Russia and Britain's relationship
significantly improved in recent days

The "memorandum of cooperation" was sealed in London as visiting Russian President Vladimir Putin and British Prime Minister Tony Blair looked on.

The multibillion-dollar pipeline is to be built by Russian gas giant Gazprom under the Baltic Sea to Britain, via continental Europe.

The deal was formally signed by British junior trade minister Stephen Timms and Russia's energy minister Igor Yusofov at the start of a so-called "energy summit" in central London, on the third day of Putin's ongoing state visit to Britain.

Only minutes beforehand, British oil group BP and Russia's TNK announced they had finalised a separate deal for an oil joint venture in Russia worth $6.15 billion.

Pipeline reaction

Blair stressed both the commercial and symbolic significance of the proposed pipeline link-up.

“For Britain, we at present more or less break even on importing, exporting energy, but as we know, over the next decade or so we are going to become net importers of energy,” Blair said.

Putin also hailed the deal. "It will create beneficial conditions for an efficient and competitive development of European energy as a whole," he said.

Anglo-Dutch oil giant Shell, which has been linked to the pipeline project, hinted strongly later that it might play a role, while refusing to give specifics.

Britain to be a net energy importer
in a decade

"Russian gas supplies to the European market are expected to grow in the next two decades, requiring the development of new gas fields and expansion of existing pipeline capacity," a spokesman told journalists.

"Shell and Gazprom are discussing integrated cooperation on the north European gas project, upstream development and EU market supply," he said, reading a statement.

Other agreements

The two governments also agreed Thursday to cooperate more closely on wider energy issues, including in energy security and environmental issues, according to a statement by Britain's trade ministry.

The separate BP deal lays the final groundwork for a new 50-50 joint venture, TNK-BP, which involves the biggest single foreign investment in post-Soviet Russian history.

Once the company comes into existence, it will instantly become Russia's third-biggest oil firm, and the 10th-biggest private sector energy group in the world.

The two moves and a recent $10 billion investment by rival Royal Dutch/Shell off Siberia's coast mark growing western investor confidence in Moscow's economic reforms, as well as the industrialised nations' thirst for Russian oil and gas as worries mount over Middle East supplies.