(Reuters) – When the CEO of the Russian state gas giant Gazprom, Alexei Miller, a lush Italian Palazzo building in Central St. Petersburg opened to house the company's export arm 11 years ago, a future, funded by European sales.
“This is symbolic,” he said, referring to the modern new offices in the most European city in Russia. “Europe will need more and more Russian gas.”
Instead, the lush offices started symbolizing the rapid fall in Gazprom, dragged down due to the almost total loss of European markets after the war in Ukraine, tore the ties of Russia with the West.
The company is faltering from several billions and scrambling to savings, the company is now considering making the Palazzo for sale, together with other luxury property that owns, according to a Gazprom manager and another source with knowledge of internal discussions at Gazprom.
Gazprom is demonstrably the Russian business company that is most difficult to reach by the international sanctions imposed after the full invasion of Russia in Ukraine three years ago. Although the Russian economy has been resilient, growing signs of tension have appeared in various industries. Reuters has previously reported that President Vladimir Putin is delivered if heavy military expenditures disrupt the wider economy.
The number of employees at Gazprom Export, once the most prosperous unit of the company, which supervises Soviet and the gas sale of Russia to Europe for more than half a century, has shrunk to only a few dozen employees, Reuters told the same two sources.
That is lower than 600 employees five years ago, at the height of Russian exports to Europe. The possible sale of the building and the cutbacks on the device have not been reported before.
The media department of Gazprom and the Russian Ministry of Energy have not responded to detailed requests for comments on the findings of the story.
Without European sales, the remaining employees are mainly focused on lawsuits with former EU buyers, the sources told Reuters. Gazprom export is “just one bowl,” said one of the sources.
Alexei Grivach, from Pro-Kremlin Think Tank the National Energy Security Fund, said that Gazprom's less glamorous focus will be in the near future to bring gas to more Russian houses.
“Gazprom has been given the social task of gasification and protected the gas supply to the economy and the population at low regulated prices,” he said.
Reuters spoke with three managers and half a dozen former and current employees for this story about the depth of change in what used to be the most valuable company in Russia. All asked for anonymity, referring to fear of professional consequences.
Wider cuts
The problems of Gazprom reach much further than the export unit, reveal the conversations with the employees. Two of the sources told Reuters that Miller has now approved plans to cut 1500 jobs at the headquarters of the parent company in Russia and Europe's longest skyscraper, the Lakhta Center designed by British, also in St. Petersburg.
The dismissal at Gazprom's head office still has to be announced, but the staff have been asked to prepare individual presentations about why they should keep their jobs, according to one of the sources, who said that employees were told to register a description of their functions in the event of overlapping.
The source said that the process was expected to be completed within a few weeks.
The cutbacks amount to around 40% of the staff at Gazprom headquarters, but a small group of its half million strong workforce, spread over Russia.
According to one of the managers, management has a wrongly engaged how determined European capitals would be, who said that the thinking within the company was that Europe would soon be “beg” for Russian gas stocks to resume.
Despite the economic pain of higher energy costs, the EU has no recessed sanctions.
“We have been wrong,” said the executive.
American gas extenders quickly moved to replace Russian gas in Europe. The US has become the largest exporter from LNG to the continent, with stocks that tripled since 2021. Europe still buys the Russian, Zeegeboore Liquid Natural Gas (LNG), but mainly from Gazprom's Rivals, Novatek's Yamal LNG factory.
The European Union wants to terminate the use of Russian fossil fuels by 2027 and the general gas consumption has been partially decreased due to a shift to renewable energy sources.
Last year Gazprom booked a net loss of $ 7 billion for 2023, the first since 1999, the year that Putin came to power. It still placed a loss in the first 9 months of 2024, the last period for which figures are available.
The share price of Gazprom fell in mid -December to its lowest since January 2009, with 106.1 ROEBEL, a decrease of more than a third since the beginning of 2024.
A few months after announcing the annual loss, Gazprom said last year that it sold a portfolio of high -quality property with well -known luxury hotels in Moscow and in the Valley of Flowers of Armenia.
Gazprom has a long history of investing in luxury real estate, which uses it to reward employees with holidays, and to organize conferences and events such as the 2014 Olympic Games.
