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Gazprom reports quarterly profits of $16bn

Earnings at Russia’s largest company rise 44% after sharp increase in prices it charges to customers

Gazprom showed why ExxonMobil wants to enter the Russian resources market on Tuesday when it reported one of the biggest quarterly profits in corporate history.

The energy group posted earnings of bn (£10bn) in the three months to the end of March – up 44% on the same period in 2010 – powered by sky-high energy prices and a surge in orders from customers locking into deals for fear that rates would later rise even more steeply.

But despite the high prices charged by Gazprom, the oil price, which is closely linked to the cost of gas, has fallen back from its April peak of about 5 a barrel to 1.

Analysts doubted whether Gazprom, Russia’s largest company, would perform as well during the rest of the year as the global economy begins to cool and price growth is potentially curtailed by the restoration of supplies from war-torn Libya.

Rhys Kealley at Datamonitor said: “Choking your customers to death is not good for long-term profits – Gazprom realise this and are in talks with customers such as Germany’s RWE, which is desperately in need of cheaper gas in light of Germany’s move away from nuclear power.”

Chirvani Abdoullaev, an analyst at Wood & Co, said: “These are fantastic results for Gazprom, but could represent the peak for 2011, partly due to the high volumes of gas already purchased by the company’s customers.”

The value of sales to countries belonging to the former Soviet Union showed the most impressive gain, with an advance of nearly 120%. The European market, which accounts for a quarter of Gazprom’s business, recorded a sales gain of 40%. In Russia itself, net sales advanced by 14%.

Average prices charged by Gazprom for gas pumped to European and other non-ex-Soviet customers increased by 14% in the period, with a rise in volumes sold of 12%.

The results mean that Gazprom is already well on the way to topping its record annual performance in 2010, when it posted the biggest profits in its history, at bn.

According to analysts at VTB Capital, the quarterly numbers were boosted not only by price rises but by a revival in European gas demand during an unusually severe winter.

Gazprom controls one-fifth of world gas reserves and provides for one-sixth of global gas production. In Britain, it accounts for just 2% of gas consumption, but it has a growing operation that sells to large UK companies. According to the research organisation Datamonitor, the Russian group has a 10% share of the business market, selling to the likes of Bhs and Chelsea football club. It has more than 100 UK corporate customers, including producers of steel, cement, glass and pharmaceuticals. There have been reports of British rivals complaining that they have not been able to compete because the prices being offered by Gazprom are so low.

Gazprom has been in the British market since 2006, but it is only in the past year that it has been propelled into the ranks of a handful of market leaders such as Shell Gas Direct, E.ON, Statoil, British Gas and Total Gas & Power. Its dramatic expansion will cause alarm in some government circles, amid concern over a Russian state-owned company controlling the gas supply of important British companies.

Founded in 1989, Gazprom grew out of the USSR’s Gas Industry Ministry and was part-privatised from 1993 in the much-criticised sale of state assets in post-Soviet Russia. The Russian government has retained a controlling stake of just over 50%, according to the company’s website, and Gazprom is now a cornerstone of the modern state.

But the company was criticised for its role in the 2009 Russia-Ukraine gas crisis, which led to major supply cuts for European consumers; it has also been lambasted in the west over its close ties to the Russian political leadership.

President Dmitry Medvedev once served as Gazprom board chairman and several of its top executives have links to Russia’s prime minister, Vladimir Putin.

Europe remains by far Gazprom’s most important market but it is also trying to diversify exports beyond the EU and the former Soviet Union and is hoping to sign a huge gas sales contract with China.

However, the two sides have yet to clinch a final contract amid reported differences over pricing. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds