KazMunayGas cuts its share in Silleno, a company developing a multi billion dollar polyethylene project

KazMunayGas has lowered its share in Silleno / Collage by Kursiv.media

KazMunayGas (KMG, a subsidiary of Samruk Kazyna) has sold a 20% share in Silleno, a joint venture developing a $7.7 billion polyethylene project.

As KMG reported, the move happened on March 29. Now, the national oil company controls a 29.9% stake in the company. No details of the deal were provided.

At the same time, according to eGov there are several shareholders in Silleno: KMG, KMG PetroChem, Russian Sibur Holding and Chinese Sinopec Overseas Investment Holding (Singapore) PTE LTD.

In October 2023, while on an official visit to China, President Kassym-Jomart Tokayev met with Ma Yongsheng, chairman of the board of Sinopec Corp. The two sides agreed to launch the construction of a polyethylene production facility in the Atyrau region in the second half of 2024. The total cost of the projects was evaluated at $7.7 billion.

President Tokayev emphasized that Sinopec has significantly contributed to bilateral relations between Kazakhstan and China and described the Chinese company as a strategic partner for Kazakhstan’s oil and gas industry.

In turn, Ma Yongsheng told Tokayev about Sinopec’s plan to produce terephthalic acid and polyethylene terephthalate at the premises of the Atyrau refinery, which produces paraxylene, a critical raw material for these new projects. This strategic project was expected to be implemented alongside the construction of a polyethylene production facility.

«We want to contribute to the development of this project, which is very important to us,» the head of Sinopec’s board said.

The two sides also discussed issues related to cooperation in subsoil exploration with the help of advanced technologies.

On October 17, 2023, KMG, Sinopec and Sibur reached an arrangement on the polyethylene project. Thus, KMG and Sibur sold Sinopec 20% and 10% shares in Silleno, the project’s operator. As a result, KMSG was expected to control a 40% stake in the company, with Sinopec and Sibur controlling 30% each. All these legal procedures are expected to be completed in the first quarter of this year.

In addition, KMG said that it signed an agreement with Sinopec on a feasibility analysis of terephthalic acid and polyethylene terephthalate (PETF) production in Atyrau. Once the analysis is complete, the two sides will decide whether to proceed with the project.

The future PETF manufacturing site is expected to have a capacity of 735,000 tons of the product. PETF is a vital polymer material for many goods, such as food and beverage packaging, containers, textiles (synthetic fibers) and technical fibers. A terephthalic acid production unit is an intermediate link in the PETF production chain.

On September 8, 2023, Ex-Prime Minister Alikhan Smailov and President of Sinopec Yu Baocai discussed potential new projects in Kazakhstan. At the time, Smailov underlined that Sinopec helped the country implement big projects, including the modernization of the Atyrau refinery. The two sides are now discussing how they can boost the swift development of petrochemical projects, he noted

«In this regard, an anchor polyethylene project is an important stage in the development of our petrochemical industry as once it is implemented, it will have a multiplicative effect on the country’s economy. Since Sinopec is one of the global leaders in this field, the company’s participation as an equal project partner is strategically important to us,» Smailov said.

Sinopec has demonstrated a great interest in cooperating with Kazakhstan and is ready to participate in other promising projects there.

On August 23, 2023, Diana Arysova, deputy head of KMG, revealed that KMG, Sibur, and Sinopec were developing a feasibility study for a polyethylene plant. The final investment decision was expected to be made in mid-2024.

«The company is currently reviewing the construction of a polyethylene production facility. This project is at the Front End Engineering Design (FEED) stage. We will implement this project with Russian Sibur and Chinese Sinopec, who are also involved in FEED. The final investment decision is expected to be made in the middle of 2024,» she said during the issuer day on KASE.

In November 2022, Samruk Kazyna, KMG, Sibur Holding, and operators of the Polypropylene and Polyethylene petrochemical projects agreed to establish joint ventures based on Kazakhstan Petrochemical Industries and Silleno (a Polyethylene project with a capacity of 1.25 million tons per year). They also negotiated the financial conditions of this partnership and how the ready-to-use product will be sold. Sibur was supposed to have a 40% share in each project.

However, the participants of the polyethylene project later revealed that Chinese Sinopec wanted to join the project with a 30% share. A corresponding agreement with the company was signed on May 18, making Sinopec an equal project partner.

The preliminary evaluation of the polyethylene project, which has a capacity of 1.25 million tons, is $7.7 billion. The plant will be built on the territory of a special economic zone in Karabatan of the Atyrau region, where the polypropylene facility is already operating. (KMG controls 49.5% of the project.) The new facility is expected to be commissioned into operation in 2028.

According to KMG, the project’s location is basically ideal for polyethylene production thanks to its high ethane content (up to 14%), which is necessary for polyethylene production, the attractive cost of raw materials, lower costs associated with the construction of infrastructure by splitting this project into smaller pieces, advantageous location and access to key target markets. The project will receive natural gas from the Tengiz oil and gas field.

The domestic polyethylene market is estimated to have a volume of 180,000 tons per year and a potential annual growth rate of 4%. Target markets include the CIS countries, China, Turkey and Europe.

Kazakhstan has already signed license agreements with Chevron Phillips Chemical and Univation Technologies. The country wants to use their MarTECH ADL and UNIPOL PE Process technologies. The move would allow KMG and its partners to produce high-grade polyethylene, which is very popular worldwide.

Given the project’s technical complexity, capital-intensive nature and other factors, KMG had aimed to cooperate closely with other companies from the very beginning. It also planned to finance the project using borrowed money along with its own.

During the construction phase, about 8,000 new jobs are expected and 875 jobs when the project is completed. Its potential contribution to the country’s GDP is estimated at 1.2%.