* Backers say new link needed to offset fall in EU gasoutput
* EU firms, Gazprom all seek leverage
* Ukraine has been a reliable transit partner for 18 months
By Alissa de Carbonnel and Barbara Lewis
BRUSSELS, Dec 22 (Reuters) - Investors are wary of pouringmoney into a planned doubling of Gazprom's Nord Streamgas link to Germany, analysts said, amid doubts about regulatoryapprovals and deep political divisions.
Since taps opened five years ago on the first pipeline fromRussia's Baltic coast to Germany, bypassing Ukraine, the gulfhas widened between EU countries angered by Russia's militaryactions there and those worried about security of gas supply.
At an emotional summit last week, national leaders said NordStream-2 undercut EU unity against Russia. Only Germany and theNetherlands backed the project, ministers said.
EU officials have warned investors would be wise to wait forregulators to rule on Nord Stream-2, and analysts say lendersmight be cautious.
"The European Commission is certainly raising far moreissues than for the original Nord Stream," said RichardSarsfield-Hall, senior principal at consultancy Poyry, whichadvises energy firms.
"The financial community may take some persuading that theproject is viable."
Even backers of Nord Stream-1 are more sceptical this timearound.
Laszlo Varro, head of gas, coal and power markets at theInternational Energy Agency in Paris, said it was a "hugequestion" whether Gazprom's investment in Nord Stream-2 could berecovered, due to stagnating demand in Europe and an expectedsurge in liquefied natural gas (LNG) supply.
He added that Kiev had "even in extremely unfavourablecircumstances" delivered all transit deliveries in the last 18months.
POLITICS VERSUS ECONOMICS VERSUS REGULATION
Already Nord Stream-1 is under-used because EU regulatoryconcerns have never been fully resolved.
But backers of the project say there is no legitimate legalreason to block Nord Stream-2, and German, French, Austrian andAnglo-Dutch firms partnering Gazprom want access to reliable,competitively-priced gas supplies to compensate for decliningEuropean production.
Russia supplies around a third of the EU's gas, roughly halfof which is shipped via Ukraine.
"The energy community takes the view that 'listen I have hadit with these (Ukrainian) guys; we are the people who sufferwhen there are problems, not the politicians," said JonathanStern, chairman of the Natural Gas Research Programme at theOxford Institute for Energy Studies.
Industry sources say the firms involved - E.ON and Wintershall, Shell, OMV andEngie - also see side benefits as they negotiate newcontracts with Gazprom and push for spot pricing, rather thanlong-term contracts pegged to higher oil prices.
Wintershall and Shell said in emails that Nord Stream-2would increase flexibility and security of supply.
For Russia's Gazprom, the pipeline is part of a quest to cutsome $2 billion in transit fees it pays Ukraine annually and tomaintain its grip on the European market.
Tim Boersma, a fellow at Washington's Brooking's Institute,saw an economic rationale. "Nord Stream-2 inevitably lowers thetransit costs on the current routes," he said.
Russian Economy Minister Alexei Ulyukayev put it morebluntly, telling reporters in Brussels that blocking NordStream-2 would be "a shot in the foot" especially for Gazprom'sEuropean clients.
Russia says it wants the pipeline by 2019, when its transitcontract with Ukraine expires, although industry sources saythat is optimistic.
One Gazprom source predicted Germany would make the projecthappen: "Things will be as the Germans decide," the source saidon condition of anonymity.
But German government sources said Chancellor Angela Merkelmight not be ready to fight for the pipeline expansion and itwould not be the first project to be only a pipe dream.
Russia last year announced it was scrapping the South Streampipeline, also planned to bypass Ukraine through a route intosouthern Europe, over EU rules. (Additional reporting by Olesya Astakhova in Moscow, VeraEckert in Frankfurt and Karolin Schaps in London, editing byWilliam Hardy)
