RUSSIA – Gazprom Reports $7 Billion Loss as Sanctions Decimate Revenue & Exports. Russia Ukraine War

RUSSIA – Gazprom Reports $7 Billion Loss as Sanctions Decimate Revenue & Exports. Russia Ukraine War

hi welcome back to Joe blogs in today’s episode I want to talk to you about what’s happening in the Russian economy and specifically to talk about the business that was previously the largest company in the whole of Russia gazprom now gas prom started out Life as a state-owned entity and it was given the sole contract for exporting natural gas all around the world and Russia has the largest natural gas supplies out of any country globally and over the last 30 years demand for natural gas has increased exponentially as many countries moved away from generating electricity using coal to using natural gas fired power stations and natural gas generates around 50% of the carbon dioxide emissions produced by coal so this was seen as being an environmentally friendly way of producing large amounts of electricity but unfortunately from gas prom’s point of view Russia’s decision to invade Ukraine has been hugely detrimental for business because the majority of countries in Europe have decided that they no longer want to buy any Russian gas and this represents a major problem from gas prom’s point of view because it is much more difficult to be able to turn around and start supplying large amounts of gas to China and India in the same way as Russia has done with oil because natural gas isn’t something that you can just load onto a ship and transport over the ocean in order to do that you have to convert it into a liquid if IED form and you need a huge plant to be able to do that which cost tens of billions of dollars to make so from gas prom’s point of view what’s happened over the last two years is that they’ve lost all of their customers and they’re finding it extremely difficult to be able to replace them all and the results for 2023 have now been announced and gazprom has reported a loss of 7 billion and this compares to a profit of $31 billion that gazprom reported in 2021 which was the last year that was completely unaffected by the invasion of Ukraine so we are talking about a net turnaround of $38 billion here that is a huge amount of capital so in today’s video we’ll go through the details as to what’s happened with gazprom we’ll have a look at those results in a bit more detail and we’ll talk about the impact on the Russian economy because the impact of this loss isn’t just contained to the fact that gazprom has made any profit and so it’s lost all of that cash we’re talking about the knock on implications of all of the employees of gazprom the shareholders of gazprom and the multiplier effect in the Russian economy so we’ll go through all of those factors and then we’ll talk about what Russia is trying to do with regards to building new pipelines trying to monetize some of that natural gas that’s still sitting under the ground and then finally today I’ll wrap up with my summary as to what I think the implications of this huge turnaround in gas prom’s performance will be for the Russian economy and what the implications will be over the course of the next 6 to 12 months but before we get started on all of that I’d like to say once again thank you so much to everyone that’s supporting the channel really means a lot to me if you bought me a coffee or sent me YouTube super thanks recently thank you for the time and effort you’ve taken to do that really really appreciate it and if you’ve signed up as a long-term supporter either through patreon or buy me a coffee membership or YouTube membership you’re really keeping me motivated keeping me focused on produc proding as many videos as possible so thank you for that support it’s really appreciated before we dive into the details on natural gas I want to talk to you about today’s sponsor ground news now I’ve been working with ground news since October 2022 and they’re fantastic for me because they’re not a news publisher they’re an aggregator so they don’t create their own stories they bring stories from all around the world and put them all in one place which from my point of view is fantastic because when I’m researching a topic I can look at all of the Articles without having to spend hours hunting around the internet and if we look at the articles that ground news has pulled together reporting on gazprom’s losses you can see that they pulled together 23 different articles from all around the world and one of the great things about the way Grand news lays out its articles is that you can see who the owner of that publication is the level of factuality that those articles contains and whether they lean to the left or or the right and the great news is that ground news are currently offering Joe blogs viewers a 40% discount on new subscriptions which you can get by clicking in the link in the description below which is at ground. newws Joo or scanning the QR code on the screen now and I use the Vantage subscription if you’re interested in that and if you’re looking for another way of supporting the channel then please buy one of these subscriptions this chart shows the top 10 countries with the largest natural gas reserves in the world and as you can see Russia is right at the top of this list with over 24% of the global Supply followed by Iran with 177% Qatar with 122% the USA 5.3% Saudi Arabia 4.2% turkistan 3.8% the UAE 3.1% Venezuela 2.8% Nigeria 2.6% and China has 2.4% and this table shows