Russian state natural-gas firm OAO Gazprom (GAZP.RS), battered last year by increased competition and lower demand in the lucrative European market, said it sees an uptick in demand for its gas as Europe 's economies recover.

Gazprom's profits slipped almost one-tenth in 2012 as sales to Europe fell amid competition from coal, pushed out of the U.S. market by a surge in gas production there, and liquefied natural gas.

But exports to Europe were up 14.5% in the first eight months of this year compared to last year, Gazprom said Tuesday, as it reported a rise in first-quarter profit of 5% to 380 billion rubles ($11.4 billion).

"Future outlook remains positive due to the expected ongoing recovery in Europe [and] strong demand for Russian gas," the company said in a statement. State-controlled Gazprom has come under pressure from the government to halt declining sales, as it accounts for more than 10% of Russia 's export revenues. Russian competitors, such as OAO Novatek (NVTK.RS), are eating into Gazprom's domestic market share, and officials are drafting legislation that will allow them to ship LNG abroad, breaking Gazprom's long-held monopoly on exports.

Analysts say that demand for Russian gas in Europe will increase as economies there recover while production slides.

But competition from LNG, much of which was diverted to Asia this year where prices are higher, is likely to be strong as new projects in Africa and Australia add to global supply, said Ildar Davletshin, an analyst at Renaissance Capital.

" Europe had to take more Russian gas, but it's not a long-term trend," said Mr. Davletshin. "If LNG kicks back in, gas exports in the midterm will be flat, capped at around 140-150 billion cubic meters per year."

Gazprom aims to send 152 billion cubic meters to Europe this year, where it covers one-quarter of consumption.

Gazprom shares were up 0.8% in Moscow midafternoon at 132.47 rubles, while Moscow 's Micex index was up 0.3%.
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