Gazprom Says EU South Stream Dialogue Constructive

Russia's Gazprom is in constructive talks with the European Commission about its disputed South Stream gas pipeline, its chief executive said after signing a deal on Tuesday with OMV to extend a branch to Austria.

Alexei Miller said he was in weekly if not daily contact with European Energy Commissioner Guenther Oettinger. "We solve problems as they come up, and now the problem of construction of the pipeline is to be solved," Miller told a news conference.

The signing took place in Vienna as Russian President Vladimir Putin flew in to the Austrian capital for a one-day working visit, only his second to an EU country since Russia annexed Crimea.

The pipeline is being built to deliver Russian gas to Europe, already dependent on Russia for a third of its gas needs, on a route that bypasses Ukraine. Russia-Ukraine disputes have caused supply disruptions for Europe in the past.

But the Commission says South Stream as it stands does not comply with EU competition law because it does not offer access to third parties. South Stream also goes against the EU policy of diversifying supply sources to reduce dependence on Russia.

OMV's Chief Executive Gerhard Roiss defended the project, saying: "Europe needs Russian gas. Europe will need more Russian gas in future because European gas production is falling... I think the European Union understands this, too."

He said the Austrian part of the pipeline, which is planned to be built in 2016 and deliver its first gas supplies at the start of 2017, would comply fully with European law.

Gazprom and OMV said they would share equally the 200 million euro ($272 million) costs of building the 50-km (31- mile) Austrian stretch of South Stream, which in total will be 2,446 km long and cost an estimated $40 billion.

($1 = 0.7357 Euros)

(By Georgina Prodhan; Editing by Noah Barkin and Michael Shields)