BAKU: Azerbaijan's state energy firm signed a contract Wednesday to begin gas supplies to Russia as Moscow seeks to extend its grip on potential European energy supplies in the resource-rich Caspian Sea.

The head of Azerbaijani firm SOCAR, Rovnag Abdullayev, and the chief of Russian gas giant Gazprom, Alexei Miller, signed the contract at a ceremony in the Azerbaijani capital Baku, after the deal had been agreed during a visit by Russian President Dmitry Medvedev to Baku in June.

"This contract creates the basis for our long-term cooperation. Gazprom is offering SOCAR the most favourable economic conditions," Miller said during the ceremony.

Abdullayev said the contract "will enable Azerbaijan to develop its gas extraction."

Under the contract, Gazprom's purchases of Azerbaijani gas will start in January at 500 million cubic metres annually, allowing for supply levels to increase later. The price for the gas will be agreed quarterly, based on global market rates.

Rich in oil and gas and strategically located between Russia and Iran, Azerbaijan has been courted by both Moscow and the West since gaining its independence with the 1991 collapse of the Soviet Union.

Backed by Western governments, companies such as Britain's BP have pumped hundreds of millions of dollars into the country's energy sector, building a corridor of oil and gas pipelines from Azerbaijan through Georgia and Turkey to Europe.

Anxious to secure energy sources for its own export pipelines, Russia this year stepped up efforts to buy gas from Azerbaijan.

Azerbaijan last year produced 22.8 billion cubic metres of natural gas, according to government figures, and the country expects to nearly double gas production to 40 billion cubic metres by 2015-2020.