The consortium developing an immense new Azeri gas field selected Friday a pipeline route to Europe, a move hailed as a step forward for European ambitions to reduce dependence on Russia.
The Shah Deniz II consortium confirmed it had chosen the shorter and cheaper Trans-Adriatic Pipeline (TAP) that will link up to southern Italy.
A long-favoured rival project, called Nabucco, would have swung north to Austria to plug into a pipeline network that serves several northern European countries.
"Azerbaijan's first gas to Europe will be exported via Trans-Adriatic Pipeline" Gordon Birrell, BP's regional director told journalists in Baku, speaking on behalf of the consortium.
The consortium comprises Britain's BP, Azerbaijan's SOCAR, Norway's Statoil and France's Total.
The group aims to extract 16 billion cubic metres (560 billion cubic feet) of gas per year from under the Caspian Sea. Six billion cubic metres will go to Turkey from 2018 and the rest will go to Europe from 2019, BP said.
European Commission President Jose Manuel Barroso welcomed the decision as a vital step in linking Europe to the vast Caspian Sea gas reserves.
"This is a shared success for Europe and a milestone in strengthening the energy security of our Union," Barroso said in a statement.
Friday's announcement in favour of TAP means that from Turkey the gas will flow through Greece and Albania and then under the Adriatic Sea to the heel of south-eastern Italy.
The Nabucco route initially favoured by the European Union had planned to transport gas from the Turkish-Bulgarian border to Bulgaria, Romania, Hungary and Austria -- a longer and more expensive 1,300-kilometre (810-mile) route, although unlike TAP, it was entirely overland.
That would have seen a new supplier eating into the Balkan markets traditionally dominated by Russia.
Either route was intended to achieve the EU's aim -- supported by Washington -- of reducing Europe's dependence on gas from Russia.
The EU imports 60 percent of its gas needs, with a quarter of gas consumed supplied by Russia.
The group behind the Nabucco project -- Austrian firm OMV, Hungarian company MOL, Romania's Transgaz, Bulagargas from Bulgaria, Turkey's Botas and French firm GDF Suez -- said that despite Friday's rejection it would seek to develop opportunities "based on alternative gas sources".
The consortium said in a statement: "The need for diversification remains a challenge for the European market, in particular in the countries of Central and South Eastern Europe. We remain convinced that the Nabucco route offers the only possibility to answer these needs."
And Azerbaijani officials refused to rule out revisiting the Nabucco project in the future, pointing to other off-shore deposits still waiting to be developed.
"We see Nabucco as a future market for the transport of Azerbaijan's gas," said Rovnag Abdullayev, president of Azerbaijan's state-run Socar.
"We obviously forsee a second wave of gas coming," Abdullayev said.
Moscow meanwhile is pushing ahead with construction of a new pipeline known as South Stream that aims to transport 63 billion cubic metres under the Black Sea to Europe.
It also completed in 2011 the first part of a new pipeline under the Baltic Sea from Russia to northern Germany called Nord Stream.
Alexei Miller, chief executive of Russian gas giant Gazprom, said Friday's announcement represented the final nail in the coffin for the Nabucco project.
"The Nabucco project does not exist ... it has been buried," Miller told journalists in Moscow.
Europe's annual demand for additional gas imports may reach 80 billion cubic metres by 2020 and surpass 140 billion cubic metres by 2030, according to the South Stream website.
Russia meanwhile has moved to diversify its customer base by looking east to clients in Asia, most notably gas and oil-hungry China.
Greek Prime Minister Antonis Samaras hailed Friday's announcement as a major boost to the country's economy as it struggles to emerge from a crippling economic crisis.
"The official announcement of the construction of TAP is the most important positive development for our country in the past decade," Samaras said.