MOSCOW — Russia’s gas giant Gazprom, German chemicals manufacturer BASF and E.ON Ruhrgas have signed a deal to build a gas pipeline connecting Russia and Germany under the Baltic Sea, BASF said in a statement on Thursday.

Under the agreement, the companies will form a joint-venture called North European Gas Pipeline Company, where Gazprom will hold 51 percent and BASF and E.On will have 24.5 percent each.

The pipeline will stretch more than 1,200 kilometers, from the city of Vyborg in the north-west of Russia, to Germany's northeastern city of Greifswald.

The new gas pipeline is expected to go on-stream in 2010, with an annual capacity of 27.5 billion cubic meters. A second planned pipeline could double capacity to around 55 billion cubic meters a year. Overall costs for two pipelines would be above EUR 4 billion, the companies said. Construction of the first pipeline will commence this autumn.

German Chancellor Gerhard Schroeder and Russian President Vladimir Putin attended a signing ceremony in Berlin, stressing the strategic importance of the deal for German-Russian relations.

The British daily Guardian said the deal had potential to alter Europe's political landscape and seriously aggravate the Kremlin's former Soviet neighbours. It would allow Russia to avoid complications with the republics and deal directly with Germany instead— from where gas would then go to other countries including Britain, the newspaper said. The Polish president, Alexander Kwasniewski, spoke out against the project yesterday, saying the deal had been struck "over our heads".

Meanwhile, Russian analysts think the new project will help Russia ensure reliable and diverse gas supplies. Andrei Gromadin at MDM Bank says a British company could join the project in the future, given plans to build offshoots to Britain and neighboring countries. Gazprom should welcome another partner, considering the project’s high costs, Gromadin believes.

Dmitry Mangilev, analyst with Prospekt company, reckons the deal will boost Gazprom’s sales, and Yevgeny Suverov at Zenit bank said the pipeline, which will connect Russia directly to Germany and bypass Russia’s neighbors, would give Russia additional leverage with Ukrainian gas supply negotiations.