the top 10 countries in terms of consumption and what shows us that the USA is ranked at number one consuming almost 22% of natural gas consumption Russia is number two with 12.4% China comes in at number three followed by Iran Japan Canada Saudi Arabia Germany Mexico and the UAE and this graph shows the increase in natural gas consumption globally dating back to 1965 and what this shows is that back in 1965 the USA and Canada with the two biggest consumers of natural gas consuming around 72% of the global consumption however over the last 50 years there has been a rapid increase in the use of natural gas all across the world and today the amount of gas consumed is around eight times higher than it was back in 1965 and you can see that there’s been consistent and rapid growth in demand in many of the areas around the world over that period so all of these statistics represented great news from Russia’s point of view because they’re sitting on a highly valuable natural resource that everybody wants to buy the business now known as gazprom was previously called the Soviet Ministry of gas industry and along with all of the other state-owned businesses in the early 1990s this business was privatized and a lot of individuals in Russia were given vouchers which enabled them to buy shares in the newly formed gazprom and gazprom was given a monopolistic position to supply natural gas all around the world and this became Russia’s biggest business over the next 30 Years and in 2020 it was ranked as the 36th largest company in the world by Forbes and it was the largest company in Russia by Revenue this graph shows the operating profit of gazprom between 2011 and 2021 and as you can see the company recorded a positive profit in every single year and in 2021 the total profit was 2.4 trillion Russian rubles which converting that into US dollars at the equivalent rate at the time which was around 75 rubles to $1 us meant that the company recorded a profit of $32 billion now 2021 was the last full Financial year that was entirely unaffected by the invasion of Ukraine which commenced in February 2022 and in 202 2 gazprom recorded profits of $13 billion however the figures for 2023 have now been released and they show that the company has incurred a loss of $7 billion so when you look at the turnaround over the last two years gazprom has gone from producing a profit of 31 billion to incurring a loss of 7 billion which is a $38 billion turnaround so what are the implication s of this huge loss that gazprom has now reported well in order to talk about the different levels of the impact on the Russian economy I want to start off by looking at the shareholder structure for gazprom this graph shows the shareholder structure for gazprom which is broken down into four distinct categories and the largest of these is 38.4% which is owned by the Russian State as I mentioned at the start of today’s video previously gazprom was owned by Russia entirely however in the early 1990s the business was privatized alongside lots of other major industries which made certain individuals extremely wealthy and initially the Russian government retained a stake of 40% however that has subsequently been reduced to 38.4% so that’s a direct shareholding the next biggest group of shareholders is 33.6% which is held by Russian Nationals and this was under the voucher scheme that was introduced as part of the privatization of the major State Industries back in the 1990s every individual in Russia was given vouchers and those vouchers provided those individuals with the opportunity to buy shares in gazprom the next biggest group of shareholders representing 16.2% are the ADR holders which are basically shares that have been issued to overseas shareholders and interestingly there is a limitation that no individual overc shareholder is allowed to own more than 99.9% of the business and then the final group of shareholders representing around 12% or two industrial shareholders within Russia so what we can see from this breakdown is that around 38% of gazprom is still owned directly by the Russian State and when you own a significant chunk of a large corporate like this there are a number of ways that you can make money from that investment firstly you could sell shares in the business so they could release some of their 38% and sell them either to overseas shareholders or to people within Russia secondly they can receive profit shares directly from the business itself and thirdly they’ll receive dividends from any shares that they’re holding this chart shows the total market capitalization so basically the value of gazprom dating back to March 2010 and what this shows is that the market capitalization of gazprom actually peaked in April 2011 at $93 billion however between 20 11 and 2016 there was a significant reduction in the market cap of gazprom partly as a result of Russia’s invasion of crime in 2014 however from 2016 onwards the market capitalization of gazprom started to rise and by the end of October 2021 which was around 4 months before the invasion of Ukraine started it had risen to $118 billion now the immediate impact of the invasion of Ukraine was a fall in the market cap to around 70 billion however as gas prices started to spike around the world the valuation actually peaked back at 132 billion however over the last two years there’s been a significant decline in the valuation of gazprom and it’s estimated today that the market cap is now less than $40 billion which means that compared