The United States wants to restart Iraqi gas production and possibly channel exports to Europe through a pipeline part-owned by BP, it emerged today.

The move, revealed today at a conference in Azerbaijan, would be a direct challenge to Russia’s growing control of the European gas market through Gazprom, the Kremlin-backed giant.

Matthew Bryza, a US State Department deputy assistant secretary, revealed that the US was holding talks in both Iraq and Turkey to drum up investment to boost gas production in the war-torn country.

He told the conference in Azerbaijan that future exports “could be linked up to the Baku-Erzerum pipeline”.

The pipeline has already begun to export quantities of gas from the huge Azeri Shakh-Deniz field, jointly operated by BP and Statoil, of Norway.

Ilham Aliyev, the Azeri President, said yesterday that the start of large-scale exports from the field would help to increase gas output in the country from 12 billion to 16 billion cubic metres of gas in 2008.

Statoil handles all commercial negotiations related to the pipeline, although BP is a large stakeholder.

The comments by Mr Bryza are the latest sign of far-reaching plans for the development of Iraq’s oil and gas industry once the parliament in Baghdad finally approves a much-delayed Petroleum Law.

Although several Western energy companies have struck exploration deals in the Kurdish region of northern Iraq, no UK or American major has yet sealed a contract in the country.

However, in March it emerged that Shell had set up a consortium with Turkish firms to bid for a gas production licence in Iraq and build a pipeline to Ceyhan in Turkey.

Iraqi gas would add a new source of energy to Europe’s supply mix and threaten Gazprom’s dominance, which is on track to increase its share of the European market to 25 per cent in the coming years.

Russia has already sparked controversy by turning off supplies to neighbouring countries such as Ukraine in thinly veiled political disputes.

Germany relies on Russia for nearly a third of its gas.

BP is waiting to learn whether the Russian Ministry of Natural Resources will revoke its $20 billion licence at the giant Kovykta gasfield in Siberia.

Bob Dudley, the chief executive of BP’s Russian joint venture TNK-BP, told analysts on Monday that he was “optimistic” that an agreement could be reached.

The call with analysts was seen as a charm offensive ahead of talks with Russian authorities that will go some way to determining BP’s future in the country.

Mr Dudley said: “Russia is a country that continues to be dynamic and an exciting place to do business

“In some ways the rules of play are still being settled, and this is a particular challenge for us as it is for other Russian majors, yet TNK-BP does operate very successfully as a member of the Russian oil sector.

“Despite the headlines I’m sure you read in the press, we are well positioned to continue to build on this position and do so every day.”

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