Russia's Gazprom to expand Nord Stream gas pipeline with E.ON, Shell, OMV

(Adds E.ON comments, background)

By Dmitry Zhdannikov and Denis Pinchuk

ST PETERSBURG, Russia, June 18 (Reuters) - Russian gas giant Gazprom has agreed to build a new pipeline to Germany under the Baltic Sea with a trio of Western energy companies, bringing Europe closer into Moscow's energy orbit.

The Russian gas company is trying to find new ways to deliver gas to Europe bypassing conflict-stricken Ukraine.

"Since the commissioning of Nord Stream pipeline, Gazprom has been investigating potential extension of this export route. Now (NYSE: DNOW - news) we are going to proceed with the implementation of this project together with our partners," Gazprom Chief Executive Alexei Miller said in a statement.

Gazprom's partners in the Nord Stream pipeline, a major gas supply artery feeding into western Europe, are Anglo-Dutch Shell , Germany's E.ON and Austria's OMV.

Gazprom would own 51 percent in the project to build stage 3 and 4 of Nord Stream, with capacity of 55 billion cubic metres per year, Gazprom spokesman Sergei Kupriyanov said on the sidelines of the St Petersburg International Economic Forum.

Gazprom wants to bypass Ukraine, its key gas export route to Europe, and plans to build the Turkish Stream pipeline beneath the Black Sea to ensure smooth transit of Russian gas when the transit contract with Kiev expires in 2019.

Despite plans to start laying pipes in coming weeks, Moscow and Ankara have no firm agreement on the project yet.

At the same time Gazprom's soured relationship with the European Commission over Russia's role in the Ukraine crisis means it may have a hard time convincing Europe to approve new pipelines that increase the region's dependence on Russian energy.

But Nord Stream partner E.ON argues that Europe's demand for Russian gas will grow as domestic production declines. European gas output is set to shrink to 185 billion cubic metres (bcm) by 2030 from 275 bcm in 2010, it said in a statement.

E.ON, Germany's biggest utility, said expanding Nord Stream was the most efficient and cheapest method of ensuring European energy security, pointing out that diversifying supply routes is was important as finding new suppliers.

The aim was to complete the first expansion strand in the fourth-quarter of 2019 and the second in the fourth quarter of 2020, E.ON said.

Nord Stream, which already consists of two lines, has an annual capacity of 55 billion cubic metres.

Gazprom is currently allowed only limited access to the pipeline under a European Union law which seeks to prevent energy suppliers from dominating infrastructure.

Kupriyanov told reporters that apart from E.ON, Shell (LSE: RDSB.L - news) and OMV there could be other shareholders in the expansion project. (Reporting by Dmitry Zhdannikov, Denis Pinchuk, Vladimir Soldatkin, Oleg Vukmanovic and Barbara Lewis; Writing by Katya Golubkova; Editing by Jason Bush and Susan Thomas)