with the valuation from October 21 gazprom has lost around $70 billion in value and therefore the Russian State as 38% shareholders have lost value equating to around 27 billion this chart shows the dividend history for gazprom dating back to 2013 the green bar charts show the actual dividend payment in Rubles and the blue line represents the yield and the yield is calculated by looking at the dividend payments in Rubles against the share price at that time so basically it’s the percentage that you’re earning on the money that you’ve got invested into the company and what this shows is that between 2013 and 2020 there was a consistent dividend history for gazprom no dividend was paid in 2021 however in 2022 there was a jumbo dividend distributed and if we look at the dividend yield that the Russian state has been earning over the last 10 years or so in 2013 and 2014 the dividend yield was 7.2% it Rose to 7.9% in 2015 8% in 2016 and 2017 Rose to 177% in 2018 15% in 2019 13% in 2020 and in 2022 the dividend yield was 51% and when you think that the Russian state was sitting on 38% of the total gazprom ownership at that point and the market cap at the end of December 2022 was $73 billion that means that the Russian state would have received a dividend payout of around $14 billion so as we can see from this analysis the losses that gazprom has now posted means that the Russian state is losing a huge amount of Revenue because firstly the value of its shareholding has fallen significantly as the value of gas prom has fallen as its revenues have fallen but also in terms of the cash flow because gas prom has posted a loss it’s unlikely that any dividend will be declared and therefore the Russian State won’t be receiving any cash flow from that side of things against the 14 billion that it received in respect of the year for 2022 so this is not great news from Russia’s point of view but also what we need to take into account here is the impact on the wider Russian economy as I mentioned at the start of today’s video when you’re dealing with natural gas it’s very difficult to be able to find new markets because in order to transport natural gas the most efficient way of doing it is to build a pipeline and then just feed the gas straight out of the ground into that Pipeline and deliver it exactly to where it needs to go and once that infrastructure has been constructed you can literally sit back and watch the money rolling in because that gas keeps flowing and your purchaser keeps buying however because Europe has turned around and said switch off the gas supplies we no longer want your gas we’re going to find it from somewhere else Russia has been left with all of this valuable result Source sitting under the ground because they don’t have any pipelines to be able to send this gas to India they do have some pipelines to China the power of Siberia pipeline however that’s fully utilized at the moment so they weren’t able to redirect any of the gas they were previously selling to Europe into the Chinese pipeline in order to do that they would need to construct a new Pipeline and the discussions for the power of Siberia 2 have been going on for around 6 or seven years and they’re still in negotiations and even when they get negotiated and finalized they’ve then got to build that Pipeline and this pipeline will be thousands of miles long because the gas is sitting under the ground a long way away from the Chinese border so this isn’t easy for gazprom to be able to turn around they can’t just magically say well let’s find some new buyers and everything’s a winner they are going to be left in a situation where they’re posting losses for a long period of time and the impact of this on the Russian economy is going to be widespread because it’s not just the loss of income that we’ve just talked about and the loss of dividends in terms of the cash flow that the Russian state was earning and also the one thing that I didn’t discuss in that previous section was the tax that Gaz prom has been paying historically corporate tax rates sit at around 20% in Russia so gazprom when they were earning $31 billion would have been paying 20% of that directly to the Russian State as a tax on its corporate profits but obviously when you’re posting losses you don’t pay any tax at all so we’re going from a situation where gazprom were previously paying around $6 billion in tax to a situation where they’re actually building up losses so it means when they do start making profits again they won’t actually have to pay any tax on the initial part because they can offset the losses against those future profits so that’s obviously lost income as well but the multiplier effect is probably the bigger impact here because when we’re talking about a business like gazprom it employs tens of thousands of people in Russia and obviously all of those people are dependent on those earnings to fund their Lifestyles and those individuals are paying tax on their earnings so the Russian state is potentially at risk of losing some of that if some of these employees have to be laid off if gazprom has to downsize its operations because it’s not achieving the same sort of Revenue and if it does that if it cuts some of its staff let’s say a th000 staff made redundant the problem with that is that firstly those people have lost all of their income but the multiplier effect of that will have a ripple effect all the way through their economy because those individuals will start spending less they may not