MOSCOW, RUSSIA (Commodity Online): Gazprom from Russia, the world's biggest natural gas producer, reported record first-quarter profits following an unusually harsh winter that boosted demand in Russia and Europe.

Beating most analysts' forecasts, the state-owned energy giant said its net income rose to $10.6 billion in the first quarter of 2010, more than three times the figure reported after the same period last year.

The company cited low temperatures in Russia and in Europe that boosted gas sales by more than 20 percent to 162.2 billion cubic meters in the first quarter. Gains of the ruble against the dollar also improved the result.

The first quarter of 2009 was especially difficult for Gazprom, with the economic crisis having kicked in already. While the latest quarterly figures should please Gazprom, the company in the first quarter of 2010 saw falling profits in Europe, its key export market.

Gas prices are linked to those for crude in Europe and the recession made oil cheaper. At the same time, Gazprom gradually raised prices at home to increase profits and reduce gas waste. This boosted domestic revenue by 47 percent but led to a 22 percent drop in Europe, the company said.

More financial pressure is looming, as Moscow is preparing to raise oil and gas taxes to reduce the federal deficit, Russia's first in several years.

In a bid to improve its numbers in Europe, Gazprom recently raised European export prices by 30 percent, angering energy experts who are calling for uncoupling the oil and gas prices.

Meanwhile, Russian President Dmitry Medvedev is lobbying for Gazprom on the foreign front.

Medvedev and officials from Gazprom arrived Thursday in Baku, Azerbaijan, for a 2-day visit that focuses on a range of economic and foreign policy issues but also set the stage for an important energy deal.

Gazprom and State Oil Corporation of Azerbaijan, or Socar, Friday signed a deal to increase supplies of Azeri gas to Russia over the next two years. Supplies will double to 2 billion cubic meters next year and will be further boosted in 2012, Gazprom said in a statement.

Gazprom is eager to increase the delivery from Azeri gas, which is to feed the European Union-backed Nabucco intended to bypass Russia. Nabucco would be designed to carry 1.1 trillion cubic feet of natural gas per year from Azerbaijan via Turkey to Europe.

Gazprom has launched a competitor, South Stream, intended to move 2.2 trillion cubic feet of gas per year from Russia under the Black Sea to Bulgaria and then on to Western Europe.

Observers have warned there is demand and supply for only one of the two pipelines. (iWireNews ™ and OfficialWire)

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