Russian gas giant OAO Gazprom (GAZP.RS) Monday denied a report that suggested the second phase of the Nord Stream pipeline project to Germany has been suspended.

The second stage of Nord Stream is proceeding according to plan, Gazprom spokesman Sergei Kupriyanov said Monday.

Earlier, Reuters cited the head of the Russian Gas Society, Valery Yazev, as saying that European plans to diversify energy markets have made building the second phase of Nord Stream unattractive, resulting in a suspension of phase two.

Nord Stream, 51%-owned by Gazprom, will operate a 758-mile-long pipeline connecting Russia and Germany through the Baltic Sea, passing through the waters of Finland, Sweden and Denmark.

The project is a central part of Russia 's strategy to reduce political risk to its gas business by skirting Eastern Europe . Russian gas supplies to Europe in the past have been disrupted by disputes with transit countries Belarus and Ukraine .

The first stage, under construction, is scheduled to start operations in late 2011, with a capacity of 971.2 billion cubic feet a year. The second stage, planned for completion in 2012, would double the pipeline's capacity, or enough to supply more than 25 million households in Europe .

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