OGZPY PJSC Gazprom (PK)

By Sarah McFarlane and Laura Mills

Russia's Gazprom (GAZP.RS) has made deep cuts to its London-headquartered trading business, an early sign of the gas giant's attempts to adjust to continued weakness in commodity markets.

Gazprom Marketing & Trading (GM&T), a subsidiary of Gazprom Group, has cut staff by around 20%, including at least six directors, two people familiar with the matter said. The cuts come as the unit anticipates a massive fall in it its profits for some divisions this year, which come from trading oil, gas and other commodities, these people said.

Like other energy majors Gazprom has been hit by weak oil and gas prices, but the Russian company is also battling increased competition in its east European backyard. The London cost cuts, while small in context of the world's largest gas producer, offer a rare glimpse into changes at an opaque firm that analysts say has been slow to adapt to current conditions.

Gazprom's London cuts of up to 170 people are a fraction of the majority state-owned Group's 462,400 employees. But analysts expect the company will need more adjustment.

The cuts to trading may also be a blow to Gazprom's attempts to diversify away from its traditional pipeline gas exports.

"Gazprom is now adapting to the new world and the new world is lower costs everywhere," said Thierry Bros, senior research fellow at the Oxford Institute for Energy Studies.

The staff reductions follow a review by consultancy Oliver Wyman, which was asked to look for cost savings, the people familiar with the matter said. Oliver Wyman declined to comment.

Gazprom declined to comment.

"Selling gas in Europe may not be as profitable as people were thinking, with prices lower, you have to reduce costs everywhere so you have to move into a low cost business model," Mr. Bros said.

A fall in the ruble has cushioned declines in dollar-denominated oil and gas for Gazprom. But the price of oil and gas has plummeted since 2014. Gazprom's profits fell 17% to 245 billion rubles in the second quarter this year and 5% in the first quarter of the year. The company's profits have rebounded in 2015 after collapsing 86% in 2014.

Some of the world's largest energy companies have initiated big cuts in recent years.

Royal Dutch Shell PLC, the world's second largest gas producer after Gazprom, has cut at least 12,500 staff since 2015, it now has 94,000 employees according to its website. In January BP PLC said it would slash about one-sixth of its 24,000 exploration and production staff and other oil majors have cut in their workforce.

While Gazprom is exporting gas at record levels, and that resource remains plentiful, the company is facing increased competition in eastern Europe.

In recent years, big customers like Poland and Lithuania have set up gas import terminals to reduce their dependence on gas piped in from Russia. That boosts their negotiating power with the company, which was forced to cut prices, while also reducing Moscow's leverage at a time of geopolitical tension.

Write to Sarah McFarlane and Laura Mills at sarah.mcfarlane@wsj.com and laura.mills@wsj.com

(END) Dow Jones Newswires

November 18, 2016 09:59 ET (14:59 GMT)

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