Kazakhstan’s instability poses significant risk to energy markets | Business | Economic and financial news from a German point of view | DW

Kazakhstan has been an anomaly in an otherwise volatile Central Asia. Years of stability in the country have pushed the resource-rich state’s economy to grow repeatedly over the past two decades, supported by billions of investments from global companies such as Chevron and France’s TotalEnergies.

The former state of the Soviet Union has been rocked by the worst violence it has seen in its 30 years of independence. Days of unrest – initially sparked by rising fuel prices and ultimately turning into an uprising against corruption and nepotism – prompted President Kassym-Jomart Tokayev to declare a state of emergency and call for troops to Russia and its allies to help quell the protests.

The protests and the ensuing crackdown on the world’s largest uranium exporter and a major oil and gas producer have left investors anxious, fearing that social and political unrest will undermine Kazakhstan’s reputation as a travel destination. reliable investment.

“In general, whatever administration emerges from the unrest, it will be aware that the FDI [foreign direct investment] is the goose that lays the golden eggs and won’t want to stop it from laying, ”economist Timothy Ash, an expert in the region, told DW. “It is certain that the natural resources sector will remain relatively well isolated, and it is encouraging to major disruptions in the production of energy and raw materials.

“An interesting question to ask is if the government’s efforts to quell the protests are very violent, will Western governments be pressured into applying sanctions like in Belarus. How will this impact investments in the country? Kazakhstan, ”Ash asked. “I guess the West might just take a more pragmatic approach to ESG [Environmental, Social, and Governance] given the importance of Kazakhstan to global supply chains.

World’s leading uranium producer

Kazakhstan produces more than 40% of the world’s uranium, the main fuel for nuclear reactors, making it a key player in the global transition away from fossil fuels. Many governments, including within the European Union, are stepping up efforts for nuclear energy as part of their plans to decarbonize their economies.

State-owned company Kazatomprom, the world’s largest producer of uranium, said the unrest had so far had no impact on production or exports. However, uranium spot prices rose sharply last week as the unrest could lead to a major disruption in production.

“Any reduction in supplies from Kazakhstan will clearly be felt around the world,” said Jonathan Hinze, chairman of the nuclear fuel market consultancy UxC. “However, the nuclear fuel market is characterized by very long lead times, such that nuclear utilities and upstream nuclear fuel cycle processors all hold significant pipelines as well as strategic stocks, making them protects against short-term supply disruption. “

Cameco, a major Canadian uranium producer and partner in the Kazatomprom joint venture, has warned that any disruption in Kazakhstan could be a “major catalyst in the uranium market.”

“At least it’s a reminder to utilities that over-reliance on a single source of supply is risky,” a Cameco spokesperson said in a statement.

Kazakhstan, which supplies 20% of Europe’s annual uranium needs, has established itself as an outsized player in the uranium market thanks to the low production costs in the country, a key factor for producers of uranium in a post-Fukushima world where demand for and prices for uranium nuclear fuel has flowed.

However, uranium prices have made a comeback in recent years, with countries betting on nuclear power to fight climate change.

“The recent problems in Kazakhstan could certainly give producers outside Kazakhstan a big boost as utilities seek to diversify to avoid over-reliance on Kazakh uranium,” Hinze told DW.

Rich fossil fuel resources

Kazakhstan, a member of OPEC +, is Central Asia’s largest oil producer, extracting around 1.6 million barrels of oil per day. Most of the fossil fuels it produces are shipped abroad, notably to the European Union and China. The country has the 12 highest proven oil reserves in the world with 30 billion barrels of crude oil reserves.

The country is also a major supplier of coal, producing 108 million tonnes in 2018.

The hydrocarbon sector has attracted around 60% of foreign direct investment (FDI) to Kazakhstan since 1991 and accounts for more than half of the country’s export earnings. Global oil majors such as ExxonMobil, Chevron, Italian Eni and French TotalEnergies have invested billions of dollars in the country over the years, helping to foster its oil and gas growth.

In 2018, the country was the world’s ninth largest exporter of coal and crude oil and 12th of natural gas, according to the International Energy Agency. Kazakhstan is one of the main suppliers of crude oil to Germany and the European Union. About 80% of Kazakhstan’s annual oil exports are shipped to EU countries.

The current protests have yet to impact production from Kazakhstan’s three largest oil fields – Tengiz operated by a consortium led by Chevron, as well as Kashagan and Karachaganak, which are owned by Shell.

“[The unrest] comes at a time when OPEC + is struggling to meet its quotas, which maintains upward pressure on oil prices. If we were to see further blackouts, prices could pass their October peak and depending on the level of disruption, triple-digit prices might not be far off, ”Craig Erlam, senior market analyst at OANDA, told DW.

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