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Gazprom Sees Growth in Europe as Net Falls Below Estimates

OAO Gazprom, Russia’s biggest company, said profit declined 7 percent last year as tensions escalate in Ukraine, the transit route for half its natural gas deliveries to Europe.

Net income fell to 1.14 trillion rubles ($31.9 billion) after Gazprom took a charge of 67.7 billion rubles last year, the Moscow-based gas producer said today in a statement. That was below the 1.24 trillion-ruble estimate from 17 analysts surveyed by Bloomberg.

Gazprom faces pressure from the European Union and Ukraine as they seek new sources of gas and relations with Russia sink to their worst since the Cold War. The U.S. and EU are targeting executives and officials close to Russian President Vladimir Putin with an expanding series of sanctions. The U.S. added the head of OAO Rosneft (ROSN), the state-controlled crude producer, to its list yesterday.

“Political and economic tensions between Russia and Ukraine have caused renewed concerns regarding the reliability of gas supplies to Europe,” Gazprom said. “Any disputes with Ukraine could potentially lead to a disruption.”

Key Market

Gazprom aims to remain the leading gas supplier to Europe, its key market, Alexander Ivannikov, first deputy head of the company’s finance and economics department, said during a conference call with analysts. Growth in Europe will be one of the value drivers this year, according to a presentation on its website.

The company didn’t disclose its export forecast. Last year, fuel supplies beyond the former Soviet Union rose to 174.3 billion cubic meters, including volumes traded by the company’s European units.

Gazprom revenue rose 10 percent to 5.25 trillion rubles, including oil and power supplies. Of that, 32 percent was from gas sales in Europe and Turkey.

Russian gas exports rebounded last year after a slump in 2012 thanks to a colder-than-usual winter and lower prices. Gazprom European customers including RWE AG, Germany’s second-biggest utility, and Italy’s Eni SpA won lower fuel prices under their long-term supply contracts.

Gazprom’s clients in Europe have already used the right to seek price adjustments, so no major unscheduled revisions are expected this year even after European spot gas prices dropped “significantly” below oil-linked prices in long-term contracts, said Andrey Zotov, a deputy department head at Gazprom’s export unit.

Asian Market

Eni, which was the biggest Gazprom corporate consumer in the EU last year, plans to continue to renegotiate gas contracts with the Russian exporter, as well as with other suppliers, Marco Alvera, a senior vice president at Eni, said today in a conference call with analysts. Eni-Gazprom relations are “business as usual,” he said.

While aiming to expand in Europe, Gazprom also sees “diversification to the Asian market” as a priority this year, the company said in the website presentation.

Today in Moscow, Gazprom Chief Executive Officer Alexey Miller met China National Petroleum Corp. Chairman Zhou Jiping to discuss the terms of a 30-year deal to supply pipeline gas after more than a decade of talks.

The companies expect to sign the contract in May, Gazprom said in a statement, confirming its previous plan to clinch the deal during Putin’s visit to Beijing on May 20.

Gazprom plans to deliver as much as 38 billion cubic meters of gas to China, starting no sooner than end-2018. China was the only country in the United Nations Security Council not to censure Russia’s actions in Crimea.

The companies are in the final stages of preparing the contract, Gazprom said without elaborating. The shares advanced 0.1 percent in Moscow trading, paring gains of as much as 1.7 percent to close at 128.3 rubles.

To contact the reporters on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net; Elena Mazneva in Moscow at emazneva@bloomberg.net

To contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net Alex Devine

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