Gazprom’s Profit Rebound: A Strategic Turnaround or a Fleeting Rally?

Russia’s state-owned energy giant Gazprom announced a stunning turnaround in 2024, posting a net profit of $14.8 billion—a sharp reversal from its historic $7 billion loss in 2023. This recovery, fueled by soaring gas sales and strategic pivots, has sparked debate about whether Gazprom’s revival is a sustainable triumph or a temporary reprieve amid persistent geopolitical and economic headwinds.

The Numbers Behind the Turnaround

Gazprom’s 2024 profit surge was driven by a 25% year-on-year revenue increase to $107 billion, with gas sales alone contributing $46 billion—exceeding initial targets by $1.6 billion. EBITDA surged to $27.9 billion, a 76% jump from 2023, propelled by higher gas prices and reduced operational costs. Even as net debt rose to $59.6 billion (up 12% year-on-year), the debt-to-EBITDA ratio improved to 2.1—down from 2.8—signaling better leverage.

Key Drivers of the Recovery

1. Gas Sales Revival:
2. European exports remain constrained due to the 2024 termination of Ukrainian transit agreements, but Gazprom pivoted to Asia. Sales via the Power of Siberia pipeline to China jumped by 8 billion cubic meters (bcm), while new contracts with Turkey and Central Asia added stability.

3. Domestic gas prices, historically subsidized, were partially liberalized, boosting revenue.

4. Cost Discipline and Capital Efficiency:

5. Despite record capital expenditures ($312 billion in 2023), Gazprom trimmed its 2024 investment plan by 14%, focusing on high-priority projects like the Chayandinsky gas field and Volgograd underground gas storage.

6. Currency and Pricing Dynamics:

7. The ruble’s appreciation against the dollar (up 15% in 2024) improved foreign revenue conversions.
8. Gazprom renegotiated contracts with China, securing prices closer to global benchmarks—a critical win after years of concessionary deals.

The Unresolved Challenges

Despite the financial rebound, Gazprom faces structural vulnerabilities:

1. European Market Exit:

2. Post-2024, Gazprom’s European exports are capped at 15.75 bcm annually via TurkStream, a fraction of pre-2022 levels. Without new pipelines or agreements, diversifying revenue streams remains urgent.

3. Debt Burden:

4. While debt-to-EBITDA improved, Gazprom’s net debt still exceeds $50 billion—a precarious position if gas prices dip or ruble volatility returns.

5. Geopolitical Risks:

6. Sanctions continue to limit Western investment, and the 2025 expiration of TurkStream’s initial agreements introduces uncertainty.

Q4 2024: A Quarter of Mixed Signals

Gazprom’s September 2024 quarter highlighted both strengths and weaknesses:
- EBITDA hit $70.5 billion, pushing cumulative EBITDA past 2023’s total by mid-year.
- Net profit fell 176% year-on-year to $3.6 billion, reflecting one-time costs and prior-period comparatives.
- Revenue skyrocketed 625% to $160 billion, largely due to gas sales, but this surge may not be repeatable if Asian demand slows.

The Long Game: Can Gazprom Sustain Growth?

Gazprom’s future hinges on three factors:
1. Asian Market Penetration: China’s energy demands are growing, but price disputes linger. A 2025 deal to supply 10 bcm annually at market rates could solidify this relationship.
2. Diversification: Expanding liquefied natural gas (LNG) exports via the Arctic LNG 2 project could reduce reliance on pipeline politics.
3. Debt Management: Maintaining a debt/EBITDA ratio below 2.5 will require strict capital controls and higher gas prices.

Conclusion: A Profitable Now, but a Risky Tomorrow

Gazprom’s 2024 profit is a testament to its resilience in a fractured energy landscape. With EBITDA nearing pre-2022 levels and debt ratios improving, the company has stabilized financially. However, its reliance on volatile geopolitical conditions—sanctions, transit agreements, and Asian demand—means this recovery is far from guaranteed.

Investors should weigh the positives (strong gas sales, cost discipline) against the risks (sanctions, European exit, debt). Gazprom’s $14.8 billion profit is a milestone, but without resolving its structural dependencies, this rebound may prove as fleeting as the gas it delivers.

In the end, Gazprom’s story is one of adaptation—but survival demands more than adaptation. It requires reimagining its role in a world where geopolitical divides grow deeper, and energy markets demand both stability and innovation.