Gazprom expands Nord Stream without gas supply rise

* Putin says pipeline gets gas to EU without transit risks

* No gas supply increases expected soon

* Analysts say Gazprom paying a high price for Nord Stream

By Vladimir Soldatkin

MOSCOW, Oct 8 (Reuters) - Gazprom on Mondaylaunched the second line of the Nord Stream pipeline whichbrings Russian gas to Germany via the bed of the Baltic Sea, butactual gas volumes remained unchanged due to lack of sufficientgrowth in demand.

Russian President Vladimir Putin said the pipeline wouldprovide gas to the European Union "without transit risks" -avoiding the eastern European transit countries where spats withRussia have in the past interrupted supplies.

But analysts are sceptical on whether Gazprom will succeedin boosting its market share in Europe, which buys around aquarter of its gas from Russia and where liquefied natural gas(LNG) is providing an alternative.

Nord Stream AG said on Monday the new pipeline phase doubledtotal annual capacity to 55 billion cubic metres (bcm) - over athird of Gazprom's current exports to Europe. The two 1,224km-long (765 miles) pipelines connect Portovaya Bay, on Russia'sBaltic coast, with Lubmin in Germany.

Gas started to flow via Nord Stream's first line almost ayear ago, with Moscow trying to bypass transit countries, suchas Ukraine and Belarus.

Pricing spats between Russia and Ukraine, through which some70 percent of Russian gas are exported to Europe, have in thepast led to temporary halts of supplies to the EU.

Putin said the second line "will meet Europe's growingdemand for energy resources," according to his press service.

"Gas will be supplied directly by the shortest route,linking the major Russian gas reserves to European marketswithout transit risks, steadily and smoothly. We can guaranteethis."

But the expansion of Nord Stream will not divert anysubstantial new amounts of gas away from Ukraine any time soon,and analysts said Gazprom was paying dearly for its attempt tobypass transit countries.


As well as Nord Stream - with estimated costs of 7.4 billioneuros ($9.7 billion) for construction of the offshore sections -the company also has plans for a South Stream link which wouldcarry gas across the Black Sea to Bulgaria.

"Nord Stream has largely contributed to the decrease ofGazprom's market capitalisation. Of course, the company hassecured a strategic victory, but isn't the price too high forthat?" said Valery Nesterov, an analyst at Sberbank CIB.

Even the first line of the project has so far been filled byonly 34 percent of the announced annual capacity of 27.5 bcm,according to Nord Stream's Financial Director Paul Corcoran.

The state-owned Russian company has been cutting its exportsforecast during the course of the year with latest projectionsset at 150 bcm, on a par with 2011 volumes.

"At the beginning, some volumes from the first line will bediverted to the second line without an increase in totalcombined volumes. But, of course, everything will depend on thedemand, winter is ahead of us," a source close to Gazprom toldReuters. Gazprom declined to comment.

Gazprom holds a 51 percent stake in the pipeline project.German energy companies Wintershall and E.ON Ruhrgas

hold 15.5 percent each. Dutch natural gasinfrastructure company Gasunie and France's GDF Suezeach own a 9 percent stake.


Nord Stream plans to connect its landing point Lubmin, onGermany's northeastern Baltic Sea coast, to Germany's massiveRehden storage site.

Wintershall said in a statement issued on Monday that apipeline connection from Lubmin to Rehden, called NEL, would beoperational at the start of November. NEL is 440 km long and cantransport 20 bcm, or a fifth of Germany's annual demand.

From there, the gas could be shipped to the Dutch North Seacoast and into Britain, which has an annual gas demand of around100 bcm and where domestic supplies are dwindling fast.

"I think that the only one useful Nord Stream expansion,both for Gazprom and the EU, would be extending it to the UK,"Mikhail Korchemkin, executive director of consultancy EastEuropean Gas Analysis.

In September Gazprom signed a 2.4 bcm-per-year supply dealwith Britain's Centrica , with gas deliveries due tostart in 2014.

($1 = 0.7657 euros)

(Reporting by Vladimir Soldatkin; Additional reporting by VeraEckert in Frankfurt and Henning Gloystein in London; Editing byRobin Pomeroy)

((vladimir.soldatkin@thomsonreuters.com)(+7 495 775 1242)(Reuters Messaging:vladimir.soldatkin.thomsonreuters.com@reuters.net))