EU to rule on Gazprom pipeline link to Germany by Oct. 31 - sources

By Alissa de Carbonnel

BRUSSELS (Reuters) - The European Union will decide by Monday whether to ease restrictions on Russia's access to a gas pipeline link to Germany, two people close to the issue said on Tuesday.

Together with separate talks to settle an antitrust case against Russian state gas exporter Gazprom, the steps would go a long way to smoothing ties between the EU and Russia, which supplies around one-third of the bloc's gas.

But with diplomatic ties strained over Syria and Ukraine, some former Soviet EU members see the deal-making with Moscow as a failure by Europe to loosen Russia's grip over energy sectors in a region where gas prices can make or break governments.

EU antitrust regulators are due to meet with Gazprom in Brussels on Wednesday. Already two weeks ago the parties were nearing a deal to settle EU concerns that Gazprom overcharged customers and blocked rivals in eastern and central Europe with anti-competitive business practices.

The heads of the European Commission discussed the pipeline issue on Tuesday but a spokeswoman said they had not yet taken a decision, but that it "will happen in due course."

EU rules designed to promote competition currently cap Gazprom's use of the Opal pipeline, that links Russia's Nord Stream pipeline to Germany and the Czech Republic, at half the line's capacity.

Full access to Opal is vital to Gazprom's plan to double capacity of the pipeline in a project known as Nord Stream 2 and bypass Ukraine as a route for gas supplies to Europe.

The plan has bitterly divided the European Union, and a decisions to allow Russia to pump more gas via Opal risks angering eastern European EU members worried about Russian energy dominance.

The Commission will issue its decision on Friday or by Oct. 31, the sources said, after Wednesday's meeting between Gazprom deputy head Alexander Medvedev, Russia's Deputy Energy Minister Anatoly Yanovsky and European Competition Commissioner Margrethe Vestager in Brussels.

"(Wednesday's) meeting is absolutely key, and can change the whole game," one EU source said.

A decision has been delayed since talks collapsed in 2014 after Russia's annexation of Crimea and backing for rebels in eastern Ukraine.

Clearing the legal hurdle would help pave the way for Nord Stream 2, which Poland and seven other EU nations oppose, saying it would deprive Kiev of transit fees and harm energy security.

"By supporting Nord Stream 2, the EU in effect gives succour to a regime whose aggression it seeks to punish through sanctions. This contradiction is unsustainable," Poland's minister for European affairs Konrad Szymanski wrote in the Financial Times on Monday.

Even if a deal on Opal reached, Katja Yafimava of the Oxford Institute for Energy Studies said EU concerns over approval for Nord Stream 2 are unlikely to fade away.

"For Nord Stream 2, I don't expect a easy ride in any scenario," Yamfimava said.

(Editing by Robin Pomeroy)