Gazprom has bought control of a gas pipeline being constructed between Iran and Armenia, in what analysts say is an attempt to protect the European gas market from an unwanted competitor.

Last year Gazprom signed an agreement with the Armenian Government, under which Armenia would have to pay only $110 (£58) per cubic metre of gas — about half the market price — in return for Gazprom taking a 45 per cent stake in a joint venture called ArmRosGaz, which controls both Armenia’s domestic gas distribution business and the soon-to-be-completed gas pipeline from Iran.

Last weekend, during the visit of President Kocharian of Armenia to Moscow, Gazprom raised its stake in ArmRosGaz to 58 per cent by buying an additional $119 million of shares in the company.

Gazprom now has control over the Iran-Armenian pipeline, which would be the first to supply Iranian gas to Europe and could have become a rival source of gas for Western Europe, which is increasingly dependent on Gazprom.

Alexander Medvedev, deputy chairman of Gazprom, told The Times: “It’s a profitable project for us. We hope to use the joint venture to become involved in extraction and development [of Iranian gas], and possibly help supply gas through the joint venture to Western Europe, as well as Pakistan and India.”

Mr Medvedev’s remarks seem to indicate the desire in the Kremlin to make Iran an energy ally and partner, rather than a competitor, in the gas sector. Last week Valeri Yazev, the chairman of the state Duma committee on energy, also called for a gas alliance between Russia and Iran.

Iran has 27,000 billion cubic metres of gas — 18 per cent of the world’s supplies — making it the second-biggest supplier of gas in the world after Russia. Analysts believe that 62 per cent of Iran’s potential gas reserves remain undeveloped.

Valeri Nesterov, oil and gas analyst at Troika Dialog, said: “If Gazprom didn’t have a controlling stake in the Iran- Armenia project, it would be much easier for Iran to use it to compete with Gazprom’s supplies to Western Europe. But Gazprom tries to avoid competition as much as possible.”

European countries increasingly are considering Iran as an alternative supplier to Gazprom. Another possible pipeline under consideration for Iranian gas is the Nabucco project, which was approved by the European Union this year. Nabucco, which will cost an estimated £3 billion, will take gas from the Caspian region and bring it to Western Europe. OMV, of Austria, is the main backer of the project, construction of which is scheduled to finish in 2011.

The pipeline initially will take gas from Azerbaijan, but several European energy ministers have called for it also to take Iranian gas. The project was originally designed to take Iranian gas, though the focus switched to Azeri gas when Iran clashed with the International Atomic Energy Agency over its nuclear research programme.

FROM RUSSIA BY PIPELINE

Gazprom produces half the gas used in the European Union; four fifths of that gas passes through pipelines crossing Ukraine.

The relationship of Gazprom and its former Soviet bloc customers has been rocky

January 2006 Russia and Ukraine in dispute over gas prices and fail to agree a pricing deal. Russia cuts gas supply to Ukraine. Ukrainians steal gas in transit to other European countries, which affects supplies to Germany and Hungary as well as about 25 per cent of the EU’s gas supply. Russia threatens to raise the price of natural gas supplies to Georgia

May 2006 Russia and Ukraine seek agreement on pricing, trying to do a deal in Brussels

July 2006 Belarus told that it, too, must pay market price for gas. Supply cut off. Belarus siphons gas from supply

October 2006 Nordpipe pipeline plan unveiled. Europe clamours to be still more reliant on Russian gas. The pipe is to run from near St Petersburg and along the Baltic seabed to Germany. It will bypass Ukraine and Belarus

November 2006 Russia and Ukraine agree gas supply deal for 2007

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