UPDATE 1-Russia free to supply gas to Nabucco-U.S. envoy

* U.S. says Russia can bid for supplying gas to Nabucco

* Iran should not participate in Nabucco at this point

(Adds details, background)

By Selcuk Gokoluk

ANKARA, July 12 (Reuters) - Russia is free to supply gas to the Nabucco pipeline and countries participating in the project must accept it as a partner, the United States special energy envoy said on Sunday.

Richard Morningstar reiterated Washington's opposition to the possible use of Iranian gas in the Nabucco pipeline, after Turkey said Iranian gas could be used in the project.

Transit agreements for the U.S.-backed Nabucco pipeline are set to be signed in Ankara on Monday by Turkey, Bulgaria, Romania, Hungary and Austria. Germany is also a partner in the project.

The European Union has supported the project as a way of reducing its reliance on Russian gas, with possible suppliers for the 7.9 billion euro ($11 billion) project to include Iraq, Egypt, Iran, Azerbaijan, Russia and Turkmenistan.

"My understanding of the agreement is that 50 percent of the gas that will go into Nabucco is open for competition among any suppliers and Russia is certainly free to participate in that way to supply part of that 50 percent," Morningstar told a panel interview including Reuters.

Countries participating in the project should decide whether to accept Russia as a new partner to Nabucco, he said. Turkey's Energy Minister Taner Yildiz told Reuters late on Saturday Russia can join Nabucco if it sees it as profitable.

The Nabucco project has been unable to find sufficient throughput for the 31 billion cubic metre pipeline, which is competing with the rival Russian-backed South Stream project to freed growing European gas consumption.

Morningstar reiterated U.S. opposition to using Iranian gas a week after Turkish authorities mentioned the country as a possible supplier.

"With respect to Iran, our position is very clear. We do not think that Iran should participate at this point," he said.

Iran has the world's second largest gas reserves, almost 16 percent of the world's total, but has no major net exports, partly because U.S. and U.N. sanctions have deterred investments by Western firms.

"The United states has tried to engage Iran in the discussions as to our relationship and on all issues including the nuclear issue, but that offer of engagament has not been reciprocated at this point," Morningstar said. (Editing by Karen Foster and David Holmes)