Russia’s gas industry wounded by Ukraine conflict

In 2022, Russia made a bold move by halting gas deliveries to the EU, causing prices to surge and allowing the country to earn more despite lower export volumes. However, two years later, Europe’s gas tanks are fuller than ever thanks to mild winters and increased imports of liquefied natural gas (LNG) from America. This shift has left Gazprom, Russia’s state-owned gas giant, struggling to turn a profit.

Russia’s decision to cut off most of its gas deliveries to Europe had significant consequences. The country was heavily reliant on Europe, which bought 40% of its gas in 2021, for revenue from gas exports. Without the infrastructure in place to redirect gas to other markets, such as the Nord Stream pipeline to Germany, Russia found itself unable to make up for the lost revenue. This lack of diversification left Russia vulnerable when Europe turned to alternative sources for gas, like LNG imports.

Despite these challenges, Russia had previously relied on oil sales for the majority of its export revenue. Gas only accounted for 20% of total hydrocarbon exports to the Russian budget between 2018 and 2023. While the country continues to sell oil at a good price despite sanctions, the inability to profit from gas exports to Europe has had a notable impact on Russia’s economy.

Overall, Russia’s gamble to cut off gas deliveries to the EU in 2022 may have initially seemed like a smart move to increase profits, but the long-term consequences have been detrimental. Europe’s ability to adapt to the situation by increasing LNG imports has left Russia struggling to compete in the gas market. With mild winters and fuller gas tanks, Europe has proven resilient in the face of Russia’s gas embargo.

As the global energy landscape continues to evolve, it will be interesting to see how Russia navigates its gas exports moving forward. With Europe diversifying its gas sources and increasing LNG imports, Russia may need to reevaluate its strategy to remain competitive in the market.

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