Gazprom's struggles deepen amid soaring domestic gas prices

The economic crisis in Russia is resonating at the end of the third year of the war in Ukraine. As reported by the Kremlin agency Interfax, a senior Gazprom manager, Alexei Sakharov, outlined the necessity for radical gas price hikes in the Russian parliament.

"In Russia, gas prices should reach a level that ensures the implementation of large investment projects. The current level of wholesale gas prices does not cover these needs of Gazprom; it does not provide resources sufficient for necessary investments and the development of gas infrastructure for Russian consumers," justified Alexei Sakharov, a high-ranking Gazprom manager, during an expert panel in the Duma.

Sakharov also explained that the average transportation tariff for independent suppliers is 65.2 rubles per thousand cubic metres per 100 kilometres, which does not even cover the costs of this activity, currently reaching 109 rubles. This means that the giant is pumping gas consumed by Russians, incurring significant losses. Gas transport rates have not changed since 2015. It's important to emphasize that this concerns tariffs regulated by the authorities for the needs of the Russian market, not for exports abroad.

"To ensure financing for new projects, it is necessary to increase the rates to about 170 rubles," added Sakharov.

In 2023, for the first time in over twenty years, Gazprom ended up in the red, as Reuters reminds us. The company had an equivalent of a $7 billion loss. Meanwhile, after the first three quarters of 2024, it was a $3.2 billion loss. We are waiting for the full-year data.

Gazprom is struggling despite price hikes for Russian households and companies. The independent "Moscow Times" calculates that since the outbreak of the war in Ukraine, gas tariffs for Russian customers have significantly increased. "From July 1, 2025, another raise is planned - by 10.2 per cent, and the cumulative increase in gas prices will amount to 37 per cent since the beginning of the invasion of Ukraine. In 2025, even more so – by 21.3 per cent – gas costs for businesses will rise," the report states.

We asked experts for a comment on Gazprom's appeal for larger hikes. Analysts link it to the economic crisis and also to Gazprom's situation, resulting from the outbreak of the war in Ukraine.

Gazprom was sacrificed in 2022 on the altar of Putin's imperial ambitions. Now, in wartime conditions, it is faring worse. For years, Russians were accustomed to cheaper gas. Gazprom benefited from the surplus for gas delivered to EU countries, which compensated for its cheap sale in Russia," comments Filip Rudnik, an expert on Russian economic affairs at the Centre for Eastern Studies, for money.pl.

In the analyst's opinion, further price increases for Russians are inevitable. "They will try various manipulations. It should be emphasized that other supply routes, including to China, do not compensate Russians for what they lost in Europe (they are left with only the Turk Stream pipeline to countries in the southern part of the continent - editor's note). The Kremlin is counting on the Power of Siberia pipeline leading to China, but the Chinese demand prices at the level of those in Russia," the analyst reminds us.

Last year, the "Financial Times" reported that for this reason – despite the construction of the second line of the Power of Siberia – attempts to conclude a large gas agreement between Russia and China have stalled. "Gazprom has no one to sell gas to," explains Filip Rudnik to us.

"The halt of gas transit through Ukraine, which occurred on January 1, 2025, will deprive Gazprom of another approximately $6 billion in annual revenue," assessed American gas and oil market analyst Ronald Smith, quoted by the Moscow Times.

Aleksandra Kozioł, an analyst at the Polish Institute of International Affairs, emphasizes in an interview with money.pl that "although Gazprom is poised to maintain gas sales to Europe and preserve its role as an important European partner, this assumption is not very realistic."

Gazprom lacks transmission capacity to Europe. Nord Stream and Yamal are not operational, and the transit agreement with Ukrainian Naftogaz expired at the beginning of this year. The EU is also not interested in purchasing Russian gas, and the European Commission declares a complete withdrawal from it by 2027. Therefore, the current activation of existing pipelines is not very realistic, let alone building new connections to increase transmission capacity to Europe – comments the PISM expert.

Aleksandra Kozioł assesses, "Gazprom is slowly becoming a burden on the Russian budget". "Planned mass layoffs only confirm this trend (according to the TASS agency, 1,500 employees of the company's headquarters are to lose their jobs, where 4,100 people are employed today - editor's note). It is no wonder then that Gazprom is demanding that the Russian authorities decide to increase gas prices in the domestic market," assesses the PISM expert.

"However, preferential gas prices are an important element of the social contract in Russia, where the authorities provide citizens with benefits in exchange for political support. Therefore, the rise in gas prices will continue to be artificially regulated to not provoke social unrest," she emphasizes.

She notes that liberalizing gas prices in Russia is also unrealistic due to the inflationary impact on the Russian economy. "The authorities are trying to avoid this at all costs, securing priority wartime production," concludes the analyst.

On Thursday, January 4th, 2024, Reuters reported, citing "five anonymous sources close to the Kremlin administration," that the deteriorating economic situation in Russia may prompt the Kremlin to engage in peace negotiations and end the war. They told the agency that the opinion of "achieving war goals" is becoming more frequent. It is mainly about the land connection between Russia and Crimea, as well as the weakening of Ukraine's army. Kyiv has so far rejected any territorial concessions to the Russian aggressor.

Reuters assesses that while the Russian economy, valued at 2.2 trillion dollars, recently showed resilience in wartime conditions, in recent months, the situation has become tense due to labour force shortages and high-interest rates introduced to fight inflation, which accelerated under the influence of record military spending.

The economic crisis is already being cautiously mentioned within the Kremlin itself. "The Russian economy is stable and maintains a relatively high pace of development despite certain problematic factors," Kremlin spokesperson Dmitry Peskov told Reuters. Former Vice-President of Russia's central bank Oleg Vyugin said that Russia is interested in a diplomatic end to the war, also "for economic reasons".

Bartłomiej Chudy