April 29, 2019 / 4:35 PM / 3 months ago

UPDATE 2-Record Russian gas sales to Europe help Gazprom profits double

* Gazprom’s 2018 earnings rose to $22.58 billion

* Company plans to maintain its record-high gas exports

* Gazprom working on contingency plans over gas exports (Updates with conference call, adds quote)

By Vladimir Soldatkin

MOSCOW, April 29 (Reuters) - Russian gas producer Gazprom doubled its annual net profit last year, led by record sales to Europe despite pressure on EU states to diversify away from Russian energy imports.

Gazprom is also working on contingency plans in case the undersea Nord Stream-2 gas pipeline to Germany is delayed and talks on a new gas transit deal with Ukraine fall through, a spokesman said after the company released its annual results on Monday.

Gazprom is a lynchpin of Russia’s commodity-dependent economy with its sales accounting for over 5 percent of the country’s $1.6 trillion annual gross domestic product.

The Kremlin-controlled gas producer’s exports to European countries and Turkey reached almost 202 billion cubic metres (bcm) last year, even though the European Commission has called for EU states to reduce their reliance on Russian energy amid wider political tensions.

However, Gazprom has said that its exports to Europe have declined so far this year, partly due to warmer weather.

The company, which reported a net profit of 1.456 trillion roubles ($23 billion) for 2018, has been going through an unprecedented management reshuffle. It saw exports boss Alexander Medvedev and Andrey Kruglov, who oversaw the company’s finances, leave the company.

Alexei Miller, who is close to Russian President Vladimir Putin, is still at the company’s helm.

The reasons behind the high-profile departures have not been revealed. Some analysts and sources have pointed to internal infighting and poor results of some of the company’s units, namely Gazprom Marketing & Trading.

Gas sales to Europe account for almost 70 percent of Gazprom’s gas revenue.

A company official told a conference call following the results that Gazprom still aims to export over 200 bcm of gas this year.

CONTINGENCY PLANS

Gazprom’s share of the European gas market rose to a record high 36.7 percent last year from 34.7 percent in 2017.

Its main supply route to Europe is via Ukraine, which has strained relations with Moscow following Russia’s annexation of Crimea in 2014.

Mikhail Malgin from Gazprom’s exporting arm, Gazpromexport, told the conference call that the company has been working on a back-up plan and is filling up its storage facilities in Europe in case its transit capacity is hit.

Gazprom’s gas transit deal with Ukraine is effective only until Jan. 1, 2020, while its plans to double the 55 bcm capacity of the current Nord Stream gas pipeline by the end of this year have been under threat due to Europe’s concerns over its dependency on energy flows from Moscow.

“We have been actively pumping (gas into the storages), indeed, using our capacity... we have been working on building reserves,” he said.

Gazprom’s own storage capacity in Europe stands at over 5 bcm.

The company said its total revenue rose to 8.22 trillion roubles last year from 6.55 trillion in 2017. ($1 = 64.4950 roubles) (Reporting by Vladimir Soldatkin and Maria Grabar; writing by Vladimir Soldatkin and Maria Tsvetkova; editing by Jason Neely and Susan Fenton)

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