The economic realities of soaring energy prices, combined with the development of improved reactor designs, have given the nuclear power industry a new lease on life, and one petro-state is looking beyond its hydrocarbon riches to cash in -- Kazakhstan.

Kazakhstan has the world's second-largest proven uranium reserves after Australia, an estimated 15 percent of the world's uranium resources, estimated at 1.5 million tons, and uranium exports have become a profitable sideline to the country's burgeoning oil exports, rising this year by 42 percent to 9,400 tons from 2007 exports of 6,600 tons. Driven by rising global demand, Kazakhstan's uranium exports have risen even faster than its oil exports: In 1997 Kazakhstan produced 795 tons of the silvery metal; a decade later, Astana had increased exports by 830 percent.

Asian markets alone will guarantee a future market for Kazakh uranium: South Korea relies on nuclear energy to produce 45 percent of the country's electricity, and Japan is not far behind, relying on nuclear power for 30 percent of its energy needs. As in so many other commodity markets, it is the looming Chinese need for energy that will drive Asia's appetite for uranium. China's ambitious nuclear power program will require 22,000 tons of uranium annually, as more than 16 provinces, regions and municipalities have announced intentions to build nuclear power plants within the next eight years, a total of 77 planned and proposed new reactors.

China's Asian competitor India is also increasingly interested in nuclear electrical power generation and has 19 nuclear power reactors on the drawing boards. Adding to the bull market, last year London's World Nuclear Association reported that, in addition to the 437 nuclear power reactors currently in operation worldwide, 256 reactors are either in the planning stage or under construction. Oil- and natural gas-rich Russia, the birthplace of the Soviet nuclear industry, is also to expand its nuclear power industry, learning from its past mistakes. In April 2007 President Vladimir Putin commented, "Over the entire Soviet period, 30 nuclear power plant units were built, but we plan to build 26 such units over the next 12 years, and to do so using the most advanced technology available."

Even Ukraine has announced plans to build 22 new nuclear power stations, while the United States, 29 years after the Three Mile Island partial meltdown, has 23 reactors being proposed. All in all, uranium appears to be the ultimate bull energy market for the foreseeable future, a situation from which Kazakhstan intends to profit.

There is a snag in this rosy picture for Astana's accountants, however. Uranium, unlike other energy commodities in the global market, is not traded freely. At present about 15 percent of uranium is sold via the spot market while long-term contract pricing accounts for the remaining 85 percent, which benefits consumers as it locks in long-term prices to the detriment of producers. It is a situation that the Kazakh government is interesting in changing, as earlier this month it floated the idea of establishing what to all intents and purposes is an international uranium market.

The concept is being promoted by Mukhtar Dzhakiyev, president of the state-owned nuclear holding company Kazatomprom. Dzhakiyev told reporters: "The uranium market is a closed market, and we do not have market prices. To address this problem, we are currently working to set up a (uranium) fund."

According to Dzhakiyev, fund participants would consist of the major uranium producers and consumers, and financial institutions involved in uranium transactions. Elaborating on his theme, Dzhakiyev noted, "The plan is to deposit uranium in the fund and receive shares in exchange for that," after which a uranium trading floor would be set up, where share quotes would serve as "uranium market prices."

According to Dzhakiyev, Kazatomprom had already reached preliminary agreements with some of the market's major producers and purchasers, including the French-German Areva firm, Canada's Cameco Corp., and Russian uranium producers, along with numbers of Chinese, Japanese, European Union and U.S. nuclear power plants. On an optimistic note, barring unforeseen obstacles, Dzhakiyev said the fund could be up and running in 2009.

What is unclear from Dzhakiyev's proposal are the exact mechanics of how the exchange would operate. While such an exchange would eliminate the pricing variables inherent in bilateral long-term contracts, such a market could potentially have an even greater impact than the OPEC cartel, if it led to a similar grouping of uranium-producing nations determined to procure the highest possible prices for their product.

But while the future of such an exchange is uncertain, Kazakhstan's ambitions to increase its uranium are not, as Astana has announced its intention to increase its annual uranium production by 38 percent in two years to 15,000 tons, and to double that figure by 2010 to 30,000 tons.

The International Energy Agency estimates that global energy needs will rise by 51 percent by 2030. If Kazakhstan is able to realize its goals, then Astana's accountants will be faced with a new problem -- where to invest the cash.

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