RWE AG (RWE.XE) Thursday said the agreement between Russia and the Ukraine following their recent row on natural gas prices is unlikely to be the end of supply disruptions to Europe.

Despite the ten year supply and transit agreement between Russia and the Ukraine, supply bottlenecks could hit Europe again, Stefan Judisch, chief commercial officer supply at RWE Supply & Trading, told reporters in Essen.

Judisch added that the poor state of the Ukraine's transit grid could be a possible cause for supply problems.

"We should be aware that the Ukraine transit grid is in a relatively bad technical condition and if there won't be appropriate investment (into the grid) this could prompt supply disruptions."

His comments come after Russia and the Ukraine recently settled an escalating dispute over supply and transit prices for Russian gas that severely disrupted deliveries to European countries, particularly in the southeast of the continent.

Judisch said the spat also caused noticeable bottlenecks of RWE's supply, but he declined to quantify the financial damages caused.

He insisted that RWE was capable of supplying its customers, despite the disruptions, as well as being able to provide backup supplies to Slovakia.

Judisch also said the dispute was a confirmation that RWE is on the right path by pursuing its strategy to diversify its supply sources.

RWE plans to invest around EUR2 billion in its up and midstream gas business aiming at tripling its production of natural gas by 2013 to around 55 million barrels of oil equivalent.

The projects the company is pursuing to reach this goal include the participating in the consortium that will build the Nabucco pipeline and an expansion of its operations in liquefied natural gas, or LNG.

RWE is part of the consortium that plans to build the 3,300 kilometer-long Nabucco pipeline which aims to ship natural gas to Europe from Central Asia via Turkey and Austria.

The Russia-Ukraine dispute was a "wake-up call" for Europe which realized it needs to support projects like Nabucco to diversify its supply routes, Judisch said.

"The Nabucco conference in Budapest (last month) demonstrated that politicians are determined to support the project," he said.

Judisch added he expects that all the transit countries involved in the project will set the political framework conditions for Nabucco by signing the necessary intergovernmental agreements within the first half of 2009.

The Nabucco consortium consists of RWE, OMV AG (OMV.VI) of Austria, MOL Nyrt (MOL.BU) of Hungary, Transgaz of Romania, Bulgargaz of Bulgaria and Botas of Turkey. Each of the shareholders own a 16.67% stake in the consortium.

The pipeline is considered crucial to secure Europe's growing demand for natural gas as domestic supply is steadily falling. The pipeline, with a planned capacity of up to 31 billion cubic meters of gas per year, would further diversify Europe's supply sources, bypassing traditional pipeline routes for Russian gas.

The estimated costs for the Nabucco project have recently been raised to EUR7.9 billion, up from the EUR4.4 billion original projection.

Jeremy Ellis, RWE Supply & Trading head of business development, said the current investment estimate is "high", adding it could be revised downward again to reflect a sharp drop in steel prices. Steel prices account for around two-thirds of the pipeline's overall construction costs.

Ellis also denied it could prove problematic to secure enough natural gas to fill Nabucco.

"There's no supply issue," he said. "All the Caspian Sea countries, in our, view want to open their gas reserves to Europe."

Critics of the pipeline have repeatedly expressed doubt that enough gas can be secured to fill it.

The Nabucco consortium is in talks with Caspian Sea countries including Turkmenistan, Azerbaijan and Kazakhstan to fill Nabucco.

RWE said, however, these countries are unlikely to commit gas to Nabucco before the transit countries and the pipeline operators haven't reached a final decision to build the pipeline.

RWE's Ellis said that Iran is also a potential source of gas for Nabucco, but added that this possibility is currently constrained due to political uncertainties.

Other potential suppliers could include Egypt, Iraq, Saudi Arabia and even Russia, Ellis said.

Company Web site: www.rwe.com

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com