In a significant development for energy relations between Russia and China, Gazprom (MCX:) announced over the weekend that it had set a new record in gas shipments to China through the Power of Siberia pipeline. The Russian energy giant confirmed it had exceeded its daily contractual targets, reaching a historic peak in gas deliveries. This achievement underscores the growing energy needs of China and the strategic importance of the Power of Siberia pipeline in meeting those demands.
The Power of Siberia pipeline, which began operations in December 2019, is a cornerstone of the $400 billion agreement signed with China National Petroleum Corporation (CNPC) in 2014. Last year, Gazprom delivered 15.5 billion cubic meters of gas through this route. The pipeline has an annual capacity of 38 billion cubic meters and is a key element of the burgeoning Russia-China energy cooperation.
On Saturday, Gazprom communicated via its Telegram channel about the milestone, which follows the surge in Chinese demand for Russian gas. The company successfully met the increased bids from China, which surpassed the daily contractual norms. Gazprom CEO Alexei Miller noted that, in addition to the planned 22 billion cubic meters (bcm) for the next year, there is an expectation of an extra 600 million cubic meters (mcm) in supplies due to consistent overbidding by the Chinese side.
Deputy Prime Minister Alexander Novak has predicted that total deliveries for this year will be around 22 bcm, reflecting the shifting global energy dynamics and China’s escalating energy requirements. Furthermore, Gazprom is actively discussing capacity enhancements through the Far East route and is planning to supply about 50 billion cubic meters annually via the upcoming Power of Siberia 2 pipeline. Following an agreement in October for additional deliveries in 2023, Gazprom’s exports are expected to reach 30 billion cubic meters by next year.
This record-setting performance by Gazprom comes at a time when global energy markets are experiencing significant changes, with nations seeking reliable energy partners. The increased shipments to China demonstrate Gazprom’s ability to fulfill growing energy needs and its commitment to long-term agreements.
In light of Gazprom’s record-setting gas shipments to China, a closer look at the company’s financial health and market performance offers additional insights. Gazprom operates with a significant debt burden, which is an important consideration for investors evaluating the company’s long-term sustainability. On the brighter side, the company boasts impressive gross profit margins, as evidenced by a robust 66.89% for the last twelve months as of Q2 2023. This strength in profitability is particularly notable given the challenging environment for energy companies.
Despite the positive profit margins, Gazprom has been facing declining revenues, with a sharp 31.7% drop in the last twelve months as of Q2 2023. This trend is a critical aspect for stakeholders to monitor, especially as the company seeks to expand its operations and meet increasing energy demands from China. The stock is currently trading at a low Price / Book multiple of 0.29, suggesting that the market may be undervaluing the company’s assets relative to its share price.
For investors looking to delve deeper into Gazprom’s financial metrics and strategic positioning, InvestingPro provides additional tips on the company’s performance and prospects. These include analysis on the company’s valuation, which implies a poor free cash flow yield, and insights into the stock’s historically low price volatility. With a current market capitalization of $43.37 billion and a forward-looking P/E ratio of -11.34, Gazprom presents a complex investment profile.
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