UPDATE 2-Serbia, Russia say ready to go ahead with South Stream gas line

Tue Jun 17, 2014 9:01am EDT

* Serbia caught between EU ambitions, Russia ties

* Russia's Lavrov expects pipeline work to begin in Serbia in July

* European Commission has put South Stream approval on hold

* But individual EU members support the project (Adds Austrian, Bulgarian, German support for South Stream)

By Matt Robinson and Henning Gloystein

BELGRADE/LONDON, June 17 (Reuters) - Serbia is expected to begin building its stretch of Russia's South Stream gas pipeline next month, Russian Foreign Minister Sergei Lavrov said on Tuesday after meeting his Belgrade counterpart.

Against the backdrop of conflict in Ukraine, the pipeline plan has become a focus of tension between Russia and the European Union, with Serbian neighbour Bulgaria this month suspending construction at the behest of Brussels, pending a ruling on whether the project complies with EU law.

Serbia finds itself caught between its ambitions to join the EU, with which it has started accession talks, and historical ties with Russia. Gazprom's oil arm, Gazprom Neft , owns 51 percent of Serbia's main oil company, NIS.

Construction of the Serbian leg is due to begin in July.

"We confirmed our readiness for South Stream and the need to carry it out as it is the only realistic project for gas security in southeastern Europe," Russia's Sergei Lavrov said after meeting his Serbian counterpart Ivica Dacic in Belgrade.

"All agreements remain in force and no changes have occurred," he said. "We consider that everything will proceed as planned."

Dacic, who heads the junior partner in Serbia's ruling coalition, said: "All economic projects that have been started will be continued. It is in our national interest for South Stream to be built."

South Stream is designed to pipe 63 billion cubic metres of gas per year from Russia via the Black Sea into central and southern Europe, bypassing Ukraine as Russia seeks to cement its position as Europe's dominant gas supplier.

Moscow on Monday cut gas supplies to Ukraine in a row over prices but insisted Kiev must let Russian gas flow across the country through international pipelines to clients in the EU.

GERMAN, AUSTRIAN SUPPORT

The European Commission, the EU's executive, says South Stream breaches competition laws by not allowing other gas companies to use the pipeline, and the Commission has put the pipeline's approval process on hold.

Yet the project enjoys support from individual EU member states as well as European energy firms.

Bulgaria, which imports almost all its gas from Russia and where South Stream would make landfall from the Black Sea, is a vocal supporter of the project.

Austria and its biggest energy firm OMV also support South Stream, having recently signed and agreement with Gazprom to become the end point of the pipeline project.

"Europe should not suspend (South Stream), it should speed it up," OMV's CEO Gerhard Roiss said in Brussels on Tuesday.

"Two pipelines are better than one, three are better than two and four are better than three," he added with regards to the benefits of having multiple pipelines supplying Europe.

Even Germany, which is Russia's biggest gas customer, supports the project despite not being on South Stream's route.

"South Stream has our full support. It strengthens Europe's security of supply and is economically and technically feasible, and we are totally convinced that all open questions will be solved," said Ulrike Sasse, spokeswoman of Wintershall, which has a stake in South Stream's offshore stretch and is a subsidiary of German chemical giant BASF.

Germany's biggest utility E.ON, which has no stake in South Stream, also supports the project.

"Additional corridors for natural gas transport to West Europe as well as a diversification of import sources increase security of supplies. They are therefore to be welcomed," said E.ON spokesman Adrian Schaffranietz.

Although E.ON is not involved in South Stream, the company is a partner in Gazprom's Nord Stream pipeline which bean transporting Russian gas via the Baltic Sea to Germany in 2011, avoiding Ukraine. (Additional reporting by Barbara Lewis in Brussels, Vera Eckert in Frankfurt and Tom Kaeckenhoff in Duesseldorf; Writing by Ivana Sekularac, editing by William Hardy and David Evans)

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