year of capacity.
2. Maintaining China’s demand amid its own energy transition and domestic production growth.
3. Managing costs in a low-margin environment, including a 7% reduction in 2025 investment budgets [12].

While the company has demonstrated operational flexibility—such as boosting production from Sakhalin-2—its financial model remains exposed to geopolitical and pricing volatility. For investors, Gazprom represents a high-risk, high-reward bet: a potential rebound in Asian markets could offset European losses, but unresolved disputes and China’s strategic caution may cap growth.

In conclusion, Gazprom’s rebalancing is a testament to its adaptability in a fractured global energy landscape. However, the path forward is fraught with challenges that demand careful scrutiny. Investors must weigh the promise of Asia against the shadows of geopolitical risk and financial constraints.

Source:
[1] Europe's messy Russian gas divorce [https://www.brookings.edu/articles/europes-messy-russian-gas-divorce/]
[2] Farewell to Europe: Gazprom after 2024 [https://www.osw.waw.pl/en/publikacje/osw-commentary/2025-02-11/farewell-to-europe-gazprom-after-2024]
[3] Gazprom's exports to Europe plummet to 50-year low [https://finance.yahoo.com/news/gazproms-exports-europe-plummet-50-163959293.html]
[4] phase out Russian gas imports - EUR-Lex [https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52025PC0828]
[5] Gazprom signs China gas supply deal as Putin meets Xi [https://www.argusmedia.com/en/news-and-insights/latest-market-news/2298716-gazprom-signs-china-gas-supply-deal-as-putin-meets-xi]
[6] Russia's Gazprom cuts investment budget for 2025 [https://www.spglobal.com/commodity-insights/en/news-research/latest-news/natural-gas/112824-russias-gazprom-cuts-investment-budget-for-2025-china-remains-focus]
[7] Power of Siberia 2: A Pipeline Between Ambition and Uncertainty [https://trendsresearch.org/insight/power-of-siberia-2-a-pipeline-between-ambition-and-uncertainty/?srsltid=AfmBOooi5qV9ZUPPiTguGDbtZ2zB7TQqIYYLzIzHejiat9Kg-6laxpCP]
[8] How Has Russia's Gazprom Gone From Record Losses to ... [https://carnegieendowment.org/russia-eurasia/politika/2025/05/russia-oil-gazprom-finances?lang=en]
[9] China seeks more Russian gas via old link as new pipeline stalled [https://www.reuters.com/business/energy/china-seeks-more-russian-gas-via-old-link-new-pipeline-stalled-2025-08-29/]
[10] Gazprom's Resilience in the Storm [https://www.ainvest.com/news/gazprom-resilience-storm-profit-growth-sanctions-shifting-markets-2505/]
[11] Power of Siberia 2: Economic Opportunity or Geopolitical Risk for Mongolia? [https://thediplomat.com/2025/04/power-of-siberia-2-economic-opportunity-or-geopolitical-risk-for-mongolia/]
[12] Russia's Gazprom cuts investment budget for 2025 [https://www.spglobal.com/commodity-insights/en/news-research/latest-news/natural-gas/112824-russias-gazprom-cuts-investment-budget-for-2025-china-remains-focus]