May 15 could become the official birth date of a pipeline that would help Russia maintain its virtual monopoly of natural gas exports to Europe. Whether the energy export project grows to maturity remains to be seen.

Officials from Bulgaria, Greece, Italy, Serbia and Russia convened in the Russian resort city of Sochi on May 15 to sign agreements to hasten the construction of the so-called South Stream pipeline. The pacts appear to give South Stream a commanding lead over the rival, US-backed Nabucco project in the race to deliver Caspian Basin natural gas to European markets. Many experts believe that given present energy reserve estimates and political conditions, only one of the pipelines can be viable. [For background see the Eurasia Insight archive].

A report by the official Russian news agency RIA Novosti, citing an official at the state-run conglomerate Gazprom, said that the agreements signed May 15 will mean the South Stream route can be operational by the end of 2015. "The overall investment required will be calculated on the basis of a comprehensive study," RIA Novosti quoted the unnamed Gazprom official as saying. The pipeline's precise route should be determined by the end of 2009, the report added.

Original plans called for the pipeline to have an annual capacity of 31 billion cubic meters (bcm). But on May 15, Gazprom and the Italian energy firm Eni SpA announced an agreement to boost South Stream's capacity to 63 bcm. Russia's ability to push South Stream forward stands in sharp contrast to the Nabucco project, which, despite the holding of two international meetings in the last six months, remains stuck on the drawing board. [">For background see the Eurasia Insight archive].

As the May 15 South Stream agreements were being signed, a Gazprom official reiterated the company's standing offer to buy all of Azerbaijan's production of the second phase of the massive Shah Deniz project. An Azerbaijani diplomat in the United States denied that President Ilham Aliev has intentions to commit all Shah Deniz production to Russia, but if Baku takes Gazprom up on the offer, there would not be enough gas available to make the Nabucco project viable.

Whether or not Baku will accept the Gazprom deal remains uncertain. During a mid-May meeting with Turkish Prime Minister Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev indicated that Baku was not about to make any drastic changes to its existing energy policies. But at a late April conference on energy issues in New York, Elin Suleymanov, who serves as Azerbaijan's consul in Los Angeles, suggested that Baku remained open to the idea of expanding cooperation with Gazprom. Such cooperation, Suleymanov added, could be beneficial for Azerbaijan in that it could be used by Baku as a bargaining chip in ongoing efforts to settle the Nagorno-Karabakh conflict. [For background see the Eurasia Insight archive].

At the energy conference, sponsored by the Harriman Institute at Columbia University, experts debated past experience and future possibilities for the Caspian Basin energy game. Some participants emphasized that energy-related developments in the region are prone to sudden shifts, and that apparent advantages held by one side or the other can quickly disappear.

One participant, Giorgi Vashakmadze, a former executive of the Georgia International Oil Corp., contended that Western states missed an early opportunity to cut a deal with Turkmenistan on securing exports via a trans-Caspian pipeline, thus leaving open the door for Russia to conclude a long-term gas-export pact with Ashgabat in 2003. [">For background see the Eurasia Insight archive].

Few participants were willing to predict what the pipeline map in the Caspian and Black Sea basins would look like in 10 years. While Blue Stream has been in the works since 2005, the mere fact that deals have been signed does not guarantee that the pipeline will ultimately come into being. The example of the Prikaspiisky pipeline looms large in this respect. In 2007, Russia, Kazakhstan and Turkmenistan signed the Prikaspiisky pact, but since then construction has made barely any progress. In addition, energy relations between Russia and Turkmenistan now appear to be at their lowest point since the collapse of the Soviet Union. [For background see the Eurasia Insight archive].

During her presentation at the conference, Martha Brill Olcott, a senior expert at the Carnegie Endowment for International Peace, stressed that many factors in the Caspian Basin energy contest currently lack clearly defined answers. Among those unanswered questions are: is Russia currently overpaying for energy that it is purchasing from Central Asian states?; how will growing Chinese demand influence Central Asian export preferences?; and how will the recent drop in energy prices influence the ability to secure financing for export ventures?

For now, Moscow seems to be winning the race. But until there is greater clarity on both the politics and the economics of pipeline projects, it is impossible to predict who will be the winners and the losers of the Caspian Basin energy development game.