Unlike most energy exporters, Kazakhstan is not dangerously over-dependent on fossil fuel prices. Being the world’s largest producer of uranium gives the country’s economy a major lifeline, especially as global demand for nuclear power is on the rise in a carbon-limited future. On Monday the national atomic company Kazatomprom said that it had increased uranium production from 22.8 million tons in 2014 to 23.8 million tons in 2015.
That rise was not in response to the short-term fluctuations of the uranium price on the global market, which stayed between $35 and $40/pound for all of last year. The price of uranium had been on the way up (reaching $65/pound) until the Fukushima disaster hit Japan in March 2011, at which point it began a steady decline to about $28/pound in mid-2014. Since then it has recovered to the present price range, but Kazakhstan is anticipating a future rise that will prove durable.
Nuclear power generates about 11% of the world’s electricity, but after the Paris climate deal and countries’ earlier pledges to build more reactors, that percentage will grow. China plans to build 6-8 nuclear power plants annually for the next five years, and India aims to generate 25% of its electricity from nuclear by 2050, up from 4% in 2013. (Even Japan intends to restart several nuclear reactors, perhaps paving the way for a return to its pre-Fukushima level of 30% of electricity provided by nuclear power.)
Both Bank of America-Merrill Lynch (BofA-ML) and BMO Capital have forecasted that uranium prices will rise to test $60 a pound by 2018. And BofA-ML predicted that uranium consumption — which reached 150 million pounds in 2015 — will rise to almost 200 million pounds by 2020. Currently there is a global surplus of 20-27 million pounds, so uranium reactors aren’t going to run out of fuel anytime soon. But even with increased production from Kazakhstan (and potentially Canada, Australia, and lesser producers), analysts estimate the surplus will only be 7.5-10 million tons by 2020.
And the recent agreements Kazakhstan has signed will make it even more indispensable on the global level. In December, Kazatomprom and China General Nuclear Power deepened their existing cooperation with a new agreement for the design and construction of a fuel assembly production plant in Kazakhstan and the joint development of uranium deposits in the country. Additionally, last July Kazakhstan signed a deal to supply India with 5,000 tons of uranium through 2019, beginning this year. (This will be a significant increase from the first contract that expired in 2014 and entailed Kazakhstan supplying 2,100 tons.)
However, a modestly expanding uranium industry cannot make up for the major squeeze that low oil prices are putting on Kazakhstan. The oil and gas industry accounts for a quarter of the country’s GDP and some 60% of its balance of payments. As oil falls to below $30 per barrel, the government is reassessing its economic plans, which were based on a projected $40 per barrel for this year.
In November, President Nursultan Nazarbayev called for annual GDP growth of 5% in the next decade, but the economy expanded only 1.2% in 2015. And since Kazakhstan’s currency — the tenge – was free-floated in August, it has lost 50% of its value to the dollar, sparking double-digit inflation. Furthermore, after the beginnings of dissent from Kazakh lawmakers over the government’s crisis response, on Wednesday the long-serving leader disbanded the lower house of parliament ahead of schedule and set replacement elections for March 20.
Looks like uranium is a rare bright spot in Kazakhstan’s otherwise gloomy outlook.