Russia, Kazakhstan, Turkmenistan Ink Pipe Deal

Russia, Kazakhstan and Turkmenistan signed a landmark agreement Thursday to build a natural gas pipeline along the Caspian Sea coast that would strengthen Moscow's monopoly on energy exports from the resource-rich region.

The deal, which follows a preliminary agreement reached in May, ended months of tense arguments over the price of gas supplies. It reaffirms Russia's monopoly on gas supplies from Central Asia and deals a strong blow to Western hopes of securing alternate energy export routes.

"We have just signed an extremely important agreement between Russia, Kazakhstan and Turkmenistan on building the Caspian pipeline," President Vladimir Putin said. "It will become a new important contribution of our nations into strengthening the European energy security."

Late last month, Russia's state-controlled monopoly OAO Gazprom (GAZP.RS) gave in to Turkmen price demands and agreed to pay $130 per 1,000 cubic meters of natural gas in the first half of 2008 and $150 in the second half.

The agreement will likely disappoint the U.S. and the European Union, which have been lobbying for a rival pipeline to be built under the Caspian Sea, bypassing Russia.

Kazakh President Nursultan Nazarbayev and Turkmen President Gurbanguli Berdymukhamedov have expressed interest in undersea pipelines and voiced support for multiple export routes.

However, prospects for pipelines under the Caspian have been clouded by high costs, environmental concerns and disputes over ownership of the sea resources.

Russia controls existing export pipeline for gas from Turkmenistan, which has the largest reserves in the former Soviet Union after Russia. The pipeline has an annual capacity of 50 billion cubic meters.

The new pipeline would have an initial annual capacity of 20 billion cubic meters, and it could grow significantly in the future.

Russia's Industry and Energy Minister Viktor Khristenko said the new pipeline would be built by 2010.

Copyright (c) 2007 Dow Jones & Company, Inc.