UPDATE 1-Chevron joins new Kazakh Caspian pipeline project

(Previous ALMATY, adds Nazarbayev quotes)

By Olzhas Auyezov

ATYRAU, Kazakhstan, June 6 (Reuters) - U.S. oil company Chevron (CVX.N) agreed with Kazakhstan on Friday to press ahead with a new domestic oil pipeline, part of a broader $3 billion project to link Caspian oil deposits with international markets.

Kazakhstan pumps most of its oil through Russia but it has irritated Moscow in past years by announcing plans to build more pipelines and diversify exports towards western Europe.

The pipeline, to be built along Kazakhstan's western coast on the Caspian Sea, was discussed at a meeting between senior Chevron officials and Kazakh President Nursultan Nazarbayev.

"It is very important that we reached agreement with Chevron," Nazarbayev told reporters in the oil city of Atyrau after the talks.

The 750 km (466 mile), $1.5 billion pipeline is due to feed oil from Kazakhstan's biggest oilfields -- Tengiz, developed by a Chevron-led group, and Kashagan, which has yet to start production -- into the BP-led Baku-Tbilisi-Ceyhan pipeline.

Nazarbayev said the link, also known as the South Caspian pipeline, will have an initial capacity of 23 million tonnes which would later be increased to 56 million tonnes.

"Chevron is pleased with the opportunity to develop the Southern Route jointly with Kazakhstan," Chevron's Kazakhstan office said separately in emailed remarks.

"This strategic asset will provide an additional export route to deliver Kazakh crude to the world markets."

The two sides did not say when the pipeline would be built. It is not expected to come onstream until the giant Kashagan deposit starts pumping oil after 2011.

Kazakhstan's Yeskene-Kuryk portion of the pipeline, together with a planned trans-Caspian undersea route, are estimated at a total of $3 billion, according to government estimates.