Gazprom gets a boost from Asia as EU sales decline

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Russian gas export monopoly Gazprom reported sales declines in Europe and its home market, showing the importance of its strategy to expand into Asia.

Gazprom's sales of gas to Europe and other countries fell 0.5% to 416 billion roubles (€10.2 billion) in the first six months of the year, while sales to Russia fell 10% to 120 billion roubles (€3 billion), according to the company's second-quarter results on Friday.

The trend has continued well into October. Exports to Europe, where the company covers a quarter of the continent's gas needs, fell 8% for the first 10 months of the year, to 113.1 billion cubic metres, according to both a company source and an analyst.

Europe has been the major gas market for Russia and the Soviet Union since it started to export gas by pipeline to West Germany in the 1970s.

But economic and financial woes have eaten into European demand in recent years, and the region's utilities are seeking to lessen their reliance on supplies from Gazprom, whose prices are usually higher than in the spot market.

Gazprom said on Friday that retroactive payments to European customers, who had claimed its prices were too high, exceeded 133 billion roubles (€3.3 billion) in the first half of the year.

The figure exceeds information that Gazprom gave in September that it would repay around €1 billion in the period from April through December and that the bulk would go to top German utility E.ON.

The European Union is investigating claims that Gazprom has been hindering the free flow of gas across the EU and imposing unfair prices by linking the cost of gas to oil prices.

Gazprom said it was analysing information related to the investigation and that it had not recorded a provision for any possible fines.

As Gazprom's problems with Europe persist, Russian President Vladimir Putin has ordered the company to forge close ties with fast-growing Asia Pacific consumers such as China and Japan.

Russia, the world's second-largest producer of natural gas after the United States, has for years tried to secure a deal to sell pipeline gas to China, the world's largest energy consumer. The two countries have failed so far to iron out differences over issues such as price and routes.

"The deal with China would be a great boost for Gazprom," Sergey Vakhrameyev, an analyst with Metropol brokerage, said.

"Prices in China are quite high at the moment, and Gazprom would have benefited from the agreement."

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