CALGARY -- OAO Gazprom, the world's largest natural gas producer, is making its first "major entry" into the North American natural gas market this year through a deal with Royal Dutch Shell PLC to ship liquefied natural gas to California.

And it has picked Mexico, rather than Canada - its first choice earlier this decade - to aid with the strategy.

In a statement announcing the agreement Wednesday, the two companies said gas from the newly completed Sakhalin-2 project will be shipped to an LNG regasification facility in Baja California, Mexico. It will then be transported to southern California by pipeline and sold to U.S. consumers by Gazprom's subsidiary in Houston, Gazprom Marketing & Trading USA, Inc.

State-controlled Gazprom has been trying for years to gain a piece of the U.S. gas market. Early this decade, it attempted to make its entry through Canada, by partnering with Petro-Canada to jointly build a regasification terminal in Quebec and a liquefaction facility in a Baltic port near St. Petersburg. That venture didn't move forward after Gazprom changed plans.

Russia's debut on the North American gas scene comes at a time of weak prices due to soaring supply from new shale projects in the United States. The oversupply has depressed activity in Alberta, Canada's top natural gas producing province.

Chris Theal, managing director of institutional equity research at Tristone Capital Inc., said initial volumes from the venture won't be large enough to further depress prices.

However, more Russian gas is sure make its way to North America in the future, increasing competition for Canadian producers, as Russia eventually brings on stream new supplies from projects like Shtokman, he said.

"Russia [represents] 20% of the world's gas reserves and as much as Western European countries want to diversify sources of supply, Russia wants to diversify sources of buyers," Mr. Theal said.

Under the agreement, Gazprom is trading pipeline gas in Europe for Shell's regasification capacity in the Costa Azul terminal in Mexico.

The two companies said each would buy about one million tons of LNG a year from Sakhalin Energy Investment Co., which operates the project in Eastern Russia.

Mr. Theal said that translates into 250 million cubic feet of gas a day shipped to Costa Azul, some of which may be consumed domestically in Mexico for power generation, some finding its way to California.

"In terms of overall U.S. demand, that's less than 0.5%," he said.

The deal was one of many signed in Moscow Wednesday between Mr. Miller and Jeroen van der Veer, CEO of Royal Dutch Shell.

"This is another important milestone in co-operation between Gazprom and Shell," Mr Van der Veer said in a statement. "We look forward to expanding further our relationship with Gazprom in a variety of activities related to natural gas and LNG developments both in Russia and internationally."

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