UPDATE 2-EU says backs Austrian exemption on Nabucco

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BRUSSELS, Feb 11 (Reuters) - The European Commission said on Monday it had approved an exemption from strict competition rules for Austria's section of the Nabucco gas pipeline, to help its preferred project over a Russian-backed rival.

The European Union and Russia are engaged in what some analysts call a "pipeline war" whose outcome could determine Moscow's degree of control over energy supplies to Europe.

The EU executive temporarily exempted the Austrian section from a requirement to grant access to third parties in return for safeguards to ensure competition on that stretch of the pipeline. Nabucco is due to transport Caspian and Central Asian gas through Turkey to central Europe from 2012.

"The Commission decision on Nabucco shows our support for this project, which will boost Europe's efforts to diversify our supply sources and our gas supply routes," Energy Commissioner Andris Piebalgs said in a statement.

"The project is important not only for the countries involved but will also contribute to strengthening competition and promoting security in gas supply for the European Union as a whole," he added.

Xavier Grunauer, emerging markets analyst at Nomura, said he nevertheless thought Russia's South Stream pipeline was more likely to proceed than Nabucco.

Russia has the political clout to secure agreement from the countries that would be traversed by South Stream, has the gas to fill the pipeline and is prepared to commit the money needed for its construction, Grunauer said.

"It looks like Russia has an advantage over Nabucco, hands down".