Russian gas giant OAO Gazprom (GAZP.RS) said it will invest 509.6 billion Russian rubles ($16.9 billion) expanding its pipelines to take gas to southeastern Europe via the South Stream, piling further costs onto a project aimed at bypassing traditional transit countries Ukraine and Belarus.

The investment in Russia 's domestic pipeline network, revealed Tuesday in a document posted on Gazprom's website, will bring the total cost of the project--aimed at shipping 63 billion cubic meters of gas under the Black Sea by 2018--to $38.4 billion. The offshore and European sections of the pipeline are forecast to cost 16 billion euros ($21.5 billion).

Analysts have long criticized Gazprom for perceived overspending on pipeline projects. Some analysts question whether South Stream is needed, given flagging demand for Russian gas in its most lucrative market in Europe .

Russia says South Stream is needed in order to diversify supply routes to the European Union after disputes with Ukraine led to cutoffs in 2006 and 2009. Russian gas covers around a quarter of Europe 's needs.

Gazprom and its South Stream partners Electricite de France S.A. (EDF.FR), BASF SE (BASFY) unit Wintershall and Italy 's ENI (E) launched construction of the offshore section of the pipeline in December.

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