Gazprom focuses on Asia: Russia's gas exports to China and India are booming

Gazprom focuses on Asia: Russia's gas exports to China and India are booming

The Russian energy giant Gazprom recently reported a remarkable increase in its gas exports to Asia, particularly to China and India. This development led to a 3% rise in its stock price. This move underscores Russia's strategic shift to redirect its energy exports toward the Asian market, especially in times of geopolitical tensions with the West.

Gazprom’s Expansion to Asia

In the first seven months of 2022, Gazprom increased its gas exports to China by nearly 61%. This increase was mainly realized through the "Power of Siberia" pipeline, which serves as the backbone of Russian-Chinese energy cooperation.

In September 2024, Russia accelerated its natural gas exports to China through this pipeline and plans to reach the maximum capacity of 38 billion cubic meters per year by the end of 2024 – one year ahead of the original schedule.

This intensification of exports to China partially offsets the decline in gas exports to Europe, which has been caused by geopolitical tensions and sanctions. Despite these challenges, Gazprom plans to increase its gas production to around 416 billion cubic meters by 2024. Gas exports to China are expected to rise to 31 billion cubic meters this year, instead of the originally planned 30 billion cubic meters.

India’s Growing Role as an Energy Consumer

India, as one of the largest energy consumers in the world, has increased its interest in Russian gas. The state-owned Indian gas company GAIL had entered into a liquefied natural gas (LNG) supply contract with a Gazprom subsidiary 20 years ago. However, the nationalization of Gazprom Germania led to contract disruptions, prompting GAIL to file a compensation claim of $1.8 billion against Germany.

Nevertheless, India remains an important partner for Russia's energy exports, as the country seeks to diversify its energy sources.

Impact on Gazprom’s Financial Position

Despite the increased exports to Asia, Gazprom faces financial challenges. The loss of the European market, traditionally the largest buyer of Russian gas, could not be fully compensated by the Asian markets. In May 2024, Gazprom reported financial losses due to a sharp decline in revenues from the European market, and the Asian markets could not entirely fill the gap.

Strategic Shift and Future Projects

To further reduce its dependence on European markets, Gazprom plans to expand additional pipelines to China, such as the "Power of Siberia 2" and "Vostok Soyuz". These projects aim to nearly double the delivery capacity to China and strengthen the energy partnership between the two countries.

This strategic shift illustrates Russia's effort to redirect its energy exports and open new markets.

Investment Opportunities in the BRICS States

The BRICS countries – Brazil, Russia, India, China, and South Africa – offer investors diverse opportunities. These emerging economies are characterized by dynamic growth and increasing integration into the global economy. Investing in these countries allows investors to benefit from growth opportunities and diversify their portfolios.

A popular approach is investing in BRICS ETFs, which provide broad exposure across these economies. One example is the iShares BIC 50 UCITS ETF, which tracks the 50 largest companies from Brazil, India, and China. This fund has excluded Russia from its portfolio and adjusted its name accordingly.

Investors can choose between country-specific and cross-regional funds, with balanced allocation being crucial.

However, investors should consider the specific risks and opportunities of each BRICS state. While India and China continue to show strong economic growth despite global challenges and offer promising investment opportunities, Brazil and Russia have potential but are associated with higher risks. South Africa is viewed as a more problematic market by experts.

Conclusion

Gazprom’s increased gas exports to China and India reflect Russia’s strategic shift to diversify its energy exports toward the Asian region. Despite financial challenges due to the loss of European markets, Gazprom's commitment to Asia highlights the potential of the BRICS countries for investors. These nations offer diverse investment opportunities but require careful analysis and diversification to both capitalize on opportunities and mitigate risks.