Gazprom's profits fall 25% as clients discuss options

Russian energy giant Gazprom announced a 25 per cent drop in second-quarter profits yesterday, as key European customers discussed ways to reduce their reliance on the Kremlin's oil and gas.

Gazprom blamed the fall in profits on a mild spring in much of Europe and higher prices for energy that it buys from central Asia for resale. Net profit for the quarter ending June 30th was 102.87 billion rubles (€2.86 billion).

The announcement came as Yulia Tymoshenko, who is set to be Ukraine's new prime minister, denounced a new deal signed by the outgoing government by which Ukraine will pay 38 per cent more for Russian gas next year.

"The price of $179.50 (€122.44) per 1,000 cubic metres of gas shows the fiasco of the current cabinet energy policy," Ms Tymoshenko said. "We will have a chance to start talks again with Russia after the new cabinet is formed."

A price dispute prompted Russia to cut off gas to Ukraine in January 2006, causing supply problems in many countries further west. After that brief crisis, Ukraine agreed to pay Russia twice as much for its gas, and to purchase it through RosUkrEnergo, a mysterious Swiss-registered firm whose publicity-shy owners have been the source of much speculation.

"This is a consequence of an absolutely brainless policy in which RosUkrEnergo was established as an intermediary," Ms Tymoshenko said of the new price deal, while reiterating that she wanted to buy directly from Gazprom.

Gazprom - which supplies one-fifth of the EU's gas, pumping 80 per cent of it westward through Ukraine - insists it is only passing on increases in the cost of gas which it buys from Caspian Sea countries such as Turkmenistan. The EU is worried about its reliance on Russian gas, given the frequency of price rows between Moscow and transit states such as Ukraine, strained political ties with Moscow, and the ambition of Kremlin-controlled firms to build and run pipelines in central Europe.

Russian plans for the Blue Stream pipeline to bring gas under the Black Sea to Turkey and through the Balkans to Hungary are in direct competition with the EU's Nabucco pipeline, which would bring gas along a similar route to Austria.

Hungary's state energy firm, MOL, floated the idea yesterday of forming a huge new firm to unify and manage the pipeline network of southeast Europe. MOL has already invited gas firms in Austria, Slovenia, Croatia, Serbia, Romania and Bulgaria to discuss the project.

"The integration of assets . . . would improve energy supply security for consumers and would also create value for shareholders," said Janos Zsuga, the head of MOL's gas supply unit.