UPDATE 2-Gazprom mothballs extension of Nord Stream pipeline

* Russian firm said last year it might expand line to Britain

* Chairman says falling gas prices forcing project reviews

* Gazprom sources say ‘complicated’ politics a factor

* Gazprom abandoned South Stream project in December (Adds comments by Gazprom, EU Commission, context)

By Denis Pinchuk

MOSCOW, Jan 28 (Reuters) - Gazprom has put an expansion of its Nord Stream gas pipeline on hold, rowing back for the second time in two months on plans to extend its European network as relations between Russia and the West fester over Ukraine.

Existing capacity through Nord Stream, which runs under the Baltic Sea and serves Germany, was enough for now and there was no immediate need for an expansion, the state-controlled firm said on Wednesday.

Gazprom Chairman Viktor Zubkov said a weak gas market was forcing the firm to defer projects.

“When the price is decreasing... is difficult to realise these projects and sometimes it’s even not possible,” he told a gas conference in Vienna.

Crude prices, to which many long-term gas deals are indexed, have fallen more than 50 percent since June while day-ahead gas prices in Britain, one of Europe’s most traded markets, are off 25 percent since November.

Sources at Gazprom said the decision was also related to the “complicated” political situation.

The firm said last year it could expand the pipeline with a supplementary feed to Britain.

But “we were not allowed access to (German pipeline) Opal. Why build two more arms? We are not building them,” one Gazprom source told Reuters.

Nord Stream has two pipes with annual capacity of 55 billion cubic metres, around 10 percent of the European Union’s natural gas needs and which the mothballed plan would have doubled.

In early December, Russia abandoned its South Stream project, which was to supply gas to southern Europe without crossing Ukraine, citing European Union objections. It instead proposed an undersea pipeline to Turkey.


Nord Stream is currently running at around half capacity because Gazprom has gained only limited access to Opal, which connects to Nord Stream in Germany and runs to the Czech Republic and has also been operating at half capacity.

The EU has repeatedly delayed ruling on whether to grant Gazprom greater access to Opal, which it is seeking as part of efforts to bypass Ukraine as a distribution point. A decision is now due by end-January.

The European Commission had taken note of the Nord Stream decision, a spokeswoman in Brussels said.

A spokesman for the Nord Stream pipeline operating company in Switzerland said it was a matter for the shareholders.

Gazprom holds 51 percent, Wintershall Holding and E.ON Ruhrgas hold 15.5 percent each, and Gasunie and France’s GDF Suez 9 percent each.

Gazprom said last week it would build a liquefied natural gas plant near the Russian Baltic Sea port of Ust-Luga to ship LNG to Europe, India and South America. (Addtional reporting by Vera Eckert in Frankfurt, Barbara Lewis in Brussels and Shadia Nasralla in Vienna; Writing by Maria Kiselyova; editing by John Stonestreet)