Publication: Eurasia Daily Monitor Volume: 2 Issue: 216

Mesmerized by the huge hydrocarbon export opportunities offered by China’s rapidly developing Xinjiang province, last year Kazakhstan began building the Atasu-Alashankou oil pipeline to connect western China with oilfields in Aktobe region, western Kazakhstan. The daunting adventure, hailed as the project of the century in Astana, is now nearly complete.

Kazakh President Nursultan Nazarbayev and the head of the Chinese National Petroleum Company (CNPC), Cheng Gen, exchanged congratulations on this occasion in Astana on November 10. Appearing before journalists after warm talks with the Kazakh president, the CNPC chief announced that Nazarbayev had expressed his satisfaction with CNPC’s recent acquisition of shares in PetroKazakhstan. Cheng Gen assured his listeners that the Atasu-Alashankou pipeline would be completed by December 16, to coincide with Kazakhstan’s Independence Day. He also declared that the construction of the Atasu-Alashankou pipeline and CNPC’s “lucky” purchase of PetroKazakhstan shares “mark a new chapter of cooperation between CNPC and the Kazakh national oil and gas company KazMunayGaz (Ekspress-K, November 11).

Cheng Gen’s words seem accurate. The wave of public discontent over CNPC’s acquisition of 33% of PetroKazakhstan, as well as the right to manage the Shymkent refinery jointly with the Chinese, has largely subsided. CNPC has earlier made public its plans to develop the Kumkol oilfields in Kyzylorda region, southern Kazakhstan, an unexpected windfall from the PetroKazakhstan deal. The Chinese company plans to pump 3 million tons of Kumkol oil into the Atasu-Alashankou pipeline, and an additional 1.5 million tons should be delivered from Kenkiyak and Zhanazhol, relatively smaller deposits currently operated by CNPC in western Kazakhstan.

But China will have to rely on Russian oil companies operating in Siberia if it wants the pipeline used to its full capacity. Theoretically, Russia can pump up to 8 million tons of oil through the Kazakh-Chinese pipeline annually. But in reality the available amount of oil in the initial stage is much lower. The executive director of KazMunayGaz, Kayirgeldy Kabyldin, disclosed that Kazakhstan and Russia would barely be able to ship 6 million tons through the Atasu-Alashankou route in 2006 (Panorama, October 21).

In an attempt to get access to Russian oil shipment facilities, China is actively engaged in talks with Russian oil companies, particularly Transneft. CNPC simply cannot ignore the Russian company, which possesses a ramified pipeline network and powerful pumping installations to allow the Siberian oil to flow from Omsk in Russia to Atasu in western Kazakhstan and onwards through the Atasu-Alashankou pipeline to Xinjiang.

CNPC strives to have as many hydrocarbon shipment routes as possible in Central Asia. Beijing has already intensified talks with Turkmen and Uzbek officials on gas deliveries. China’s hunger for energy sources promises certain benefits for developing Kazakhstan’s oil and gas infrastructure. Russia and China see Kazakhstan as an important transit route for increasing oil and gas supplies. Experts expect the Atyrau region to become the hub of gas pipelines running to Russia, Uzbekistan, China, and Turkmenistan.

However, Kazakh oil officials are still in the dark about Chinese intentions. KazMunayGaz executive director Kabyldin says that Chinese oil executives put all their cards on the table in talks about the price of oil to be shipped through Atasu-Alashankou. But in numerous discussions with Kazakh government officials the Chinese side avoided the pricing issue. If China becomes the single buyer of Kazakh oil, it may set low prices for oil deliveries from west Kazakhstan (Megapolis, October 24). The newly appointed Chinese Ambassador to Kazakhstan, Chan Xiuan, praised the construction of Atasu-Alashankou as a sign of successfully developing economic ties between Astana and Beijing (Khabar, November 15). But these sugar-coated words do not dispel doubts about the economic feasibility of the pipeline for Kazakhstan.

Kazakhstan pinned great hopes on Atasu-Alashankou as the main way to jumpstart its ailing oil industry and increase oil revenues. This dream now seems to be fading away. China does not view Kazakhstan as the sole supplier of gas and oil, preferring to look far beyond Astana. The TengizChevroil international joint venture and the Karachaganak oil consortium also have displayed interest in the enormous consumption potential of Chinese markets. It would be difficult for Kazakh oil companies to compete with Russians for Chinese markets. More realistically, Kazakhstan can count on higher transit tariffs if the capacity of Atasu-Alashankou pipeline increases to the projected 20 million tons after 2010. Yet Kazakhstan with its current oil output of 20 billion cubic meters still sees China as the most accessible market, suitable in political as well as geographical terms.