Russia's Gazprom (MCX:GAZP) is set to escalate its natural gas exports to China, aiming to match the pre-sanctions levels previously exported to the European Union (EU), as announced by CEO Aleksey Miller on Thursday. This comes after successful discussions with China National Petroleum Corporation's (CNPC) Board of Directors, where an agreement was reached to increase Gazprom's gas supplies via the Power of Siberia pipeline by 46%.
Chinese customs data has shown Russia as China's primary natural gas supplier since January 2023. The deliveries via the Power of Siberia pipeline have surged by 50% this year to 15.5 billion cubic meters and are forecasted to increase by another 43% in 2023, reaching 22 billion cubic meters. This is in addition to a 30-year agreement initiated in 2019, supplying 38 billion cubic meters annually.
Power of Siberia 2 pipeline, running through Mongolia's territory, is also under contemplation by Gazprom. The new pipeline could potentially add up to 50 billion cubic meters per year to the total supply, supporting Russia's plan to expand its gas exports to Asian markets. Deputy Prime Minister Aleksandr Novak unveiled these plans on Thursday, aiming to escalate Russian gas exports to Asian markets to reach 170 billion cubic meters over a seven-year span following the implementation of key infrastructure projects.
This announcement follows the Ukraine-related sanctions that led EU buyers to reject volumes of Russian gas, causing a nearly 50% reduction in supplies in 2022 according to the European Council on Foreign Relations (ECFR). Before these sanctions, the EU bought 155 billion cubic meters of Russian gas in 2021, accounting for 45% of its gas imports and about 40% of its consumption as stated by the International Energy Agency (IEA).
In response to the sanctions, Russia has turned to China as the only alternative for the rejected volumes. With the additional supply agreements signed for end-2023 and a long-term deal signed in February 2022 for gas supply via the Far Eastern route promising an extra 10 billion cubic meters annually, Gazprom is well-positioned to meet China's growing demand for natural gas.
According to InvestingPro data, Gazprom has a market cap of 41386.39M USD and a low P/E ratio of 3.32, indicating that the stock is trading at a low earnings multiple. The company's gross profit margin stands at an impressive 76.02%, showcasing its ability to generate significant revenue. Furthermore, Gazprom's revenue growth for the last twelve months (LTM2022.Q4) was 13.99%, demonstrating a robust financial performance.
InvestingPro Tips highlight Gazprom as a prominent player in the Oil, Gas & Consumable Fuels industry with impressive gross profit margins. The company's liquid assets exceed short term obligations, and analysts predict that the company will be profitable this year. These insights, along with many more, are available to InvestingPro users, who can access a myriad of additional tips by subscribing to the service here.
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