Aug. 25 (Bloomberg) -- OAO Gazprom, the world’s largest gas producer, may say first-quarter profit plunged 73 percent on lower sales, hit by the economic slowdown, higher prices and a dispute with Ukraine in January.

Net income probably dropped to 74.9 billion rubles ($2.37 billion) from 273.4 billion rubles a year earlier, according to the median estimate of eight analysts surveyed by Bloomberg News. Sales probably slid 7 percent to 838.2 billion rubles as the economic slump eroded demand in the European market, the main source of revenue for the Moscow- based company.

Gazprom is due to report the first-quarter earnings under International Financial Reporting Standards tomorrow.

“The bulk of the weakness in the first quarter 2009 results will be due to poor operating performance, primarily on the export side, which has been already priced in,” Lev Snykov and Svetlana Grizan, analysts of Moscow-based VTB Group, said in a research note yesterday.

Gazprom sold 22.07 billion cubic meters of gas to western Europe compared with 35.4 billion cubic meters a year earlier, Gazprom said in the first-quarter report under Russian accounting standards, posted on the company’s Web site.

Demand in Europe contracted by 5.6 percent in the quarter, Gazprom Deputy Chief Executive Alexander Medvedev said in June, citing data from the International Energy Agency.

Gas Prices

Gas prices, which in Gazprom’s long-term contracts are tied to the price of crude and oil products with a lag of up to nine months, reached their highest point in the first quarter, prompting consumers to lift cheaper gas from storage tanks rather than import, he said at the time.

The European gas price was probably as high as $450 per 1,000 cubic meters in the first quarter, while in the third quarter it may slide below $200, Citigroup Inc. analysts Alexander Korneev and Ildar Khaziev said in a research note yesterday.

Sales were also hit by a pricing and debt stand-off with Ukraine, the transit route for 80 percent of Russia’s exports, which led to gas supplies being halted for two weeks in January.

Gazprom undersupplied some 4.5 billion cubic meters to Europe because of the dispute, Medvedev said in June.

Depreciation of the national currency by 16 percent also hit Gazprom’s first-quarter profit, and the company may report a foreign exchange loss of as much as 142 billion on revaluation of foreign-currency debt, analysts with Goldman Sachs Group Inc. said in a research note yesterday.

The following is table of analyst estimates in billions of rubles.

               1Q 2009
               Median     High       Low       1Q 2008
               Estimate   Estimate   Estimate  Reported


Revenue        838.2       939        770.9      902.9

Ebitda         289.6       344        233.4      422

Net Income     74.9        125        27.8       273.4

The survey included analysts from Citigroup, Goldman Sachs, Bernstein, Troika Dialog, UniCredit SpA, Deutsche Bank AG, Alfa Bank, UralSib Financial Corp.

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To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

Last Updated: August 25, 2009 04:14 EDT