U.S. backs Caspian gas pipe to Europe, no Iran supply

WASHINGTON, June 2 Fri Jun 3, 2011 4:17am IST

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WASHINGTON, June 2 (Reuters) - The Obama administration told Congress on Thursday it strongly supported a Southern Corridor pipeline to bring natural gas from the Caspian region to Europe, which would reduce the role of Russian supplies.

Russia is a big provider of gas to Europe, which has been looking to diversify suppliers since Russian gas shipments to it were blocked in recent years after transit country Ukraine refused to pay higher prices for fuel from its neighbor.

"From the standpoint of U.S. policy goals, the best outcome is one that brings the most gas, soonest and most reliably, to those parts of Europe that need it most," Richard Morningstar, U.S. energy envoy for the Eurasian region, told a House Foreign

Affairs subcommittee.

Three pipeline consortiums are competing to bring natural gas from Azerbaijan's Shah Deniz gas field to Europe, and the investment decisions to make that possible should be made by the end of this year, Morningstar said.

Other countries will also contribute gas volumes to the pipeline, including Turkmenistan, which Morningstar said was investing in infrastructure that could export gas to the West.

He said Iraq would be able to export gas once it met domestic demand for fueling more power plants.

However, the United States does not want the pipeline to move gas from Iran, Morningstar reiterated.

Morningstar said the United States faces a difficult decision if it chooses to sanction the Shah Deniz gas project because a subsidiary of Iran's national oil company owns 10 percent of the operation.

"The unintended consequence is the resources, which are absolutely necessary for the Southern Corridor, wouldn't go to Europe," he said.

Instead, the gas would likely go to Russia, China or Iran, Morningstar said.

He said Iran would probably benefit if the project were hit with sanctions, because Iran needed gas. "It's a serious policy issue," he said.

(Reporting by Tom Doggett; Editing by Dale Hudson)

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