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UPDATE 1-Russia obtains Azeri gas in tug-of-war with Europe

Published: 29 Jun 2009 17:13:34 PST

* Russia to import 0.5 bcm from 2010, more going forward

* Russia to have priority for Shakh Deniz supplies -Gazprom

BAKU, June 29 - Azerbaijan has promised Russia priority in buying gas from a huge deposit also coveted by Europe, the head of Russia's Gazprom said on Monday, after the Russian and Azeri 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 Shakh Deniz field has put Baku in the middle of a political tug-of-war between Moscow and Brussels.

Both sides have long been seeking Azeri supply commitments.

After meeting Russian President Dmitry Medvedev in Baku, Azeri 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 Alexei Miller said after the signing ceremony that Russia would buy a modest 500 million cubic metres of Azeri gas from next year, but would increase these volumes going forward.

Those supplies would be bought from phase one of Shakh Deniz, which is led by BP and StatoilHydro, Miller said.

Aliyev added that Azerbaijan plans to produce 27 billion cubic metres (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 Shakh 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.