UPDATE 1-South Stream set back as deal signing in doubt

(Adds background on the deal, comments)

By Tom Bergin

LONDON, May 6 (Reuters) - The South Stream pipeline, which the European Union fears will increase Europe's reliance on Russia for energy, faces a setback after demands by transit countries for better terms put a planned deal signing in doubt, a source familiar with the matter said on Wednesday.

"The parties were meant to sign an agreement in Sochi on May 15, but that is now in doubt," the source said, referring to the Russian city Sochi.

An agreement could still be hammered out in time to save the signing, but this looks unlikely, the source added.

South Stream, which is led by Russian gas export monopoly Gazprom (GAZP.MM), plans to take Russian, Caspian and Central Asian gas across the Black Sea, through Bulgaria, Serbia and Slovenia to Austria.

EU politicians see the pipeline a rival to the EU-backed Nabucco pipeline, which aims to bring Caspian and Central Asian gas to Europe, bypassing Russia.

Russia and Bulgaria were due to sign a final deal on the pipeline in the coming weeks, the prime ministers of both countries said in late April [ID:nLS823800].

Officials at the Bulgarian state gas monopoly Bulgargaz were not available for comment on Wednesday.