Oil and Gas

UPDATE 2-Russia says near S.Stream deal with Austria, Slovenia

* Deal at “advanced level of preparation”

* Wants EU to make South Stream a priority project

* Slovenia says will sign in June, Austria confirms talks

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By Oleg Shchedrov

KHABAROVSK, Russia, May 22 (Reuters) - Russia is close to signing up Austria and Slovenia for its South Stream gas pipeline to Europe, a rival to the European Union-backed Nabucco project, Energy Minister Sergei Shmatko said on Friday.

Slovenia will sign the deal in June, Slovenian Economy Minister Matej Lahovnik said in Ljubljana on Friday. Austria’s economy ministry confirmed it was in talks but declined to say at which stage the talks were. Despite the Nabucoo rivalry, Russia also said it wants the European Union to make South Stream one of its 10 “priority projects” in energy policy, Shmatko told reporters following an EU-Russia summit in the far eastern city of Khabarovsk.

“In the last two or three weeks, we’ve held a series of negotiations with Austrian and Slovenian partners about an intergovernmental agreement,” Shmatko told reporters.

“This document is at an advanced level of preparation.”

Austria and Slovenia would join Italy, Bulgaria, Greece and Serbia, from whom Russia last week secured support for South Stream in its bid to outpace the EU-backed Nabucco pipeline, which would supply gas from sources other than Russia.

Shmatko said Russia and its European partners in the project would request that Brussels grant it priority status.

“We agreed with EU Energy Commissioner Andris Piebalgs that Russia once more, together with its European partners in the project, would prepare a circular for the European Commission about affording the project such status,” Shmatko said.

Priority projects receive EU funding and are those that its executive thinks will diversify the bloc’s energy sources or help energy flow more freely between member states.

The EU reacted angrily to this winter’s interruption of gas imports across Ukraine, and has since stepped up efforts to source more gas from north Africa, the Middle East and the Caspian region to dilute its reliance on Russia.

However, its flagship Nabucco project has been delayed and is still awaiting a key agreement with transit country Turkey as well as firm gas supply deals.

Slovania’s Lahovnik said Nabucco remained an important project for the EU but added the question was whether there would be enough gas supply available for it.

The Austrian economy ministry said that it did not view South Stream as a Nabucco rival: “Both pipelines are an amendment to the existing routes via Russia and Ukraine,” a ministry spokesman said.

A spokesman for the Nabucco consortium, which is led by Austria's OMV OMVV.VI, also reiterated that the pipelines were not rivals and that every gas supply extension was welcome.

South Stream is a joint venture of Russia's Gazprom GAZP.MM and Italy's ENI ENI.MI. (Additional reporting by Marja Novak in Ljubljana, Boris Groendahl and Christian Gutlederer in Vienna and Pete Harrison in Brussels; writing by Robin Paxton; editing by William Hardy)