Gazprom and Croatia's Plinacro have agreed to build a natural gas pipeline to ship Gazprom gas to European markets.

On Friday. Gazprom and Plinacro signed an agreement in the Croatian capital Zagreb to build a $79.9 million, 62 mile long extension to Gazprom's South Stream gas pipeline.

Both Gazprom and Plinacro are state-owned companies.

The project provides for creating a joint venture to contribute to the construction of South Stream's extension for delivering Russian natural gas to Croatia by 2016.

The pipeline's annual capacity is for 2.7 billion cubic meters of gas, Golos Rossii news agency reported on Friday.

As part of the agreement Gazprom will also construct a power plant in Croatia to maintain its domestic market for the fuel. The pipeline is tentatively scheduled to come online by December 2016.

Gazprom Deputy Chief Executive Officer Aleksandr Medvedev told reporters in Zagreb, "We intend not only to supply gas, but also to develop the gas market, and one of the ways is to build gas-powered electric plants,"

Gazprom, the world's biggest gas producer, and partners Eni SpA (ENI), Wintershall AG and Electricite de France SA, started work in Dec. 2012 on the South Stream natural gas pipeline, transiting from the Russian Federation under the Black Sea to eastern and southern Europe customers. If all goes well, South Stream will begin delivering Russian gas to its eastern and southern Europe customers by December 2015 and reach an annual capacity of 63 billion cubic meters four years later.

Since the collapse of the USSR in December 1991, Gazprom has been involved in seemingly interminable wrangles with former Soviet republics Belarus and Ukraine over transit fees and domestic delivery costs, and the South Stream natural gas pipeline and its northern equivalent North Stream, as both designed to ensure reliable deliveries of Gazprom natural gas to its European markets, the company's most reliable and profitable customers.

Gazprom intends to add both more natural gas pipelines and as well as power stations in Europe to keep its market share there even as slowing economic growth since the global recession began in late 2008 diminishes European demand as competition for customers increases. Gazprom continues to rely on increasing its network of pipelines providing fuel to European markets even as global output of liquefied natural gas expands. A possible future competitor is the U.S., where soaring production of natural gas from hydraulic fracturing comes to dominate the American market, leading energy companies to consider investing in liquefied natural gas facilities to begin exports, with Europe eyed as a potential market.

Sweetening the deal for Croatia, Gazprom's intention to build a power station in Croatia will probably be Osijek, in the east of the country, according to Medvedev, a 500-megawatt plant in constructed in cooperation with local utility Hrvatska Elektropriveda DD,