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Russian energy giant Gazprom plunged to its biggest loss in at least a quarter of a century after gas sales more than halved in the fallout from Vladimir Putin’s war in Ukraine.

The loss of Rbs629bn ($6.9bn) in 2023 underlines how the Russian president’s invasion of Ukraine has ravaged the state-owned natural gas monopoly, leading to plummeting sales in Europe, its main source of income.

Gazprom’s revenues fell almost 30 per cent year-on-year to Rbs8.5tn, with gas sales dropping from Rbs8.4tn to Rbs4.1tn.

The company’s Moscow-listed shares fell more than 4.4 per cent on the news. Most Russian analysts had expected it to make a small profit.

Analysts said the losses showed how Gazprom, once a cash-rich “national champion” that used its strong hold over Europe’s energy supply as a geopolitical weapon, had failed to adapt to losing the EU market.

Gazprom’s revenue from gas sales outside Russia fell from Rbs7.3tn in 2022 to Rbs2.9tn last year, a drop analysts said was mostly driven by the loss of its European sales.

European countries, meanwhile, have had greater success than expected in finding alternative sources of gas: Russia’s share of Europe’s gas imports dropped from 40 per cent in 2021, the last full year before the invasion, to 8 per cent in 2023, according to EU data.

The results showed that what was once Gazprom’s core business — selling gas to Europe — had become a lossmaking millstone only partially offset by profits from its oil sales, analysts said.

Profit from oil, gas condensate and petroproducts rose to Rbs4.1tn, up 4.3 per cent on the previous year, showing how Russian exporters have successfully navigated western attempts to limit the Kremlin’s revenue from energy sales.

But those efforts were not enough to stop Gazprom making a loss.

“Gazprom used to be a huge gas company with an oil business, Gazprom Neft, on the side,” said Sergei Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center in Berlin.

Last year, however, Gazprom Neft generated almost as much in sales as Gazprom’s gas business and brought in a profit equal to two-thirds of the gas segment’s 2022 profit, Vakulenko said, despite having just a quarter of its parent’s assets.

Gazprom’s operating costs and capital expenditure also went up last year, even as the headwinds for the company became clear, further contributing to the losses, he added.

Gazprom’s other avenues for its exports grew slightly last year, but still only accounted for 5 to 10 per cent of the lost European sales, according to analysts.

The Kremlin and Gazprom have trumpeted growing Chinese purchases of Russian gas as an eventual replacement. Those exports, however, were only 22bn cubic meters last year against the 230bn cubic meters a year Russia exported on average in the decade before the Ukraine invasion.

The long-delayed Power of Siberia 2 pipeline is planned to send gas from the fields that once supplied Europe, but would require years to build and still not compensate Gazprom’s losses in Europe, analysts say.

“The loss of revenues from Europe is an unfixable problem without going back into Europe,” said Craig Kennedy, a Harvard-affiliated scholar and former vice-chair at Bank of America. “It was cross-subsidising the rest of the business and they are finally being forced to show this in their accounts.”

The losses showed how the war had made this prewar model unsustainable, he added.

The Kremlin has sought to avoid liberalising domestic gas prices, forcing Gazprom to borrow to cover its mounting losses.

“The state’s response to them is just, let’s go borrow more,” he added.

This article has been amended to correct Gazprom’s overall gas sales

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