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Political turmoil in Kazakhstan upends uranium and energy markets

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By Filip Karinja - 

Violent protests in Kazakhstan, which is a major producer of oil, coal, natural gas and uranium have seen spot prices jump dramatically.

Kazakhstan supplies 43% of the world’s uranium and the unrest has seen uranium prices rise 3.89% since Wednesday to US$45.40 per pound.

National Kazakhstan entity and the world’s largest producer and seller of natural uranium NAC Kazatomprom JSC’s shares have fallen 11%, while the share price of North American and Australian uranium companies continues to rise.

Oil disruptions

In addition to being the largest supplier of uranium, Kazakhstan produces about 1.6 million barrels of oil a day.

Protesters have arrived at key Kazakhstan oil fields including the country’s largest Tengiz, which Chevron operates.

This led to production and supply chain disruptions and have pressured oil prices as other major producers showed limited increase in output.

Brent Crude oil prices have increased from US$77.78/bbl at the end of December to US$82.57/bbl, while WTI Crude oil prices have risen from SU$75.21/bbl to around US$80.13/bbl during the same period.

It is expected these hikes will continue amid Kazakhstan’s unrest.

Political stability

Atlantic Council’s Eurasia Centre deputy director Melinda Haring said the political uprising in Kazakhstan is unusual and significant globally.

The nation’s previous political stability created a reliable and major exporter of coal, oil, natural gas, and uranium, as well as an energy transit country for Central Asia.

LPG price caps removed

The Kazakhstan demonstrations were originally spurred by the removal of price caps on liquefied petroleum gas (LPG), which led to a doubling in the gas price.

LPG is what the majority of people in Kazakhstan use to fuel their cars.

The price cap removal was a result of a transition to electronic trading for LPG to allow market forces to dictate prices.

With LPG being sold at a loss for producers, the government hoped to end black market trading and address disinterest in LPG investment and subsequent rolling shortages.

However, the protests have unleashed the anger of the populace with accusations of corruption toward leaders, in particular, former Kazakh president Nursultan Nazarbayev amid chants of Go Away Old Man.

Nazarbayev took the reins in 1990 as the country declared independence from the crumbling Soviet Union.

Though he stepped down as president three years ago, he has continued to hold considerable power.

State of emergency

Protests grew more violent even as current Kazakhstan president Kassym-Jomart Tokayev declared a state of emergency, fired Nazarbayev, suspended the government and promised the LPG price caps would be reinstated.

Internet access in the country has been restricted, though a clearer picture of the unrest has emerged.

Footage of burning vehicles and tumbling statues of Nazarbayev have been aired, official buildings have reportedly been taken over and set alight, and police officers and protestors alike have been killed, including one officer who was beheaded.

Uranium production continues for now

France’s Orano and Canadian-based Cameco both co-own separate uranium production sites with state-controlled Kazatomprom.

A spokesperson for Orano said on 5 January that mining activity is continuing at the remote Katco sites.

This was reinforced by Cameco spokesperson Jeff Hryhoriw who said the company had not seen any production impact at its Inkai site and wasn’t anticipating an impact on deliveries.

He added that the evolving situation was being monitored closely and updates were being provided by the Cameco team in Kazakhstan. The company would resume production in North America if needed.

“It’s a reminder for utilities that an overreliance on any one source of supply is risky. It also reinforces the shift in risk from suppliers to utilities that has occurred in this market,” My Hryhowiw commented.

Sprott Asset Management chief executive officer John Ciampaglia said uranium market participants are watching events in the country closely for signs of supply chain risks if disruptions to routes cause delays.

Canada-based Sprott initiated the Sprott Physical Uranium Trust, which invests and holds uranium. It is the world’s largest physical uranium fund.

Meanwhile, nuclear fuel analysis firm UxC LLC president Jonathan Hinze says investors are trading on the potential for uranium shortages.

Russian and Chinese interests

Russian president Vladimir Putin has sent troops to assist with quelling the uprising as part of the Collective Security Treaty Organisation (CSTO).

Commentators believe he will be watching closely as he is thought to be resigning in 2024, also with the intention of maintaining power behind the scenes.

Fears are that Putin could use this as a ruse to reclaim northern Kazakhstan, home to ethnic Russians and the majority of the country’s hydrocarbons. Other Russian interests in the region include the Baikonur Cosmodrome spaceport and reliance on Kazakh gas as a backup to their own production shortages.

China imports 5% of their gas from Kazakhstan and as, like Russia, a member of the CSTO and the Shanghai Cooperation Organization may also play a role in this crisis.

Uranium investors on alert

Kazatomprom announced in October last year its directors were participating in physical uranium fund ANU Energy OEIC.

Mirroring the Sprott Physical Uranium Trust, ANU will make long term investments in physical uranium with an initial investment of US$50 million and future capital raising of up to US$500 million for additional uranium purchases.

Prices of the nuclear fuel surged to a 14 year high in September 2021, increasing by 24% on expectations that nuclear energy may make a comeback as fossil fuel use declines.

ANU expected supply to tighten; however, the upheaval in Kazakhstan may create a much tighter environment than expected.