Nginx – socket() failed: No buffer space available while connecting to upstream

With the CPU approaching 100% and looking at the specs of the EC2 small instance, it sounds to me like your machine is swapping. Have a look at the output of free -m while you boot up the server and then watch it when you do some load testing.

From the docs of Phusion Passenger

A larger number results in higher memory usage, but improves the ability to handle concurrent HTTP requests.

Do you really need to handle a lot of concurrent requests? If so, you should probably invest in a larger EC2 instance and then turn up your passenger_max_pool_size. It doubt that you will need more than the default of 6 that passenger provides with that little machine.

It sounds like you haven't started and configured the backend for Nginx. Start php-fpm and add the following to nginx.conf, in the http context:

server {
    listen 127.0.0.1;
    server_name localhost;

    error_log /var/log/nginx/localhost.error_log info;

    root /var/www/localhost/htdocs;

    location ~ \.php$ {
        fastcgi_pass 127.0.0.1:9000;
        include /etc/nginx/conf.d/*.conf;
        include /etc/nginx/sites-enabled/*;

        fastcgi_intercept_errors        on;
        error_page 404 /error/404.php;
    }
}