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Business

Russia, Europe Strike Deal for Natural Gas Pipeline

A new pipeline consortium between Germany, Russia and the Ukraine will help shrink the prices of natural gas for Europe while contributing to economic and political stability in the former Soviet republics.

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This German storage facility will get a steady supply of cheap gas under the new deal

Germany, Russia and the Ukraine on Monday signed a deal to create a consortium to jointly operate a pipeline carrying Russian natural gas through the Ukraine to Europe.

German Chancellor Gerhard Schröder, Russian President Vladimir Putin and Ukranian President Leonid Kuchma signed the agreement following a summit of Baltic nations at a Pavlovsky Palace near St. Petersburg.

Putin said the deal would include an immediate $2.5 billion (2.65 billion euro) worth of renovations to existing Ukranian pipelines. In the longer term, $15 billion (15.9 billion euro) would be invested in the expansion of the pipeline network.

The world's largest natural gas producer, Russian monopolist Gazprom, transports 90 percent of its overall exports through the former Soviet republic of Ukraine.

The deal has potential upside for all three parties: For the Europeans, it could bring a steady supply of natural gas at reliable prices. For the Ukraine and Russia, it could help build economic and political stability, Schröder said.

The Ukraine’s diversion of Russian natural gas coursing through the pipeline has long been a thorn in the side of Moscow-Kiev relations and has threatened the Ukraine's role as a major transit route for the energy source. But under the deal, the two countries will now cooperate more closely on the pipeline.

Russian gas fuels the EU

The deal is also important for the European Union because Russia supplies 41 percent of the EU's natural gas imports, or a total of 19 percent of all natural gas consumption in member states. About 63 percent (130 billion cubic meters) of Russia's natural gas exports of 205 billion cubic meters in 2000 went to European countries, EU statistics state. And under current contractual agreements, that amount will increase to 205 billion cubic meters a year by 2008.

The Essen-based energy company Ruhrgas, which also owns a significant stake in Gazprom, has said it will participate in the project. Ruhrgas alone imports 20 billion cubic meters of natural gas from Russia each year.

Ruhrgas is Germany's largest natural gas supplier and provides 60 percent of homes here with their fossil fuel needs.

Schröder said it had not yet been determined whether any other German companies would participate.

Putin said the pipeline would also be opened to Central Asian countries, including Kazakhstan. Russia signed a longterm deal with Kazakhstan last week to transport Kazakh oil and natural gas to European markets.