State-controlled Russian gas giant Gazprom slipped into the red in the second quarter of the year, sparking concerns in Moscow that the company will struggle to carry out expensive plans to divert natural gas exports to China from Europe.

Gazprom reported a net loss of 19 billion roubles ($190 million) in the second quarter compared with a net profit of 1.1 trillion roubles in the second quarter of 2022.

Its second quarter revenues totalled 1.8 trillion roubles against 2.5 trillion roubles a year earlier.

The company had performed better in the first quarter of this year, posting the net profit of about 350 billion roubles, according to its latest financial report covering the first half of 2023.

In the second half of last year, Gazprom revealed a net loss of 1.75 billion rubles following its decision to halt natural gas flows to Europe, prompting the company's management, led by executive chairman Alexei Miller, to cancel an expected dividend payout to the government and its minority shareholders.

For the full first half of 2023, Gazprom’s gross revenues were down 41%, to 4.1 trillion roubles against almost 7 billion roubles in the first half of last year.

The company also reported net profit of 331 billion roubles in the first half, compared with 2.6 trillion roubles in the same period of 2022 while drastically increasing its net debt.

The positive first-half 2023 results were largely due to Gazprom having reduced its expenses by over 1.1 trillion rubles, to 3.2 trillion rubles, in the first half of this year against the same period in 2022.

The reduction coincided with a steep decline in its domestic gas production as a result of low export flows to Europe.

Cash reserves held by the company dropped by 41% to 684 billion rubles during the first half of this year against those held at the end of the year in 2022.

Analysts in Moscow-based bank CentroKredit noted in a commentary that cash generated by Gazprom’s current business activities and sales remains too low to bankroll its investment targets, and that the company will need to take on additional debt to meet its investment ambitions.

The company already reported a net debt increase of 36%, to 5.3 trillion rubles, in the first half of this year.

A weaker rouble against the US dollar may help the company weather challenging market conditions for the remainder of 2023 and in 2024.

However, CentroKredit said Gazprom may have to apply for some form of direct state financial support in 2025 or 2026 to maintain its operations and investments.

Gazprom has noted that its gas exports to China rose in the reporting period, partially offsetting the loss of European markets.

The company already operates one gas pipeline import route to China, Sila Sibiri 1, that is set to hit annual capacity of 38 billion cubic metres of gas in 2025.

Two additional pipelines to China are under discussion, with Kazakhstan also offering Gazprom an opportunity to consider building one more gas line to China across Kazakhstan with the goal to kill two birds with one stone and secure gas sales in both countries.