The two companies will spearhead the development of a pipeline to carry 16 billion cubic metres of Turkmen natural gas a year, said a statement by PSG, which includes US Becthel Enterprises and General Electric Capital Structure Finance Group. Shell also announced that it had signed a strategic alliance deal with Turkmenistan to collaborate in exploration and development of oil and gas there.

"Once the detailed terms and conditions of the strategic alliance have been finalised Shell will form a consortium with the Turkenistan state operating companies TurkmenGaz and Turkmenneft," Shell said in a statement.

"The consortium will then negotiate production sharing agreements for licence areas already defined by the government in western, central and eastern Turkmenistan."

PSG said it also secured anagreement with Turkmenistan securing the legal and commercial framework for its pipeline project, including preliminary financing, tariff structures, gas field designation and the provisional pipeline corridor. The $2 billion pipeline is due to be ready by 2002. Around 750 kms of the 2000-km line is planned to run through Turkmenistan, with another 300 kms under the Caspian Sea.

Last year, Turkmenistan, a gas rich but impoverished nation of five million, found itself cut off from markets when a price row prompted Russian gas monopoly Gazprom , which controls the Russian pipeline system, to close pipeline access.

The partners in the project are hoping to raise finance from the U.S Export-Import Bank, French, Japanese, German and Italian credit organizations, as well as the World Bank.