go in holiday they may not buy a new car they may decide that they need to cut their monthly budget so they spend less on food and entertainment and all the other things that people do in their normal everyday lives so if an individual decides that he’s cutting back that means that all of the places that he was spend spending money the store that he goes to if maybe he goes to a sports match maybe he takes his kids out for various bits of entertainment all of that will stop because he hasn’t got the money so therefore he’s not spending it so those businesses start to suffer their income goes down that causes problems for them in terms of their profitability and therefore their employees are also at risk so if that secondary business has to cut back maybe it’s a restaurant they’re not getting as much business so they have to release one of the staff maybe they have to release a a waitress or a chef or both then those people are then made redundant and they have to cut their Lifestyles and this is how the multiplier effect works when you have something that starts at the top it can influence lots and lots of other people as the Ripple starts to move through the economy and that’s the problem that Russia has here gas prom was the largest business in Russia previously so it was employing a lot of people and it was funding a lot of people’s Lifestyles and fueling a lot of money the economy because the multiplier effect has Works in a positive fashion when people have more money they go out they spend more they maybe go out to eat two or three times a week they increase how much they’re spending on entertainment they spend more on food and various other things and so that means that all of the businesses that they’re dealing with start to make more profit they take on more people and it has a really nice positive impact so it works in both directions and the problem that Russia has is that now that gazprom is Contracting and this contract fraction is likely to last for a long period of time it’s going to have a negative impact on the local economies for all of those people because this is such a big business it’s going to have a widespread impact on the Russian economy and we’re not just talking about people losing their jobs here when you’re talking about the fact that gazprom has posted a loss that means that it’s unlikely to pay bonuses to all of its staff so previously there may have been performance related bonuses if the company was doing well everybody got paid a bit more there may have been things like option schemes where people could get given more shares if the company was doing well and so therefore you can make some money by selling those shares in the future and of course the other factor that we just talked about is the dividends that are paid to all shareholders a lot of employees are given shares as part of their package and as a holder of shares you’re paid dividends so that makes up part of your annual income and alongside an employee you’ve also got all of the Russian Nationals who are given shares as part of the Ure scheme back in the 1990s so anybody that’s held on to those shares will have been getting paid dividends on an annual basis and as we just saw in 2022 there was a significant dividend paid over 50% so that’s a big chunk of cash that people would have been spending in the economy but that’s disappeared now because gazprom has made a lost there will be no dividend paid this year and that will therefore accelerate the negative multiplier that we’re talking about because people won’t have that money therefore they won’t spend it and so there’ll be a contract in the Russian economy so what’s the summary and conclusion today well I wanted to post this video because I think the news that gazprom has lost $7 billion in 2023 is really Monumental news because this was previously the largest company in Russia it generated the most Revenue out of every single Russian business and that includes all of the oil businesses so this was a significant player but it was also a significant contributor in terms of profit cash flow and tax for the Russian State and what we’ve seen is that Russia’s invasion of Ukraine has absolutely decimated this business because natural gas is quite difficult to transport you need to build pipelines and those pipelines take a long period of time to agree because firstly you have to get all of the different countries that are involved to sign up to it because if you want to send gas to Germany you have to move that pipeline across a number of other different countries so all of those countries countries like Ukraine and various other European countries that sit between Russia and Germany all have to sign the agreement they have to be happy that that pipe is being built across their land they are also paid transmission costs for basically allowing that pipe to move across their land so putting new pipelines in place from Russia’s point of view is really complicated and takes a long period of time firstly to agree you got to go through all the legal red tape secondly you’ve then got to negotiate all the terms and conditions how much everybody’s going to get paid thirdly you’ve then got to construct it and again that will involve different countries so it’s not just the case of Russia sending out a group of guys with a load of pipe and saying build this they’ve got to negotiate who’s going to do it in each of those countries whether it’s the Russian Nationals or whether it’s local people in conjunction