UPDATE 2-Russia obtains Azeri gas in tug-of-war with Europe

* Russia to import 0.5 bcm from 2010, more going forward

* Russia to have priority for Shakh Deniz supplies - Gazprom

* Deal is political, threatens Gazprom's profits - analyst

(Recasts with analyst comments, quotes, background)

By Denis Dyomkin

BAKU, June 29 (Reuters) - Russia appeared to pull ahead of Europe on Monday in the struggle to control energy flows on the continent, sealing a gas supply deal with Azerbaijan that could torpedo a rival European gas pipeline project.

The head of Russia's state-run gas giant Gazprom (GAZP.MM) Alexei Miller told reporters Azerbaijan had promised Russia priority in buying gas from the second phase of the Shakh Deniz deposit that Europe is counting on to fill its Nabucco pipeline.

The drive to have this deposit fill one of two rival pipelines has put Baku in the middle of a political tug-of-war between Moscow and Brussels.

Analysts said Monday's agreement was politically motivated, aiming not to make a profit but to cripple the Nabucco project, which seeks to cut Russia out of Europe's energy equation.

"Gazprom and the Russian Federation are willing to accept a loss to spite the EU and Nabucco," said Mikhail Korchemkin, the director of the East European Gas Analysis think tank. "The more foreign gas Gazprom buys, the lower are its profits."

LONG-TERM VIEW

At the signing ceremony in Baku, Russian President Dmitry Medvedev and his Azeri counterpart Ilham Aliyev both hailed the deal as a leap forward in energy security. "Today we have laid a good foundation for efficient cooperation in the gas sphere," Aliyev said. "Considering the role of natural gas as a factor in the region and in the world, the importance of the document signed today needs no explanation."

Miller said after the signing ceremony that Russia would buy a modest 500 million cubic metres of Azeri gas from next year, and would increase these volumes going forward.

*****But given the regulated gas prices in Russia, the Azeri gas will be too expensive to profit from on the domestic market, Korchemkin said. If it is exported instead, Gazprom will have to reduce exports of its own gas, also cutting into its bottom line.

Medvedev, however, said the deal took a long-term view of the market. "It's true that Russia has a lot of its own gas...but this agreement allows us to look into the future.

"Other deals in this sphere will have to match it," he added.

CONTESTED SUPPLIES

Azerbaijan plans to produce 27 billion cubic metres (bcm) of gas in 2009 and around 30 bcm next year, Aliyev said. The volume would be enough to satisfy about two-thirds of annual demand of a country like France.

The second phase of Shakh Deniz, the pride of Azerbaijan's energy industry, was identified as the main potential source for the EU-backed Nabucco pipeline.

That pipeline is seeking to reduce Europe's reliance on fuel transported through Ukraine from Russia after squabbles between the two ex-Soviet neighbours led to painful energy shut-offs to Europe, most recently in January. But Russia, the world's largest gas producer, is keen to maintain its hold over energy flows and wants the Azeri gas to help fill its rival pipeline to Europe, South Stream, which would also bypass Ukraine by running under the Black Sea.

Miller said the initial supplies from Azerbaijan will be bought from phase one of Shakh Deniz, in which BP (BP.L) and StatoilHydro (STL.OL) have heavily invested.

Azerbaijan also has a significant stake in the field. (Writing by Simon Shuster; editing by James Jukwey)