Sibur and Kazmunaigas will invest $7.6 billion in a gas chemical project in Kazakhstan

The total investment of Sibur and Kazakh Kazmunaigas in the construction of an integrated gas chemical complex for the production of polyethylene within the joint venture (JV) “Silleno” in Kazakhstan is estimated at $ 7.6 billion. This is stated in the draft resolution of the government of Kazakhstan on a comprehensive plan for development of the largest oil and gas and petrochemical projects for 2023-2027.

According to the document, the implementation of the JV project is scheduled for 2023-2028. It will be financed by private and borrowed funds. The plant’s capacity will be 1.25 million tons of polyethylene per year.

At the beginning of October 2021, the National Wealth Fund of Kazakhstan Samruk-Kazyna, Kazmunaigas,Sibur”and participants of the operating companies signed basic documents on the creation of joint ventures on the basis of Kazakhstan Petrochemical Industries Inc LLP (KPI) and Silleno LLP on the territory of the National Industrial Petrochemical Technopark special economic zone in the city of Atyrau.

At the beginning of November 2022, the terms of the partnership in the joint venture were determined, in particular, the scheme for investing in a polyethylene production plant and the procedure for selling finished products of a polypropylene plant with a capacity of 500,000 tons per year were agreed upon. The share of Sibur in each joint venture will be 40%, Kazmunaigas – 49.9%, Samruk-Kazyna fund – 10.1%.

The plant for the production of KPI polypropylene was launched at the beginning of November 2022. On November 18, the first batch of polypropylene in 1500 tons was shipped from the plant.

At the beginning of January 2023, Interfax, citing Sibur’s marketing and sales executive Sergei Komyshan, reported that Silleno would “soon” begin designing a polyethylene plant.

Now the total capacity of Sibur for the production of polyethylene is 2.7 million tons per year, polypropylene – 1.7 million tons per year. The company mainly produces these products at the Zapsibneftekhim plants in Tobolsk (Tyumen region), as well as “Kazanorgsintez” And “Nizhnekamskneftekhim» in Tatarstan.

Launched in May 2019, Zapsibneftekhim has a polyethylene production capacity of 1.5 million tons per year, polypropylene – 1 million tons per year. In 2020 (latest public data), Sibur increased sales of polyethylene by 5 times compared to 2021 to 1.3 million tons, polypropylene – by 51.7% to 1.1 million tons. In 2021, the company consolidated the assets of the Tatarstan holding TAIF – Kazanorgsintez and Nizhnekamskneftekhim, which also have large capacities for the production of polyethylene (870,000 tons per year and 230,000 tons per year, respectively) and polypropylene (190,000 tons and 180,000 tons).

In addition, Sibur, together with the Chinese Sinopec, is implementing a project to build the Amur Gas Chemical Complex (GCC) 15 km from the city of Svobodny in the Amur Region. Its construction began in August 2020, the launch of the enterprise is scheduled for 2025-2026. The complex will produce 2.3 million tons of polyethylene and 400,000 tons of polypropylene per year.

In its 2021 annual report, Sibur noted that the launch of new capacities in Kazakhstan “will have a positive effect on the growth of domestic consumption of polymer products in Kazakhstan and other EAEU countries and will strengthen export positions [компании] in high value added products.

A representative of Sibur explained to Vedomosti that the size of the company’s participation in financing the project “is proportional to the participation of partners in the joint venture, in accordance with the shares.” According to him, by the time the new production is launched in Kazakhstan, the markets of Russia and the CIS will be in surplus in terms of polyethylene. The growth of domestic demand will accelerate, while a significant part of the production will be exported.

Traditionally, about 60-65% of all products remain in the domestic market, which remains a priority for the company, the source emphasized. Deliveries to the European market previously accounted for about 25% of exports of all products (about 10% of produced volumes). After the introduction of restrictions, all volumes were successfully redirected to other markets.

The representative of Sibur added that when entering new markets, the company always considers the possibility of partnerships with local players, which “allows using their expertise and marketing channels for more effective sales.”

Dmitry Akishin, Managing Director of Implementa, believes that the main goal of Sibur’s participation in gas chemical projects in Kazakhstan is business diversification. He notes that “strategically, Sibur is unlikely to focus on maintaining export restrictions in the long term.” At the same time, the expert notes that any new project always means access to new markets, which is also part of diversification.

Ekaterina Mozharova, Managing Director and Head of the ACRA Corporate Ratings Group, notes that for Sibur, the production of polyethylene in Kazakhstan is a “quite interesting” project, given the availability of local raw materials and opportunities for new sales markets. She explains that now, due to sanctions, Sibur has restrictions on sales markets. In April-October 2022, the EU banned the supply of a wide range of Russian chemical products, including polyethylene and polypropylene, to the EU countries.

“The company has already diverted European exports to Asia, primarily China and Turkey. The joint venture in Kazakhstan will also help with the development of distribution in other Asia-Pacific countries,” the analyst notes.

Independent industrial expert Maxim Shaposhnikov adds that the Kazakh project will allow delivering products to Central Asia, where demand for polyethylene for the construction and food segment will grow and “potentially create opportunities for the export of polyethylene to Europe.”

According to the expert, Kazakhstan itself imports about 170,000 tons of polyethylene per year, other countries of Central Asia – about 40,000-50,000 more tons, since Uzbekistan and Turkmenistan are themselves exporters of this product. “The calculation is more likely for the EU market, where due to unstable gas prices, many polyethylene production plants are idle. In addition, the Chinese market, whose capacity continues to grow, will be an important sales destination,” he said.

The price of polyethylene in China, according to Shaposhnikov, now stands at $1,100/ton. Since most of the deliveries of Russian products go to China, the average export prices for Russian polyethylene are estimated at $950-1000/t.