When the CEO of Russian state gas giant Gazprom, Alexei Miller, opened a lavish building in central St. Petersburg 11 years ago to house the company's export arm, he envisioned a future financed by European sales.
“This is symbolic,” he said at the time, referring to the modern new offices in Russia’s most European city. “Europe will become increasingly dependent on Russian gas.”
Instead, these luxury offices have become a symbol of the rapid decline of Gazprom, which has almost completely lost its European markets after the war in Ukraine severed Russia's ties with the West, Reuters reports.
Faced with multi-billion dollar losses and desperate for savings, the company is now considering selling the palace, along with other luxury properties it owns, according to a Gazprom executive and another source familiar with internal discussions at the company.
Gazprom is the Russian company that has probably been hit hardest by international sanctions imposed after Russia's invasion of Ukraine three years ago. While the Russian economy has shown resilience, signs of pressure are increasingly visible in a number of industries.
The number of employees at Gazprom Export, once the most profitable arm of the company that oversaw the sale of Soviet and Russian gas to Europe for more than half a century, has been reduced to just a few dozen workers, sources told Reuters.
That's a big drop from 600 employees five years ago, when Russian gas exports to Europe were at their peak.
Without European sales, the remaining workers are now mostly focused on litigation with former EU buyers, the sources told Reuters. Gazprom Export is now “just a shell,” one of the sources told Reuters.
Alexey Grivach, from the Russian organization National Fund for Energy Security, said that in the near future Gazprom will focus less on luxury and more on bringing gas to Russian households.
“Gazprom has now taken on the social role of gasification and ensuring a stable supply of gas to the economy and the population at low regulated prices,” he said.
Reuters spoke to three executives and six other former and current employees for this story, all of whom asked to remain anonymous for fear of repercussions, to shed light on the profound changes at what was once Russia's most valuable company.
Large cuts
Gazprom's problems extend far beyond its export sector, employees said. Two sources told Reuters that Miller has now approved plans to lay off 1.500 workers at the parent company's headquarters in Russia and Europe's tallest skyscraper, the Lakhta Center, also in St. Petersburg.
The layoffs at Gazprom headquarters have not yet been officially announced, but staff have been ordered to prepare individual presentations on why they should keep their jobs, one of the sources said. Employees were reportedly tasked with writing job descriptions for their duties.
According to the source, the process should be completed within a few weeks.
The cuts cover about 40% of Gazprom's headquarters staff, but represent a small fraction of its workforce of half a million employees across Russia.
Management misjudged how decisive European capitals would be, according to one executive, who said that the company believed that Europe would quickly come back and “beg” for continued Russian gas supplies. Despite the economic damage from higher energy costs, the EU did not lift the sanctions. “It turns out we were wrong,” the executive said.
American gas exporters have quickly adapted to replace Russian gas in Europe. The US has become the largest exporter of LNG to the continent, with shipments tripling since 2021. Europe still buys Russian liquefied natural gas (LNG) arriving by sea, but mainly from Gazprom's competitors, such as Novatek's Yamal LNG plant.
The European Union plans to end the use of Russian fossil fuels by 2027, and overall gas consumption in the EU has declined in part due to a shift to renewable energy sources.
Last year, Gazprom reported a net loss of $7 billion for 2023, its first loss since 1999, when Putin came to power. In the first nine months of 2024, the company recorded another decline, available data show.
Management misjudged how decisive European capitals would be, according to one executive, who said that the company believed Europe would quickly return and "beg" for continued Russian gas supplies.
A few months after posting an annual loss, Gazprom last year announced the sale of a portfolio of luxury properties, including well-known luxury hotels in Moscow and in Armenia's Valley of Flowers.
Gazprom has a long history of investing in luxury real estate, which it uses to reward employees with vacations, as well as to host conferences and events, including the 2014 Olympics.
They trust Trump.
Donald Trump's return to the White House has helped Gazprom's share price recover to around 180 rubles, on hopes that a quick peace deal on Ukraine could lead to a resumption of exports to Europe, according to a report by Alfa Bank last month.
But there is little sign that the continent will quickly reconnect with Russian gas, despite a Financial Times report that a longtime Putin ally is lobbying the US to allow investors to restart the $2 billion Nord Stream 11 pipeline project, which carried gas from Russia to Germany. Germany has said it will stick to its policy of energy independence from Russia.
Even if there were a desire to restart it, Nord Stream 2 is not operational and is partially damaged.
Cedric Kremers, executive vice president for integrated gas at Shell, said at the end of February at the International Energy Week in London, when asked about the possible return of the Russian gas pipeline to Europe: “It depends on many factors.” He cited several arbitration disputes with Gazprom and asked: “Will customers and Europe still want the same dependence on Russian gas?”
Gazprom's share of the EU market has fallen to 7% from more than 35% before the EU sanctions, European Commission data show. Its market capitalization on Wednesday was about $46 billion, a far cry from a record $330,9 billion in 2007, according to data from the Moscow Exchange, Gazprom and Reuters calculations.
"A state within a state"
As the company adjusts to its new role as a domestic gas supplier, CEO Alexei Miller's lofty ambitions have been thwarted. As early as 2007, Miller said the company's market capitalization would one day reach $XNUMX trillion.
At the time, it seemed possible. Russia holds a fifth of the world's gas reserves, making Gazprom the world's largest natural gas company by reserves.
At its peak, Gazprom - which emerged from the Soviet Ministry of Gas Industry - generated revenues that accounted for more than 5 percent of Russia's $2 trillion annual gross domestic product.
The company has been run for 24 years by Miller, a close friend of Vladimir Putin since the Russian president's time as mayor of St. Petersburg in the 1990s. Miller has been the target of US sanctions since 2018, barring US citizens and entities from doing business with him.
Gazprom controls entire cities in Siberia and the Arctic, such as Nadym, where tens of thousands of employees and their families depend on it as their sole employer. Yuri Shafranik, Russia’s fuel and energy minister from 1993 to 1996, told Reuters in 2023 that Gazprom was “a state within a state.”
Kina is too much to swallow
While Russian oil exporters have managed to redirect supplies to Asia, the gas industry faces constraints in infrastructure and market conditions, making Putin's long-term plans for a reorientation towards China highly uncertain.
Although there are plans to build new gas pipelines to the east, even the most ambitious projects will not be able to make up for the loss of the former 180 billion cubic meters of annual exports to Europe.
Currently, the only active gas pipeline to China, the Power of Siberia, can transport 38 billion cubic meters per year, while a smaller pipeline from Sakhalin to China is under construction, with a planned capacity of 10 billion cubic meters by 2027.
Although a third pipeline, Power of Siberia 2, is under negotiation, which could transport 50 billion cubic meters, negotiations have been slowed by price differences. Even if it is built quickly, gas export revenues could fall significantly - by up to 80% from a record $2022 billion in 165.
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