Gas war may boost alternative routes to Europe

By Conor Humphries and Katya Golubkova - analysis

MOSCOW (Reuters) - Russia's decision to cut gas exports to Europe via Ukraine in mid-winter may shock the continent into backing major new pipelines to bypass Ukraine, cementing Moscow's control over European gas supplies.

Plans for new trunk lines that would divert Russian gas north and south of Ukraine's troubled transit network have faltered as European leaders bickered over which routes to back and worried about giving the Kremlin too much control.

But a cut in supplies via Ukraine this week, the result of a dispute with Russia over debts and pricing, may force Europe's leaders to support alternative transit routes in an effort to diversify, analysts said.

"The result of the conflict will be ... more attention and desire from Western partners" regarding the diversification of transit routes from Ukraine, said Valery Nesterov, an analyst with Moscow-based brokerage Troika Dialog.

The risk for Moscow is that its part in the dispute will undermine Europe's trust and push the continent into the arms of alternative suppliers, analysts said.

To the north, the Kremlin is pushing the Nord Stream pipeline, which would bypass Ukraine by pumping 55 billion cubic meters of Russian gas under the Baltic Sea to Germany each year.

Until now, European Union states have been split on the merits of the project, which is 51 percent-owned by Russian gas export monopoly Gazprom.

Some, like Poland, worry it would boost Moscow's grip over the continent's supplies, while environmental concerns by Finland and Sweden have delayed the start of construction.

The latest crisis is likely to boost support for Nord Stream both in Europe and Russia, said Troika Dialog analyst Nesterov.

"There will be an understanding that ... reliability of supplies comes from diversification," he said.

SURGE IN SUPPORT

In southern Europe, Russia is signing up allies to participate in South Stream, a pipeline that would ship an estimated 30 billion cubic meters of Russian gas directly to the European Union under the Black Sea.

Another project backed by the Kremlin would expand the Blue Stream pipeline, pumping gas through Turkey and on to southern Europe.

All three projects should see a surge in support as a result of the crisis, said Dmitry Lyutyagin, a Moscow-based analyst with Moscow's Veles Capital investment firm.

"It will help it to earn points so that these projects -- Nord Stream, South Stream and the second branch of Blue Stream -- have every chance of being built," he said.