Why did Kazakhstan decide to develop petrochemicals of disgraced Russia?

Russia’s Sibur was given 40% of the two largest Petrochemical Plants of the polyethylene and polypropylene production just for the fact that it will help with its export / It seems to be repeating the situation that has developed with oil exports, which 95% depend on Russia, since the routes pass through its territory. A similar scheme is now emerging for the export of petrochemicals.

Kazakhstan plans to more than double the production of petrochemicals this year. The increase will occur mainly due to the full capacity of the polypropylene production Plant.

According to the forecasts of the Ministry of Energy, the output of Kazakhstani petrochemical products in 2023 will grow to 515 thousand tons compared to 256 thousand tons in 2022. Kazakhstan Petrochemical Industries (KPI) intends to produce more than 500 thousand tons of polypropylene this year. At the same time, the Company plans to export almost 90% of its products. And the Russian company Sibur Holding which was given 40% of the shares of the two largest Gas Chemical projects of polypropylene and polyethylene production, is going to render assistance

Immediately for export

The KPI Plant was officially put into operation in November last year, and from the same month the company began to export its products. The first shipment of about 20 tons of polypropelene was sent to Europe. It was exported under a contract with Sibur, according to the price agency Argus, and in November-December 54 thousand tons were shipped to China.

In November, the Producer supplied about 200 tons to Kazakhstani consumers. As the Agency explains, such a small volume of sales is associated with low consumption of polypropylene in the country. According to it, KPI will export its products mainly to China (170 thousand tons per year), Turkey (90 thousand tons), European countries (50 thousand tons). Deliveries to Russia, Belarus, Uzbekistan and the countries of Southeast Asia are also planned. The plant expects to ship up to 12% of the total production volume to the domestic market per year.

The plant is located on the territory of the Special Economic Zone (SEZ) «National Industrial Petrochemical Technopark» in the Atyrau region. The company deliveres its products to Tengizchevroil, with which a long-term contract has been signed. Now propane is delivered to the plant by railway tanks, after 2027 it will be delivered from Tengiz to Karabatan by 205 km pipeline.

Before the launch of KPI, the only producer of polypropylene in the country was Neftekhim Ltd (70 thousand tons per year). The plant receives supplies from the Pavlodar Oil Refinery. The company mainly sells polypropylene in the domestic market, Argus notes. This year, the Atyrau Refinery plans to increase the production and export of aromatic hydrocarbons: 208.3 thousand tons of paraxylene and 35.7 thousand tons of benzene. However, it is possible that the actual production will be less than the planned plans due to the possible transition of the Refinery to fuel mode in view of the expected motor fuel shortage in Kazakhstan.

In addition, benzene and paraxylene will not be produced during preventive maintenance at the Atyrau Refinery in September-October. At the same time, all products will be exported since there are no consumers in Kazakhstan. Export of paraxylene from Atyrau last year was carried out from January to August, after which production was suspended due to the transfer of the Refinery to fuel mode. During this period , 76 thousand tons of paraxylene were exported (mainly to China) – 46% more than a year earlier.

Benzene was exported only in January-May – 6.5 thousand tons, to Algeria and Russia. Also, last year Kazakhstan for the first time began to export methyl tert-butyl ether (MTBE). Shymkent Petrochemical Company (ShNH) in 2021 completed the construction of the plant for production of 57 thousand tons of MTBE and 81 thousand tons of powdered polypropylene. The demand of the Kazakhstan market for octane-increasing additives is about 80 thousand tons per year. In addition to ShNH, they are also produced by Neftekhim LTD – 20 thousand tons per year.

Meanwhile, import of polypropylene and polyethylene to Kazakhstan in January-November last year amounted to 145.4 thousand tons – 0.1% less than a year earlier. Basically, the products came from Russia, China, Azerbaijan, Uzbekistan and Turkmenistan, according to Argus. Probably, imports of these goods will remain high for quite a long time, as the needs are growing, and the main manufacturer – KPI – plans to supply up to 60 thousand tons of polypropylene to the domestic market. It is clear that it is more interesting for the Plant to sell abroad at higher prices in order to get more money and pay off debts as soon as possible.To remind that the total cost of the plant for the production of polypropylene amounted to $ 2.6 billion, of which $ 2 billion was a loan from the China Development Bank for a period of 20 years. Of this amount, the bank immediately took $ 135 million of its remuneration, and the EPC contractwhich is the general contract for engineering, supply and construction, worth $ 1.865 billion, was won by the Chinese China National Chemical Engineering Company. The polyethylene market remains almost completely dependent on imports. The demand of the domestic market of Kazakhstan in this product is estimated at 180-240 thousand tons per year.

The commissioning of the first large plant for the production of polyethylene is expected in 2027-2028. The production will be located on the territory of the Petrochemical Technopark that is next to the KPI plant. At the moment, the feasibility study of the project has been prepared. This year, the development of design and estimate documentation is expected. The cost of the plant construction with a capacity of 1.25 million tons of products per year is estimated at $ 7.6 billion.

However, it seems that this is still conditional timing . If the construction of the KPI plant took about five years – 2018-2022 (this is the period of the plant’s construction , and before that they could not come to the agreement with investors), where the capacity is two times lower, then it may take much more time to launch a plant for the production of polyethylene. Moreover, the basic design has not yet been carried out. It is also interesting that for the implementation of the project, a joint venture «Silleno» was created, in which 49.9% of the shares belong to KazMunayGas, 10.1% – KLPE («daughter» of Samruk-Kazyna Ondeu) and 40% – PJSC Sibur.

The Russian company promises to share the accumulated expertise in the launch of projects and the operation of polymer complexes, as well as to take part in the training of plants’ operational personnel and ensuring the sale of products. That is, Sibur was given 40% of the two largest plants (one ready – KPI, the other – planned) almost only for the fact that it will help to export it. At the same time, both polyethylene and polypropylene will be exported by 88%. It seems to be repeating the situation that has developed with oil exports, which are 95% dependent on Russia, since the routes pass through its territory. Now a similar scheme is emerging for the export of petrochemical products. In addition, if Sibur owns 40% in both companies, does this mean that it will receive 40% of the company’s revenues? Despite the fact that the Russian company did not invest any funds in the project. Just for help in selling.

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