Trump trade
The return from Donald Trump to the White House helped to restore Gazprom's stock price to around 180 rubles of hope that a fast Ukrainian peace agreement would lead to the recovery of exports to Europe, Alpha Bank said in a note last month.
However, there are few signs that the continent will hurry to commit to the Russian gas again, despite a Financial Times report that an old Putin ally is lobbying the United States to allow investors to restart the $ 11 billion Nord Stream 2 pipeline that wore gas from Russia through Germany. Germany says it will adhere to its independence policy of Russian energy.
Even if there was appetite, Nord Stream is out of use and partially damaged.
Cederic Cremers, executive vice -president of integrated gas at Shell, said at the end of February at the International Energy Week Conference in London in response to whether Russian pipeline gas could return to Europe: “That depends on many things.”
He quoted several arbitration cases with Gazprom and asked: “Will customers and Europe still want the same dependence on Russian gas?”
The share of Gazprom in the EU markets has been shrunk to 7% of more than 35% before EU sanctions, according to data from the European Commission.
Market capitalization from Wednesday is around $ 46 billion, a decrease of all time of $ 330.9 billion in 2007, according to the calculations of Moscow Stock Exchange, Gazprom and Reuters.
Miller's time
While the company adapts to its new role as a supplier of domestic gas, the elevated ambitions of CEO Miller have been interrupted. In 2007 Miller said that the company would eventually have a market capitalization of $ 1 trillion.
At the time, this seemed possible. Russia has a fifth of gas sources of the planet, making Gazprom the world's largest natural gas company by reserves.
At its peak, Gazprom – formed in the Soviet Union from the Ministry of the Gas Industry – generated income that were good for more than 5 percent of the annual gross domestic product of $ 2 trillion from Russia.
The company has been run by Miller, a good friend of Putin since the Russian president has been the mayor of St. Petersburg for the past 24 years. Miller has been on the American sanction list since 2018 and retains American citizens and entities from all intercourse.
Gazprom controls entire cities in Siberia and the Arctic, such as Nadym, where tens of thousands of employees and their families depend on as the only employer. Yury Shafranik, the Russian Minister of Fuel and Energy from 1993 to 1996, told Reuters in 2023 that Gazprom had been a 'state within a state'.
The sources with which Reuters spoke did not describe plans for job reductions or the closure of production assets in such business cities.
A stepp too far?
Putin's long -term promise to replace the European markets with export to China looks best optimistic. Even the most ambitious projects that are currently regarded as pipe gas to the east would not amount to half of the previous annual peak version of 180 billion cubic meters (BCM)
Much of the Russian gas went to Europe through pipelines. When Germany and other European countries no longer buy, there was nowhere else to go for the surplus.
The Russian oil exporters, on the other hand, have been able to divert tankers to refineries in Asian countries that have not imposed sanctions.
Although the gas production last year recovered somewhat from a record low in 2023 on increased domestic demand and export to China, there is little pipeline capacity to expand that trade.
For now there is only one route for Russia to deliver pipeline gas to China – the power of Siberia pipeline, which transports 38 BCM per year.
A second smaller pipeline with a capacity of 10 BCM per year is under construction, set to connect the Pacific island of Sakhalin with China by 2027.
Russia and China have been in conversation for more than ten years about building a third pipeline, the power of Siberia 2, to transport 50 BCM and meet over a tenth of Chinese gas consumption. This plan would take years to fully develop and discussions have stalled due to price differences, according to media reports.
In May, the Russian Deputy Prime Minister Alexander Novak said that Russia and China expected to sign a contract “in the near future” on the power of Siberia 2 Gaspijplice.
Putin and China's President Xi Jinping discussed the power of Siberia-2 in January, reported the Interfax news agency, but no agreement has been reached.
China National Petroleum Corporation, which has to do with Gazprom, refused to comment on the conversations. The government of Russia did not respond to a request for comments.
Even if the power of Siberia 2 pipeline were to be completed quickly, volumes and price prices are probably much lower than the exports from the past to Europe, analysts from the Center on Global Energy Policy at Columbia University.
“By 2030, the income of the Russian gas output can fall by 55-80 percent compared to 2022, a year of record-high income for the Russian gas industry, at $ 165 billion,” they said in a research memorandum last year.
(Reporting by Reuters; editing by Frank Jack Daniel)
