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By Katya Golubkova, Denis Pinchuk and Orhan Coskun
MOSCOW/ANKARA, June 3 (Reuters) - Russia's Gazprom plans tostart building a pipeline to Turkey this month to get gas toEurope without going through Ukraine, company sources said,although it has no firm agreement with Ankara and facesopposition from the European Union.
With the EU determined to reduce its energy dependence onRussia and Turkey seeking big discounts for its gas forparticipating in the new pipeline, Russia may pay dearly for itsambition or even see it thwarted.
Moscow has stepped up efforts to find alternative gas supplyroutes to Europe, its biggest market, that avoid Ukraine, sinceUkrainian protesters ousted a pro-Russian president last year.
Russia annexed Crimea from Ukraine soon afterwards andpro-Russian rebels began a conflict in eastern Ukraine which hassent Moscow's relations with the West to post-Cold War lows.
In December, Russia scrapped its South Stream pipelineproject which would have supplied gas to southern Europe withoutcrossing Ukraine because of objections from the European Unionon competition grounds.
It instead announced the planned construction of analternative pipeline, dubbed the Turkish stream, with the aim of delivering 63 billion cubic metres (bcm) of gas per year, 47bcm of it to Europe, by 2020.
Gazprom had already begun to upgrade its domestic pipelinesystem so it could link up to the more modern South Streamproject and spent 271 billion roubles ($5 billion) in 2013-2014.
It says it will build on this work and spend another 278billion roubles this year, part of a total 715 billion onmodernising Russia's gas system to fit now with the TurkishStream, Gazprom documents on its website show.
Two sources at Gazprom said the state-controlled companyplanned to start laying pipes beneath the Black Sea by the endof June. Gazprom declined to comment.
HARD BARGAIN
Its plans may have to stop there.
The pipeline will consist of four lines, which each have anannual capacity of 15.75 bcm, with the first line reachingTurkey.
Gazprom hopes to create a gas hub at the Turkish-Greekborder for transit to Europe, but depends on Turkey agreeing tobuild on its territory and needs EU countries - many of whichwant energy independence from Russia - to develop requiredinfrastructure.
Turkey, Gazprom's second biggest export market afterGermany, is driving a hard bargain for its participation in thepipeline project.
Gazprom supplied Turkey with a total of 27.4 bcm of gas lastyear split between two routes: the offshore Blue Stream pipelineand the Transbalkan pipeline, known as the Western line inTurkey.
Ankara secured a 10.25 percent gas discount in late Februaryfor the Russian gas but is pressing for more now. Gazprom isforecasting an average gas price for Europe, including Turkey,of $242 per 1,000 cubic metres this year.
Turkey also wants a new price for the gas it will get viaits portion of the Turkish Stream, sources in Turkey say.
"The last word for Turkey has not been said yet," a seniorTurkish official said. "There are two important points forTurkey here: the insufficiency of the 10.25 percent reductionGazprom is giving to us. This should be close to 15 percent."
A Turkish energy sector insider with knowledge of theproject confirmed that this was Turkey's stance.
The first source also said that Turkey wanted a new pricefor when the new pipeline was brought on stream.
"There is intense traffic of meetings but the final pointhas not been reached," a Turkish energy insider with theknowledge of the Turkish Stream said.
Leonid Chugunov, head of Gazprom's project managementdepartment, was quoted as saying by Interfax news agency thatdespite starting work this month, the company needed permissionfrom Turkey to lay 280 km of pipes along the Turkish coast.
FIRST LINE ONLY
The plans could also be torpedoed by the European Union,which is at loggerheads with Russia over the Ukraine crisis.
It is supporting rival projects in the Caspian region: TheTrans Anatolian and Trans Adriatic Pipelines (TANAP-TAP) shouldbring 6 bcm of gas from Azerbaijan to Turkey and another 10 bcmto Europe in 2020.
"The arrival of Azeri gas is sharply reducing Gazprom'schances of extending its own contracts," said Mikhail Korchemkinof East European Gas Analysis. "It is much less expensive toship gas to Turkey from (Azeri) Shah-Deniz than from (Russiangas fields in) Yamal."
Last week, Chief Executive Alexei Miller met the energyminister of EU member Greece to discuss Gazprom's possibleinvolvement in gas infrastructure construction in the country.
This was seen as a possible reversal of Russia's previousposition that EU countries had to do their own construction ifthey wanted to get Russian gas after the transit contract withUkraine expires in 2019.
Anna-Kaisa Itkonen, a European Commision spokeswoman, alsowarned that "any pipeline... needs to comply to the EU rules",telling a briefing on Monday that the bloc had not yet receivedany specific plans from Russia.
EU rules mean a single company, irrespective of the country,cannot control the full supply chain, from production todistribution, and should give access to a third party - rulesthat ruined the South Stream project.
"It is clear that the first line will be built," saidAlexander Kornilov, an analyst with Alfa Bank. "I doubt Gazpromwill be building the second one until firm agreements (withEurope) are reached." ($1 = 53.2100 roubles) (Reporting by Katya Golubkova, Denis Pinchuk in Moscow, OrhanCoskun in Ankara; additional reporting by Vladimir Soldatkin,Svetlana Burmistrova and Olesya Astakhova in Moscow, NailyaBagirova in Baku and Barbara Lewis in Brussels; editing byElizabeth Piper and Philippa Fletcher)
