Because of the financial crisis, the state-controlled Russian energy giant, in 2008 worth roughly $350 billion, has shrunk by nearly two-thirds to $120 billion, the Moscow Times reports.

Oil and gas prices fell dramatically in the immediate aftermath of the financial fallout; they have since recovered to just over $70 a barrel, but demand from Gazprom's main import region, Europe, remains low because of slowing economies in the eurozone.

The EU's gas imports in the first quarter of 2009 declined by about 12 percent compared with a year ago, the International Energy Agency says. But Russian exports to Europe fell by even a greater margin, indicating that Europe has effectively diversified its import structure.

As a consequence, Gazprom announced it would slash capital spending and reduce its gas output.

Alexander Ananenkov, Gazprom's deputy chief executive, said the company was downsizing its capital spending program for 2009 by nearly one-fifth to $16 billion, the Wall Street Journal reports. He also said that the exploration of Bovanenkovo, one of the largest gas fields in the Siberian Yamal peninsula, might be delayed by a year, until 2012. The launch of another Siberian field, Kovykta, could also be postponed. Gazprom's production this year will be reduced to between 450 billion and 510 billion cubic meters of gas, down from 550 billion cubic meters in 2008.

An unnamed Russian businessman told the Wall Street Journal that Gazprom's management was "close to panic."

"For the first time in its history, Gazprom's management has started to ... realize Europe will no longer buy everything we produce," the man is quoted as saying.

But Gazprom's problems are partly home-made.

The company sparked concerns in Europe when it maneuvered into yet another gas price row with Ukraine, this time affecting customers in Central and Eastern Europe.

Observers say the company also failed to invest in new pipelines and modern exploration infrastructure when it was rich, and instead pushed to buy expensive foreign assets and plunged into costly contracts with states in Central Asia. Gazprom in 2008 tried everything to outbid its competitors from Europe and China by offering to buy gas from suppliers in Central Asia at premium prices.

But market prices have fallen since, and as a consequence, relations with Turkmenistan are especially troubled. Gazprom has unsuccessfully tried to convince Ashgabat to reduce prices for its gas. This has prompted Turkmenistan to communicate its openness to alternative partners from the West. The row was topped off by a recent pipeline explosion Turkmenistan blamed on Gazprom.

The Russian energy giant earlier this week sent a senior delegation to Turkmenistan to reduce tensions, but no concrete results have been reported so far.

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