* Serbia caught between EU ambitions, Russia ties
* Russia's Lavrov expects pipeline work to begin in Serbia
* 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 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
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,
(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)