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* Shah Deniz group would get 50 pct stake * Funding deal breathes life into downsized Nabucco West * Rival TAP pipeline has signed similar funding deal By Tsvetelia Tsolova and Henning Gloystein SOFIA/LONDON, Jan 10 (Reuters) - Azerbaijan's Shah Deniz gasgroup has agreed a deal that could see it take a stake in theNabucco pipeline to transport the country's gas to Europe,boosting the project's chances against a rival plan. The Shah Deniz 2 consortium, which has already signed afunding deal with the competing Trans-Adriatic pipeline (TAP)project, has said taking a stake in Nabucco would be criticalfor the project to go ahead. The companies behind the Nabucco pipeline said on Thursdaythe deal, announced in Sofia and to be finalised in Vienna,would give Shah Deniz 2 a 50 percent stake if it chooses theirproject as its European export route, in return for jointfunding and development of the pipeline. "With real upstream people as partners, we move in thedirection of developing more than just something on a paper, butinto direction of a real pipeline," said Gerhard Roiss, chiefexecutive of Austria's OMV, a shareholder in Nabucco. Rival TAP plans to pipe Azeri gas to Italy while Nabuccowould transport Caspian supplies to Europe via Austria. The European Union supports the delivery of Azeri gas to theregion, expected to start in 2018, regardless of which pipelineis chosen, to reduce its dependency on Russian gas imports. Analysts said the deal did not come as a surprise and theShah Deniz 2 group, whose shareholders include Azerbaijan stateenergy firm SOCAR, was trying to boost its bargaining powerahead of making a decision over which pipeline to choose. "This move (was) anticipated after the decision of fundingTAP. Shah Deniz 2 partners are making sure they have got somesort of control over the midstream development, and doing thisbefore a final decision on which pipeline will go ahead providesthem more leverage," said Massimo Di-Odoardo, senior gas analystat energy consultancy Wood Mackenzie. The Shah Deniz 2 group, which is developing the biggest gasfield in the Caspian Sea region, has narrowed its options overwhich route to take for its gas to Europe down to either ascaled down Nabucco project, known as Nabucco West, or to TAP. Several other pipeline projects, such as the InterconnectorTurkey-Greece-Italy (ITGI) or the South East Europe Pipeline(SEEP), have been dropped from the competition. DOWNSIZED NABUCCO The Nabucco gas pipeline project was initially designed totransport an annual capacity of 32 billion cubic metres (bcm) ayear of Azeri and other central Asian gas through Turkey andsoutheastern Europe into Austria. But its high costs and a lack of gas suppliers beyond the 16bcm Shah Deniz 2 consortium led to the project being downsizedlast year. The downsized Nabucco West project aims to ship 16 bcm ofgas a year from the Turkish border to Austria, leaving thetransit through Turkey to the joint Azeri-Turkish TANAPpipeline. Should new gas reserves become available in future, NabuccoWest is designed to be scaled back up to 32 bcm, which analystssay gives it a competitive edge over TAP which, although alsowith an option to be grown, would not be able to carry 32 bcm. "SOCAR's interest is about making sure that the (pipeline)investments pave the way for future Azeri gas developments. Inthis respect Nabucco West, given its scalability, clearlyrepresents the most attractive option for them," said WoodMac'sDi-Odoardo. Other Nabucco shareholders include Hungary's MOL through its gas pipeline operator FGSZ, Turkey's Botas,Romania's Transgaz, Bulgaria's BEH and Germany's RWE, all holding 16.7 percent stakes. RWE said last year it would sell its stake, and Roiss saidOMV would buy RWE's share in Nabucco to safeguard the project. BP holds a 25.5 percent stake in the Shah Denizconsortium, as does Norway's Statoil. Othershareholders include France's Total as well as SOCAR. TAP is being developed by Statoil, Swiss EGL and Germany'sE.ON.