A 30 per cent fall in the value of the ruble during the first quarter of 2020 sparked by the oil price collapse compounded a slide in both shipments and prices for the Russian state gas group that is expected to continue throughout the year.
The $1.64bn loss underscores the deep fiscal pain that the Covid-19 pandemic will have on Russia, which is reeling from both an economic recession caused by a domestic lockdown and a global slowdown and a significant reduction in government tax revenues from lower oil, gas and other commodity sales.
“The external conditions in which Gazprom and the industry as a whole operates in 2020 are assessed by market analysts as extremely unfavorable,” said Famil Sadygov, deputy chairman. The loss is the first since the third quarter of 2015.
As industrial plants and offices closed down to meet lockdown rules and quarantine measures, gas sales to Europe — Gazprom’s key market — and China were 17 per cent lower compared with the same period a year earlier, while the average selling price fell 36 per cent.
That dragged revenue down almost a quarter to 1.74tn rubles ($24.4bn), with the company swinging to a net loss of 116bn rubles.
Mr Sadygov said that the figure was mainly a “paper” loss because of “significant negative exchange rate differences.”
“Under these conditions, the financial results that the company showed in the first quarter can be considered, to put it mildly, not bad,” he said, adding that the company would have reported an estimated profit of 288bn rubles without the forex impact and would use that figure to calculate future dividends.
Shares in the company, down 25 per cent so far this year, fell 1.3 per cent on the Moscow market after the results were announced.
Ronald Smith, executive director at BCS Global Markets in Moscow, said that while the results were largely in line with expectations, the company should expect “rough seas ahead”.
“The situation on the European gas market is abysmal, with prices and volumes both off sharply,” Mr Smith said in a note to clients. “In short, the second and third quarters of 2020 will probably be the worst quarters for Gazprom’s European gas export revenue in over 15 years.”
Gazprom supplies almost 40 per cent of Europe’s gas, through mainly Soviet-era pipelines. Its position as the dominant supplier has been challenged in recent years by liquid natural gas shipments, including from the U.S., which have weighed down on gas prices and reduced the Russian company’s margins.
It has also been threatened with sanctions by the U.S. for its construction of the Nord Stream 2 pipeline under the Baltic Sea to Germany. The pipeline, which would increase its supply capacity to European markets, is almost finished but has been delayed by efforts by Washington to prevent its completion.