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How Much Can Gazprom Prosper From Europe’s Energy Crisis?


  • Bright future of natural gas as a transition fuel
  • If Europe holds back Gazprom expansion, pivot to Asia
  • Domestic market still not fully penetrated yet

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Gazprom’s revenue breakdown 2020

Price has seen a strong bullish rally and could continue

  • Throughout the past year, the 50DMA has stayed above the200 DMA, which is a strong bullish signal
    • The share price is up 35% YTD
  • Volume RSI recently returned to the 50%-line, providing no clear signal yet

Bright future of natural gas as a transition fuel

  • Gazprom’s major export market is Europe, which committed to an ambitious transition to green energy
    • However, renewables are still far away from providing sufficient energy for Europe’s consumption
  • Therefore, the European Union recently labeled natural gas as a temporary sustainable fuel

Beneficiary of Europe’s self-inflicted energy crisis

  • Natural gas became the dominant fuel in Europe
    • With the demand-supply imbalance, natural gas prices skyrocketed
  • Given the growing demand and unwillingness of Russia to increase supply, the situation might even worsen
    • Gazprom enjoys higher export prices, leading to record revenue in 21E and 22E

If Europe holds back Gazprom expansion, pivot to Asia

  • Despite Europe’s energy crisis, Gazprom does not increase its supply unless the German gov’t approves its Nordstream II pipeline
    • The pipeline with a capacity of 55 bcm is ready to use and just awaits approval
  • However, Nordstream II became a political issue in the context of Russian-Ukrainian tensions

Russia aims to supply Europe directly

  • Currently, around 50% of Russian gas to Europe flows through the Ukraine
    • With Nordstream II (red line), Russia aims to bypass Ukraine as a transit
    • Western countries fear that Russia starts to gain control over Ukraine again
  • Germany delayed the approval as it uses the pipeline as a sanction threat in case Russia starts a war

Russia is in a much better negotiation position

  • I believe that the approval of the pipeline is inevitable to secure Europe’s smooth transition to green energy
    • Right now, there are few alternatives to substitute Russian imports
  • In the case Europe hesitates, Gazprom eyes to build a pipeline to Asia
    • Especially China and India have a large appetite for gas
    • In either case, Gazprom gains massively

Domestic market still not fully penetrated yet

  • Overall, Gazprom supplies more than 50% of total Russian gas consumption
    • Its pipeline network covers even 70% of total gas
  • Russian gas demand is likely to see a constant growth of 2-3% over the next 5 years
    • Growth could even accelerate once the pipeline infrastructure is extended
    • 30% of Russia is not connected yet

Heavy CAPEX allocated to pipeline construction

  • CAPEX/depreciation has been around 2x in the past
  • Continued expansion and further penetration of the Russian market results in a similar ratio over the next years as well

FVMR Scorecard – Gazprom

  • A stock’s attractiveness relative to stocks in that country or region
  • Attractiveness is based on four elements
    • Fundamentals, Valuation, Momentum, and Risk (FVMR)
  • Scale from 1 (Best) to 10 (Worst)

Analysts are optimistic about the Russian giant

  • Analysts’ consensus sees a massive upside for Gazprom
    • Only 2 analysts are still on HOLD
  • Consensus expects strong revenue prospects in 21E and 22E
    • Revenue might drop in 23E as natural gas prices could normalize
  • Also, operating margin could reach a record over the next two years

Get financial statements and assumptions in the full report

P&L – Gazprom

  • Strong bottom-line mainly driven by inflated gas prices in Europe

Balance sheet – Gazprom

  • Gazprom is a capital-intensive business, with more than 70% of total assets being net fixed assets
    • Expansion of pipeline structure requires high CAPEX in the future
  • Gazprom has relatively low leverage
    • Its net-debt to equity ratio stood at 0.3 in 2020

Ratios – Gazprom

  • Given its capital-intensive nature, efficiency is very low
  • Gross margin in 21E and 22E on a record level, but it might be difficult to maintain a gross margin above 60% over time
    • The main driver constituted the inflated gas price

Long-term share price performance potential

Free cash flow – Gazprom

  • FCFF likely to remain volatile given abrupt changes in working capital

Value estimate – Gazprom

  • My revenue and margin forecast is roughly in line with analyst’s consensus
  • Russia has a massively high risk-free rate of 10%

World Class Benchmarking Scorecard – Gazprom

  • Identifies a company’s competitive position relative to global peers
  • Combined, composite rank of profitability and growth, called “Profitable Growth”
  • Scale from 1 (Best) to 10 (Worst)

Key risk is fluctuations in oil price

  • Increasing efforts of the European Union to reduce dependency on Russian gas
  • Sanctions against Russia imposed by the US and EU (Russian-Ukrainian conflict)
  • Slowing economy and fluctuations in gas prices


  • Natural gas evolves as the most important fuel in energy transition
  • Nordstream II became a political instrument; but in worst case, Gazprom could diversify to Asia
  • Domestic market still provides further room to go

Download the full report as a PDF

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