Germany and Russia have signed an agreement that will bypass the current energy network and transport gas under the Baltic Sea.
Russian President Vladimir Putin and Chancellor Gerhard Schroeder finalised the deal, worth some $5bn.
Russia's Gazprom will own 51% of the pipeline, with Germany's EON and BASF taking 24.5% each.
Russia is one of Western Europe's biggest suppliers of commodities and supplies while Germany possesses limited natural resources of natural gas.
The pipeline has not been without controversy - Poland has complained it may compromise its own supplies. Warsaw is worried that the new pipeline - which also would bypass EU members Lithuania, Latvia and Estonia - could be used to divert energy away from Poland for political purposes, BBC reports.