* E.ON in talks to buy LNG from Mozambique, Israel, Peru, Tanzania
* Government guarantees key to diversifying from Russian gas
* E.ON to buy 5 mln T a year from Goldboro LNG project
* 1.5 mln T must come to NW Europe under government deal
By Oleg Vukmanovic and Henning Gloystein
MILAN/LONDON, Aug 21 Germany is providing multi-billion-euro financial guarantees to help its biggest utility E.ON strike long-term gas import deals, a source with direct knowledge of the matter said, as the country seeks to reduce its dependence on Russian supply.
Germany meets around 40 percent of its gas demand through imports from Russia, but relations between the two countries have deteriorated since a crisis erupted in Ukraine in February.
Parliamentarians passed a 2 billion euro ($2.7 billion) Untied Loan Guarantee of the Federal Republic of Germany (UFK) for E.ON last year to jump-start development of the Goldboro liquefied natural gas export project on Canada's east coast, the source told Reuters.
Now E.ON is in talks to buy stakes in other LNG export projects in East Africa, South America and the Mediterranean using the government-backed guarantees as a sweetener.
The moves show how Germany is throwing its weight behind a strategy it once only paid lip-service to break its dependence on Russian energy supplies, worth some $15 billion a year.
"Those guarantees have in the past been used for pipeline projects, so why not also for LNG projects? It is a significant political signal regarding the diversification of gas imports," said Frank Umbach of the European Centre for Energy and Resource Security.
The government issues UFKs to help secure supplies of raw materials, including energy, a portion of which has to be sent to Germany as a condition of the guarantee.
Last year's guarantee calls on Dusseldorf-based E.ON to bring 1.5 million tonnes per year of its total 5 million tonne share of Canadian LNG back to its home market, the source said.
"The German government has a fundamentally positive view on the use of UFK guarantees in this area (LNG)," a spokesman for Germany's Economy Ministry said in a statement to Reuters.
"In 2013 there were two applications for UFK guarantees for LNG projects. The Economy Ministry confirmed the eligibility of an LNG project," he said.
The spokesman, as well as PriceWaterhouse Coopers and Euler Hermes which manage the UFK scheme, said no guarantees for LNG projects had yet been granted.
A guarantee becomes active only once the liquefaction project, such as Goldboro LNG, takes a final investment decision, the first source said.
MOZAMBIQUE AND ISRAEL TALKS
Fresh talks for securing LNG supply with export hopefuls Mozambique and Israel are progressing, the source said.
"For E.ON Mozambique is most attractive given the resource size, and because the government there wants new capital coming in and also wants to do business with the German government."
In Mozambique, set to become a major LNG exporter by 2020, E.ON is holding talks with U.S. developer Anadarko Petroleum to buy up to 5 million tonnes of fuel partly using the UFK guarantee. Talks are also going ahead with South American LNG exporter Peru, as well as LNG developers in Colombia.
"With such transactions as the supply deal with Goldboro, E.ON Global Commodities is underscoring its intention to make its energy trading more global in order to minimize risks and seize market opportunities in different continents for the benefits of its customers," an E.ON spokesman said.
The company declined to comment on deal specifics.
Sources said E.ON needed the loan guarantees to compete with other, state-backed European utilities that are also buying LNG in North America and elsewhere.
LNG export projects prefer selling their future gas to government-backed utilities, such as France's EDF, as this provides them with long-term credit security, several sources familiar with project financing said.
To make up for the lack of state backing, E.ON sought the German guarantee to underwrite its deal and boost its chances of entry.
The government safeguard also makes the deal cheaper for E.ON, with two sources saying it reduces the capital costs by 1-2 percent. The guarantee effectively gives E.ON the maximum triple-A credit rating of German government bonds instead of its lower corporate rating of A minus.
In return for the guarantee, the German government was able to dictate that some of those future supplies come to its home market instead of being freely traded according to global prices and demand, which typically guide trade flows.
The agreement for E.ON to buy 5 million tonnes of Canadian LNG per year for two decades was reached in June 2013, giving E.ON its first access to long-term LNG supply. (1 US dollar = 0.7509 euro) (Additional reporting Madeline Chambers in Berlin and Christoph Steitz in Frankfurt; Editing by Michael Urquhart)