Major Market Opportunity
Nuclear power - like wind, hydro and solar energy - can generate electricity with
no carbon dioxide or other greenhouse gas emissions. The critical difference is
that nuclear energy is the only proven option with the capacity to produce vastly
expanded supplies of clean electricity on a global scale. Nuclear power and new
renewables are urgently needed as partners if the world's immense clean energy
needs are to be met.
--World Nuclear Association Rising Energy Requirements Driving Increasing Demand for Nuclear Power
The US Department of Energy projects total world consumption of marketed energy
is projected to increase from 447 quadrillion Btu in 2004 to 559 quadrillion
Btu in 2015 and then to 702 quadrillion Btu in 2030—a 57-percent increase.
(Energy Information Administration, “International Energy Outlook”,
May 2007).
Higher fossil fuel prices, energy security concerns, and environmental considerations
are expected to improve the prospects for new nuclear power capacity in many
parts of the world, according to the DoE. Electricity generation from nuclear
power is projected to increase from 2,619 billion kilowatthours in 2004 to 2,972
billion kilowatthours in 2015 and 3,619 billion kilowatthours in 2030. The DoE
predicts the world’s total installed nuclear capacity will rise from 368
gigawatts in 2004 to 481 gigawatts in 2030.
In the United States, the Department of Energy projects nuclear generating
capacity will increase from 100.2 gigawatts in 2006 to 114.9 gigawatts in 2030.
The increase includes 17 gigawatts of capacity at newly built nuclear power
plants (33 percent more than in the 2007 projections) and 2.7 gigawatts expected
from uprates of existing plants, partially offset by 4.5 gigawatts of retirements.
(Energy Information Administration, “Annual Energy Outlook”, March
2008).
“Nuclear energy is an important source of energy in the United States
and is a key component of the AEI portfolio. Nuclear energy is clean, safe,
and reliable, and already supplies about 20 percent of the nation’s electricity.
The Department leads the administration’s efforts to spur a nuclear renaissance
in the United States, necessary to meet energy and climate goals. DOE is working
with industry partners to promote the near term licensing and deployment of
the first new nuclear plants in over thirty years, as well as to extend the
life of current plants.”
-- Department of Energy, Fiscal Year 2009 Congressional Budget Request for the
Office of Nuclear Energy, February 2008 Rising Demand for Uranium
Amid the surge in nuclear plant construction prices have soared—a consequence
of decades of underinvestment in raw uranium.
The World Nuclear Association reports the world’s nuclear reactors currently
consume approximately 66,500 tU/yr. A new reactor takes a first fill of uranium
of around 600 tonnes, then consumes 200 tonnes per year.
As of April 1, 2008, 439 nuclear power plants with an installed electric net
capacity of about 372 GW were in operation in 31 countries. Worldwide 35 new
plants are under construction, 91 are planned, and 228 are proposed. The quantity
of uranium required for 2008 is estimated at 64,615 tonnes. (World Nuclear Association,
“World Nuclear Power Reactors and Uranium Requirements”, 20 March
2008)
Demand for uranium is directly linked to the level of electricity generated
by nuclear power plants. As more reactors are built and the capacity of existing
reactors is increased, the need for fuel will continue to rise. In the US alone
five requests for combined construction/operating licenses were filed with the
Nuclear Regulatory Commission in late 2007 and up to 27 more are expected by
2010. And all of the 104 operating US units are expected to run for 60 years,
rather than the 40 years initially licensed, and most are being uprated, some
by more than 100 MW. (Platts Insight, “Uranium and the Nuclear Renaissance”,
February 2008)
In 2006, uranium production was an estimated 103 million lbs, or 46,720 tonnes,
while consumption was 177,000 lbs, or just over 80,000 tonnes. In 2007, uranium
demand was about 183 million lbs and production was about 117 million, according
to Alice Wong, a vice president at Cameco Corp. "Since 1985 uranium consumption
has exceeded mine production, and you can see it increasing by wider margins.
So you're looking at 20 years, or better, of consumption exceeding mine production,"
Wong said. (Reuters, “Nuclear energy renaissance ignites uranium boom”,
Mar 27, 2007)
The OECD Nuclear Energy Agency and the International Atomic Energy Agency's
latest (2005) Red Book predicted that primary uranium production could satisfy
projected world uranium requirements by 2010 only if all expansions and mine
openings proceeded as planned and production were maintained at full capability.
Secondary sources, such as ex-weapons and government stockpile material, are
expected to dwindle, particularly after 2015, it said.
Increasing Demand Fuels Uranium Prices & Profits for Producers
Uranium hit an all-time high of $138 per pound in June 2007, up from just $7
in 2000. Prices are now stabilizing at $65 and are still historically high as
of April 23, 2008.
Many industry watchers see the recent sell-off and correction in uranium spot
prices as an opportunity for investors. According to the Midas Letter’s
April 13, 2008 article, it’s a buying opportunity for the quality deals
with good grades and pounds in the ground, experienced management, and properties
that are close to infrastructure but away from populations with a tradition
of eco-opposition.
From the April 14, 2008 Global Asset Strategist entitled, “Uranium: Not
Over Yet”: “After the fierce decline in 2007 and the smaller selloff
this year, uranium is forming a bottom here. The potential increases in supply
have already been priced into the market, while many risks to production are
being discounted. The current lull in the market has allowed the spot price
to drift lower. Uranium only needs a buyer to step in to turn the trend around.”
Despite the sluggishness in the market, the uranium bull is far from over.
There are five major reasons why uranium will continue to appreciate in price:
The developing world will demand more energy; peak oil is pushing the world
to look for alternatives to petroleum; environmental pressures are making nuclear
power more attractive; supply is not easy to increase; and uranium is still
a very cheap fuel.
In 2001, a pound of uranium was about $7. That's incredible when you realize
that one ton of uranium is the energy equivalent of 16,000 tons of coal or 80,000
barrels of oil. This makes uranium about 60 times cheaper than oil at the current
prices.
Fund manager David Coates at CQS New City Investment Managers Ltd sees uranium
as an energy source, rather than a metal, and argues that the valuation gap
between oil and uranium will shrink as governments turn to low-carbon emission
energy sources in the future.
Spot uranium prices could ease further short term after falling around 25 percent
this year, but are likely to stabilize fairly soon as utilities and producers
return to the market, analysts say. (Reuters, “Uranium near floor after
this year's collapse”, April 23, 2008)
Ongoing production and supply constraints and questions about whether new production
can be timed to meet demand growth mean the market is likely to remain tight
for some years to come. (Platts Insight, “Uranium and the Nuclear Renaissance”,
February 2008)
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