Russia Obtains Azerbaijani Gas In Tug-Of-War With Europe

BAKU (Reuters) -- Azerbaijan has promised Russia priority in buying natural gas from a huge deposit also coveted by Europe, the head of Russia's Gazprom said, after the Russian and Azerbaijani presidents signed a gas-supply deal.

The drive by Russia and Europe to fill their respective gas-pipeline projects from the second phase of Azerbaijan's Shah Deniz field has put Baku in the middle of a political tug-of-war between Moscow and Brussels.

Both sides have long been seeking Azerbaijani supply commitments.

After meeting Russian President Dmitry Medvedev in Baku, Azerbaijani President Ilham Aliyev said the two sides had finally penned a deal.

"Today we have laid a good foundation for efficient cooperation in the gas sphere," Aliyev said. "Considering the role of natural gas as a factor in the region and in the world, the importance of the document signed today needs no explanation."

Gazprom chief Aleksei Miller said after the signing ceremony that Russia would buy a modest 500 million cubic meters of Azerbaijani gas from next year, but would increase these volumes going forward.

Those supplies would be bought from Phase 1 of Shah Deniz, which is led by BP and StatoilHydro, Miller said.

Aliyev added that Azerbaijan plans to produce 27 billion cubic meters (bcm) of gas in 2009, and around 30 bcm next year.

The European Union has been courting the government in Baku to provide a gas source for the Nabucco pipeline, which would circumvent Russia to bring Central Asian gas directly to Europe, a feat that is impossible today.

The second phase of Shah Deniz, expected to cost around $10 billion, was identified as the main potential source for Nabucco, which is meant to ease Europe's energy dependence on Russia.

Russia, the world's largest gas producer, wants gas from this field to fill its planned South Stream pipeline, helping it maintain its grip over supplies of the fuel to Europe.