Jan. 21 (Bloomberg) -- Russia and Algeria, Europe's two biggest suppliers of natural gas, signed an energy cooperation agreement that the European Union has pledged to monitor because of concerns it may develop into a cartel-like alliance.

Russia, the world's largest gas producer, supplies a quarter of Europe's gas and Algeria almost 10 percent. The cooperation between the two countries will be ``at all levels, from exploration to marketing,'' Algerian Energy Minister Chakib Khelil told Bloomberg after the signing ceremony with his Russian counterpart Viktor Khristenko in the Algerian capital Algiers.

The 12-nation Organization of Petroleum Exporting Countries, of which Algeria is already a member, controls two-fifths of global oil supplies and sets production quotas in a bid to control prices. A similar alliance in natural gas would increase concern among consumers about higher prices.

``Russia and Algeria both know they can squeeze the Europeans with any suggestion of creating an OPEC for gas,'' Jon Marks, managing director of U.K-based political and commercial risk consultant Cross-border Information Ltd., said today. ``I get the sense that some major oil companies are quietly panicking about this,'' since they buy the gas from Algeria and Russia.

Khelil said the alliance with Russia won't become a cartel, seeking to ease EU concern. ``Russia and Algeria are reliable suppliers of energy,'' Khristenko said, according to the state- run Algerie Presse Service.

European nations from Poland to Italy are turning increasingly to North African states such as Algeria and Libya to limit their dependence on Russian gas supply.

Russian Supplies

Russia deliveries to countries including Germany declined a year ago after OAO Gazprom cut off supplies to Ukraine, through which the fuel transits, in a dispute over prices. A similar disagreement with Belarus, another transit state, was defused this month.

The EU will keep close tabs on any energy agreement between Russia and Algeria, ``as this relates to energy security,'' EU Energy Commissioner Andris Piebalgs said in November after talks with Khelil.

Today's agreement also covers cooperation on nuclear energy, the Algerie Presse Service cited Khristenko as saying.

Representatives of Gazprom, Russia's biggest gas company, and OAO Lukoil, its largest oil producer, are in the Russian delegation visiting Algiers. On Aug. 4, 2006, Gazprom and Lukoil agreed to consider producing and processing fuels with Algerian state-owned energy group Sonatrach.

State Control

``A Gazprom-Sonatrach alliance would make a lot of political sense, as both Russian President Vladimir Putin and Algerian President Abdelaziz Bouteflika are asserting state control over oil wealth,'' Marks said by telephone from Hastings, England.

Last year, Algeria backtracked on plans to allow foreign companies to produce oil independently of Sonatrach. Bouteflika introduced an amendment that made it compulsory for the Algerian group to have at least 51 percent of any petroleum discovery.

``There is concrete progress'' on a plan by Russia's OAO Rosneft and OAO Stroitransgaz to develop a natural-gas field they discovered in the North African nation a year ago, Khelil said today. The field, in the Illizi basin of eastern Algeria, will cost as much as $4 billion to develop, he said.

To contact the reporters on this story: Maher Chmaytelli in Nicosia at mchmaytelli@bloomberg.net.

Last Updated: January 21, 2007 13:46 EST