with gazprom so there’s a lot involved in building Pipelines Russia went through all of that pain 30 or 40 years ago built the pipelines and gazprom was quite happy just taking all of the cash but because of the invasion of Ukraine none of the European countries want to buy Russian gas and as a result gas prom has been left without any customers and the problem it has is that the only way to send large amounts of gas to India would be to turn it into liquefied natural gas put it onto ships and send it over the ocean but from Russia’s point of view they’ve been a little bit lazy over the last 30 years Russia became a bit complacent about how much natural gas it was selling through pipelines and therefore it hasn’t been investing heavily into LNG and despite the fact that it’s the largest holder of the reserves in the world it’s only fourth in terms of the global supply of LNG and the USA Australia and Qatar which have all been investing heavily into LNG over the last 20 years exports significantly more than Russia so from gas problems point of view it isn’t just a case of being able to turn around and say to India and China would you like more gas guys and then post it over to them it’s going to be extremely difficult for gazprom to be able to turn this around because they haven’t got the infrastructure in place and that infrastructure firstly takes a long time to build and secondly requires a huge amount of capital and in the past gazprom has been working with overseas companies they’ve been doing joint venture agreements to split the cost and many situations countries like Germany have been paying the vast majority of the cost involved so the nordstream pipeline Germany paid a big chunk of that 11 billion that was needed to build that pipeline now obviously going forward none of the European countries are going to do that and India is unlikely to offer to pay for this pipeline if there was ever one built from Russia to India which would be a massive engineering job to construct SO gas prom has gone from being Russia’s largest corporate entity to loss making and as we’ve seen from today’s video that’s really bad news for the Russian State because they still own 38% of gazprom so they’re losing out in terms of their ownership the valuation has fallen significantly over the last few years they’re losing out in terms of cash flow because they’ve been getting paid serious dividends over the last 20 years and they’re also losing out in terms of the tax that was being paid by gazprom but the biggest impact that we’ve talked about in today’s video is the multiplier effect because gas prom as the biggest company in Russia was one of the biggest employers it was paying lots of people lots of money that’s now Contracting those people won’t be earning the same sort of bonuses they’re not getting paid the dividends they may even lose their jobs and all of that means there’s a lot of uncertainty for all those individuals and at times of uncertainty people tend to tighten their belts spend less money and that has a negative impact on their local economy and that can have a massive multi supplier effect because just because you don’t spend a dollar down the store that means that store doesn’t get that dollar and so the store makes less profit it therefore may decide to pay its employees less so all of those people become more cautious they then decide they’re going to save another dollar in terms of their weekly budget and so it goes on and that’s what’s happening in Russia right now so the overall summary of today’s video is that what was previously Russia’s largest business gazprom it was making more than $30 billion a year in profits is now making a loss that loss is going to be really difficult to turn around because gazprom doesn’t have the infrastructure in place to be able to find new buyers so Russia is sitting on the world’s largest supplies of natural gas and it’s likely that over the next 3 to 5 years that natural gas will continue sitting under the ground and the risk from Russia’s point of view is that the world may have moved on by the time they get the infrastructure in place people are moving more towards renewable energy energ they’re trying to move away from fossil fuels and so Russia may have lost the opportunity to monetize that gas forever so hopefully you’ve enjoyed today’s video you found it useful informative and thought-provoking if you’ve liked what I’ve said then please give me a thumbs up thank you for watching this video all the way through to the end and here’s something to put a smile on your face

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GAZPROM has the sole contract to sell Russian Natural Gas and was Russia’s Largest Business by Revenue prior to the Invasion of Ukraine. The business is 39% owned by the Russian State and has just reported a $7 Billion loss compared with Profit of $32BN in 2021. In this video I look at the results in more detail, discuss the implications of this loss on both Russia and the Russian Economy and the challenges that both Gazprom and Russia are facing.

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Chapters:
0:00 Intro
3:35 NATURAL GAS
6:46 GAZPROM
8:34 OWNERSHIP
10:44 VALUATION
12:12 DIVIDENDS
14:24 ECONOMIC IMPACT
21:08 SUMMARY & CONCLUSION

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#gazprom
#ruble
#ukraine
#gdp
#imf
#russianeconomy
#sanctions
#russiansanctions
#braindrain
#uk
#pricecap
#GLOBALFINANCIALCRISIS
#RUBLE
#SWIFT
#RECESSION
#CHINA
#USA
#NATO
#WW3
#WORLDWAR3