OAO Gazprom, the world's largest natural-gas producer, said profit increased 7.3 percent last year as higher energy prices more than compensated for lower demand in Europe.

Net income in 2007 increased to 658 billion rubles ($28.1 billion) from 613 billion rubles a year earlier, Moscow-based Gazprom said today in an e-mailed statement. That beat the 621 billion-ruble median estimate of eight analysts surveyed by Bloomberg News.

``Gazprom remains our top pick and a long-term favorite within the Russian oil and gas sector,'' Merrill Lynch & Co. said in a note to investors before the results.

The state-run company makes most of its profit from sales to Europe, where it has a quarter of the market. Besides expanding into gas retail and distribution, Gazprom is also seeking power and oil assets outside Russia, Chief Executive Officer Alexei Miller said last week.

Sales rose 11 percent to 2.39 trillion rubles as consumers both inside Russia and abroad paid more for gas. Export revenue reached a record $44.8 billion last year and will probably reach $71.6 billion in 2008, Deputy Chief Executive Officer Alexander Medvedev said earlier this month.

Miller has said that European customers are now paying an average of $410 per 1,000 cubic meters of gas, more than 50 percent what they paid in 2006. European gas prices are pegged to the oil price with a time lag. New York oil futures jumped 57 percent last year, and reached a record $143.67 today.

Milder Weather

Gazprom shipped 5.8 percent less fuel abroad in 2007 as milder weather reduced demand, according to Energy Ministry statistics. The company expects European consumption to rise by 11 percent to 166.8 billion cubic meters this year, Medvedev said.

Tied into European markets with its vast pipeline network, Gazprom plans to become a global supplier when it starts delivering liquefied natural gas next year. LNG, gas chilled to a liquid for transport by tanker, will allow the company to break into new markets, including Japan, South Korea and North America.

The company is counting on the Russian government, its biggest shareholder, to help gain a ``dominant'' global position, Miller told shareholders at their annual meeting last week.

Russian President Dmitry Medvedev was replaced by First Deputy Prime Minister Viktor Zubkov as Gazprom chairman at the meeting. Like Medvedev and Miller, Zubkov worked with former President Vladimir Putin in the St. Petersburg mayor's office in the 1990s.