Gazprom profits halved as gas prices slump

Published on Monday 9 November 2009 20:46

EARNINGS at Russia's Gazprom halved in the first six months of the year due to lower natural gas prices and falling demand in Europe, while overall debt jumped nearly a third.

The world's largest producer of natural gas yesterday reported net profit of 305.8 billion rubles (6.4bn) for the period, down from 609.3 billion rubles a year earlier. Six-month sales only fell 7 per cent to 1.6 trillion rubles from 1.7 trillion rubles as foreign currencies appreciated against the ruble. Sales to Europe fell 24 per cent year on year.

Gazprom's debt widened 31 per cent to 1.3 trillion rubles as it borrowed heavily to buy a 20 per cent stake in Gazprom Neft, an oil producing subsidiary, from Italian firm Eni SpA.

Many analysts criticised state-controlled Gazprom's management for the deal as it paid 40 per cent more for the stake than its market value. There was speculation the purchase was Moscow's way of getting Italy to approve the South Stream gas pipeline project – which, if completed, would connect Russia with south-eastern Europe and deal a blow to Nabucco, a competing US-backed pipeline.

Alexander Nazarov, an analyst at the Metropol investment group, said the third quarter would also be tough for Russia's largest corporation, but then the outlook would improve. "Prices are growing and demand for gas is growing, so the fourth quarter will be good," he said.

Analysts say, however, that over the long term Gazprom might be forced to rewrite contracts with its European customers, who are not satisfied with the current system that pegs the price of gas to the price of oil and compels clients to purchase certain amounts of gas even if they do not use it. Gazprom accounts for a third of western Europe's gas imports.