Gazprom Net Income Rises to $11.4 Billion in First Quarter

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Researched by Industrial Info Resources (Sugar Land, Texas)--Russia's state-owned natural gas exporter OAO Gazprom (Moscow) announced a 5% increase in first-quarter net profit, which rose to $11.4 billion, up from $10.8 billion a year ago, with the help of recovery in European gas demand. Gazprom's net gas sales to Europe increased 11% to $13.2 billion, while the volume of gas increased 6% to 45.4 billion cubic meters.

"Future outlook remains positive due to the expected ongoing recovery in Europe and strong demand for Russian gas," the company said in a statement. The company's exports to Europe and Turkey increased 14.5% percent to 105.2 billion cubic meters in the January-August period, the highest level since 2010. Gazprom aims to send 152 billion cubic meters of gas to Europe this year, which accounts for 25% of European demand.

Gazprom has struggled to overcome disputes with European customers in recent years regarding its long-term gas supply contracts, which are indexed to the price of oil. The indexation results in expensive gas prices for customers among its peers on the spot market. Many of the large customers are demanding renegotiation of the contracts for a rebate from the company. In June, Germany's RWE AG (Essen, Germany) took its claims to an arbitration court and won the case. The company wrote back $2.2 billion of retroactive gas price adjustments in the first quarter.

"As the market is increasingly dominated by spot prices and the U.S. builds export gas capacity, Gazprom may find itself having to cede market share if it wants to support price, or be in the position of antagonizing its customers if it does not," said Pavel Kusnhir, an analyst at Deutsche Bank in Moscow. "Equally, in an environment where oil-linked prices appreciate by more in absolute terms than U.S. gas, the risk must be that by increasing the differential between European and U.S. gas prices, Russia's pricing policy will effectively encourage the U.S. to lay down additional export capacity," he said in a research note sent to clients.

Gazprom announced during the conference call that the management board will review the parent-company investment program and budget on September 10.

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