The construction of Atasu –Alashankou started in September 2004. The construction of the pipeline took ten months, which is considered a record time for the “project of the century”. The planned extension of Kenkyak – Atyrau pipeline built in 2003 to the Kumkol oil fields in Kyzylorda region of South Kazakhstan will increase greatly the volume of oil to be delivered to the refinery in China’s Xinjiang region. Speaking at the ceremony, President Nursultan Nazarbayev said that when he first mentioned the project in 1997, only few believed in the feasibility of the daring plan in short time, but the timely completion of the Atasu –Alashankou pipeline demonstrated that Kazakhstan can turn a dream into reality.

For oil-thirsty China the pipeline, an energy lifeline for its booming western provinces, had more economic significance than political ambitions. China could not simply stop at any financial cost in fierce competition from Western and Russian companies for Kazakh oil. China invested $800 million in the project, substantially more than the initially planned $700 million. According to Kazakhstan’s minister of energy and mineral resources Vladimir Shkolnik, Chinese investments in Kazakhstan’s oil and gas sector, however big, are quite justified, as in the years to 2020 Chinese oil consumption is expected to rise from 355 million tons to 500 million tons annually, and its oil deficit will increase by 240 million tons.

Noisy celebrations in Astana and somewhat restrained festive mood in Beijing cannot conceal big ifs and buts shadowing the future of the joint project. The Atasu – Alashankou pipeline needs 600,000 tons of oil to be pumped into it before the shipment of oil starts in mid-2006. The initial volume of shipment will not exceed 10 million tons per year, but the executive director of the national oil company KazMunaygaz Kairgeldy Kabyldin believes that by the year 2010 the pipeline will be used to its full capacity of 20 million tons annually. However, his optimism is not shared by analysts.

Much of the oil needed to fill the pipeline is expected to come from Kumkol fields in South Kazakhstan accessed by the Chinese after their acquisition of the PetroKazakhstan oil company and Chinese-owned oil deposits in the Aktobe region of West Kazakhstan. But supply capabilities of PetroKazakhstan are still uncertain. China very much relies on Russian West Siberian oil to make the pipeline profitable. The endeavor requires a great deal of diplomatic skill not only from Beijing, but also from Astana. Russian oil could be delivered from Western Siberia through the Omsk–Pavlodar–Shymkent pipeline which currently needs substantial reconstruction. But there are at least two political impediments to productive partnership with Russia. First, the construction of the Atasu-Alashankou pipeline, the first ever substantial oil shipment route for Kazakhstan to bypass Russia, is not enthusiastically welcomed in Moscow. Currently, Kazakhstan delivers 16 million tons of its oil to outer markets using Russian territory. Alternative routes means dwindling transit fees and greater independence of Kazakh oil companies from Russian infrastructure. Second, Moscow is increasingly becoming aware of growing undercurrent competition from Astana for oil markets traditionally dominated by Russian companies. A recent case is the agreement concluded between Ukraine’s Ukrtransnafta and KazMunaygaz regarding the establishment of a joint venture, Transmunay, to build a 52-kilometer long ramification of the Odessa–Brody pipeline to bring Caspian oil from Kazakhstan’s sector to European markets. In the long term, the pipeline would allow Kazakhstan to transport up to 10 million tons of oil annually, while currently Russian oil deliveries through Odessa–Brody do not exceed 6 million tons. Kazakh oil officials hastened to assure Moscow that Kazakhstan has no intention to drive Russian suppliers from the Odessa–Brody route. But given Astana’s unrestrained drive to capture as many markets as possible for its increasing oil output, little credence can be given to friendly assurances.

Ironically, the need for West Siberian oil to be pumped through Atasu –Alashankou coincide with the unsettled row between Russia’s Transneft and KazMunayGaz over the Lithuanian oil concern Mazeiku Nafta. In autumn this year, KazMunayGaz bid $1 billion for 53.7 per cent of the shares in Mazeiku Nafta, lowering the acquisition chances of its rival, Russia’s Lukoil. Obviously in response to competition from KazMunayGaz, the Russian oil shipment company Transneft unilaterally repudiated its agreement on delivery of Kazakh oil to Lithuania’s Butinge terminal. Although the management of Transneft excluded any political reasons for the denunciation of the agreement, experts interpret this move as an attempt by Moscow to deny Kazakh oil suppliers an access to Baltic markets. Kazakhstan is now looking for other possibilities of oil shipment to Lithuania bypassing Russia. The chairman of KazMunayGaz, Uzakbay Karabalin, traveled to Vilnius to meet Lithuanian Prime-Minister Algirdas Brazauskas. Lithuania also sees political implications in Russia’s demarche.

The marriage of convenience between Beijing and Astana threatens to further fan the deep-seated rivalry between Russia and Western oil producers on the one hand, and China and Russia on the other. With the prospects of Atasu-Alashankou still remaining vague, Beijing sees no light at the end of the oil tunnel. Equally remote is the possibility of forging a reliable Kazakh-Russian-Chinese oil triangle to restrain Western inroads into the Caspian region.