July 21 (Bloomberg) -- OAO Gazprom, the world's largest natural-gas producer, had a 1.3 percent decline in gas reserves last year because the company failed to replace production, Moscow- based brokerage United Financial Group said.

Gas reserves totaled 18.5 trillion cubic meters as of Dec. 31, Gazprom said, citing an audit by DeGolyer & MacNaughton, a Dallas-based consultancy specializing in energy reserves. Reserves were 18.7 trillion cubic meters at end-2002, UFG said, citing Gazprom's April report.

``Gazprom has hence been unable to replace its production of 540 billion cubic meters in 2003,'' UFG said in a report e-mailed to clients. ``This is due to the company producing the bulk of its gas at depleting giant fields while failing to discover similar fields to replenish its reserves.''

Gazprom, which supplies about a quarter of Europe's gas, is urging Russia to let it raise domestic fuel prices as the company struggles to fund investment at a time when surging metals prices are boosting costs. The company losses money on some sales in Russia because the government caps power and gas prices to help industries such as aluminum and steel.

Gazprom's reserves were 28 trillion cubic meters of gas as of Dec. 31 under Russian standards, the company said. It says it holds 16 percent of global gas reserves.

The company's reserves fell 7 percent last year under Russian standards because of a decline in exploration and efficiency, Moscow-based brokerage Troika-Dialog said in a report e-mailed to clients.

``The fields evaluated by DeGolyer & MacNaughton account for over 90 percent of Gazprom's total combined natural-gas reserves as estimated under the Russian reserves system,'' Gazprom said. Reserves totaled 18.5 trillion cubic meters as of Dec. 31, 2002, according to its annual report distributed last year.

The auditor examined 19 fields and calculated proved and probable reserves according to the U.S.'s Society of Petroleum Engineers standards, Gazprom said in the statement.

To contact the reporter on this story: Eduard Gismatullin in Moscow at egismatullin@bloomberg.net

Last Updated: July 21, 2004 05:24 EDT