Inaugurated in 2007 as a 50-50 joint venture between Russian giant Gazprom and Italy's ENI, the project aims to transport up to 63 billion cubic meters (bcm) of natural gas per year from the eastern shore of the Black Sea to the consuming markets of Eastern, Central and Southern Europe. According to the memorandum of understanding signed in Moscow, Wintershall will acquire a 15 percent stake in the company, with Gazprom maintaining control over 50 percent of the shares. ENI will be left with 25 percent, with the remaining 10 percent to be handed to France's EDF by the end of the year.

The participation by Wintershall, a subsidiary of the German chemistry giant BASF, will revitalize a project that just a few weeks ago seemed destined to be quietly shelved. South Stream faces fierce competition from Nabucco, an alternative pipeline project benefitting from Washington's blessing as well as the active support of the European Union and several international financial institutions. Moreover, the outlook for a European gas market flooded by cheap liquefied natural gas (LNG) during a period of crisis-induced low demand had dampened the appeal of another ambitious infrastructure project. Rumors about repeated disputes between Gazprom and ENI, reinforced by ENI CEO Paolo Scaroni's March 2010 proposal to merge South Stream and Nabucco, were further clues pointing to an imminent suspension of the project.

The situation had worsened by the beginning of 2011. On Jan. 13, European Commission President José Manuel Barroso and Commissioner for Energy Günther Oettinger flew to Baku to release a joint declaration with Azerbaijani President Ilham Aliyev. Although not legally binding, the document states that the 10 bcm per year coming from the Shah Deniz Phase II gas field will be sold to Europe, providing Nabucco with much-needed access to upstream supply. This looked like a blow for South Stream which, lacking official supply commitments, was expected to be filled with Caspian gas contracted by Gazprom and diverted to the Russian network.

Further, Turkey's opposition to the issuance of necessary environmental permits, initially foreseen for Oct. 31, 2010, had gradually hardened. Some sources linked Ankara's intransigent stance to disagreements with Moscow over the Samsun-Ceyhan oil pipeline as well as a general mistrust of doing business with Gazprom and Russia prevalent in some sectors of the Turkish administration. Whatever the reason, Ankara's refusal cast even more shadows on South Stream's feasibility. 

Against this background, Russian Prime Minister Vladimir Putin's announcement on March 10 that the seabed segment of South Stream may be replaced by an LNG terminal -- better suited for transporting smaller and more variable quantities of gas -- sounded like a requiem for South Stream. Moreover, the boost in gas demand triggered by the Japanese earthquake and Japan's subsequent loss in nuclear power generation capacity seemed to justify shifting Gazprom's focus toward the Russian Far East and Asian markets. After all, its strong position in Europe would continue to be guaranteed by the completion of the Nord Stream pipeline, which will supply Germany with 55 bcm per year from 2012, and by simply maintaining deliveries that currently transit through Ukraine -- especially since the election of President Viktor Yanukovich and Gazprom's expected acquisition of the Ukrainian pipeline network have made a repeat of previous Ukrainian gas crises very unlikely.

The unexpected revival of South Stream now has the potential to redraw the map of the European gas market. However, there are still significant unknowns surrounding the feasibility of the project, as well as the direction the new consortium will take. In spite of an upward revision due to the likely decline of nuclear power, the mid- to long-term outlook for gas demand does not seem to justify the construction of both Nabucco and South Stream. As a consequence, competition between the two projects will intensify even further. Nonetheless, the evolution of South Stream from a bilateral joint venture to a genuinely European project proved wrong all those who saw in the project a Russian strategy to undermine European cohesion and, in its rivalry with Nabucco, the revival of the East-West geopolitical battle.

Moreover, in light of the understanding between Baku and Brussels on Shah Deniz Phase II, the need to contract the gas to fill South Stream without Azerbaijan's production is likely to lead to an opening-up of the Russian upstream sector to foreign investment and cooperation with Western companies. Several firms are already working to gain footholds and create strategic partnerships with Russian counterparts. At the beginning of March, Gazprom and Wintershall -- already partners in the Nord Stream venture -- signed another memorandum of understanding on the joint development of Siberian gas fields. The attempted asset swap between BP and state-owned Rosneft is another signal of this trend. Moreover, while confirming its veto of the ratification of the Energy Charter Treaty, Moscow has been trying in several institutional forums to negotiate an international regime for investment and transport in the energy sector.

In spite of persistent anti-Gazprom rhetoric in Europe, these developments can only be considered good news, as a gas market with abundant resources and adequate rules will be immune to a crisis sparked by a single supplier. The European Commission has done an excellent job on this front in many respects: The approval of the Third Energy Package in 2009 and other measures in support of competition and integration of national grids do much more to provide energy security than antagonism with suppliers and a stubborn drive to diversification.

**Andrea Bonzanni is an international affairs and energy policy analyst based in Geneva. He has worked as a consultant for the United Nations and the World Bank and is currently editor-in-chief at the European Center for Energy Security Analysis of Equilibri, a Milan-based think tank. The views expressed here are his alone. He can be reached at andrea.bonzanni (at) graduateinstitute (dot) ch.