As a general rule, the most successful man in life is the man who has the best information
What does nuclear energy have to do with a polar vortex, record cold/snow and climate change?
From the World Nuclear Association (WNA) we take the following numbers as updated January 3rd, 2014. An important point to remember is I’m only going to use demand numbers from ‘future reactors envisaged in specific plans and proposals and expected to be operating by 2030.’
Facts:
- Currently there are 435 reactors operating worldwide producing 375,264MWe. Operable already means connected to the grid.
- Currently there are 71 reactors under construction. Under construction means first concrete for the reactor has been poured, or a major refurbishment under way.
- There are 172 reactors on order or planned. Planned means approvals, funding or major commitment in place, mostly expected in operation within 8-10 years.
- There are 312 reactors proposed. Proposed means specific program or site proposals, expected operation mostly within 16 years.
- Tonnes uranium required for reactors in 2013 = 64,978t
71 reactors under construction + 172 reactors on order or planned + 312 reactors proposed = 555 NEW reactors expected to be connected and supplying power to the grid WITHIN 16 YEARS!
Tonnes uranium required in 2013 was 64,978t, 64,978/435 = 150t uranium per reactor.
555 new reactors times 150t = 83,250t new uranium per year in 16 years.
Adding to that number an industry standard 900 MW LWR typically needs around 350 tons of low enriched uranium fuel on start-up, and about 150t per year after that.
These numbers are driven even higher by the increased demand from the industry for future bigger reactor sizes of up to 1200 MW per power plant.
In 16 years, in 2030, we could be using as much as 148,228t (326,101,600 lb) uranium per year - if all the new reactors are built and no reactors are taken-offline.
Demand forecasts for uranium depend largely on installed and operable capacity. Once nuclear reactors are commissioned its very cost effective to keep them running at a high capacity. When demand load changes, utilities can burn more, or less fossil fuel to meet the changing requirements.
James Conca stated in Polar Vortex – Nuclear Saves the Day:
“In New England, natural gas electricity generation faltered so much that regional grid administrator ISO New England had to bring up dirtier coal and oil plants to try to make up the difference. Nuclear energy didn’t have many problems at all and actually became the primary provider of electricity in New England, just edging out gas 29% to 27% (Hartford Business). Oil generation made up 15% while coal accounted for 14%... coal stacks were frozen or diesel generators simply couldn’t function in such low temperatures. Gas choked up – its pipelines couldn’t keep up with demand – and prices skyrocketed. Nuclear did quite well throughout the vortex period. The entire fleet operated at 95% capacity, a ridiculously high value (NEI).”
The latest forecast from the World Nuclear Association (WNA) has a base casedemand of 205 million pounds of U3O8 for reactors in 2020 and 255 million lb for 2030.
UxC pegs its base case at 275 million lb with a high of 355 million pounds for 2030.
Current annual global uranium consumption is 190 million pounds, annual global mine production is 140 million pounds, resulting in a current 50-million pound deficit.
That’s today’s deficit. In 16 years time we’re suppose to ramp up uranium production (according to the WNA & UxC base cases), anywhere from 65,000 million lb all the way up to 135 million lbs new mined uranium? Two base case scenarios are telling us we need to at least double, maybe even triple, mined uranium production in just 16 years.
In 2010, 22% of uranium came from secondary sources (uranium stocks held by miners, power plant builders and plant operators, as well as government stockpiles) this number had shrunk to 14% by 2012.
The HEU agreement governing the sale of decommissioned Russian warheads expired the end of 2013 -20 million lb’s of annual supply removed from the market.
The last time excess uranium supply was this low (8% as a percentage of demand) was just before Fukushima when the spot price was US$70/lb U3O8.
Considering it takes over 11 years to find, develop, permit and build a mine we better get busy.
Uranium mine production, also known as primary supply, met 86% of nuclear power generation needs in 2012. While this is up from 65% in 2005, the absolute gap has been rising – from 7,480t uranium in 2005 to 10,470t in 2012.
In 2012, eight companies marketed 88% of the world's uranium mine production and a net combined total of nearly 99% of world uranium consumption was being imported into user countries.
Governments play a huge role in regards to uranium supply:
- The Kazakhstan government controls 60% of domestic production through Kazatomprom.
- JSC Atomredmetzoloto (ARMZ) and Uranium One are controlled by Russia.
- Navoi Mining and Metallurgical Combinat (Navoi) is controlled by Uzbekistan.
- The French government holds a 10% stake in AREVA.
Some of the new mines counted on to reach substantial production are:
- Four Mile, Australia
- Cigar lake, Canada
- Talvivaara, Finland
- Imouraren, Niger
- Husab, Namibia
Some key deferrals and shutdownsinclude:
- BHP Billiton Ltd.’s (BHP) Olympic Dam expansion in Australia has been postponed indefinitely.
- Uranium One’s halted its Willow Creek mine expansion. Uranium One also mothballed its Honeymoon project in South Australia due to low uranium prices and high operating costs. The company’s Mkuju River project’s commissioning date of 2017 might be pushed back as the company needs to optimize the feasibility of the mine.
- Postponement of development at Rosatom Mine #6 (Priargunsky) and shutdown of Mine #2
- Capacity reduction at JSC Atomredmetzoloto’s Khiagda mine.
- Delayed Imouranen startup to mid-2016.
- Cameco’s Kintyre project in Australia is not economically viable at current uranium prices.
- Production from Energy Resources of Australia Ltd. Ranger 3
Deeps underground mine was anticipated to begin in 2017. Two recent leach tank spills at the company’s existing Rössing (Namibia) and Ranger (Australia) open-pit mines has resulted in the Australian government suspending all mining activity. The Australian government is currently conducting an audit to assess the impact.
- Talvivaara Mining announced in the fall of 2013 that a weakened liquidity position was forcing the company to explore various funding options. Production at the companies Sotkamo nickel/uranium mine may be halted indefinitely.
"Cigar Lake is among the most technically challenging mining projects in the world…" Tim Gitzel, Cameco's president and CEO
KazAtomProm’s CEO announced Kazakhstan’s uranium output in 2014 was going to be similar to 2013 at 21,000 tU. This might signal Kazakhstan, the world’s number one uranium producer, is reaching peak uranium production levels of 50 Mlb/y.
Expect 2014 to be a rebound year for uranium spot prices for many reasons:
Japan: The Fukushima disaster in March 2011 destroyed four of Japan’s 54 nuclear power reactors - 16 of the remaining 50 have already applied to restart operations. With six of the 16 applications being prioritized for government review there could be as many as 6 Japanese reactors online by the end of 2014.
Japan has enough uranium (an estimated 100 million pounds) to last up to 10 years – that’s the overhang that’s driven down spot prices and the reason utilities have been holding off buying long term. But if Japan’s utilities are restarting their reactors it means that the threat of them dumping their inventory stockpile has been removed from the market. This could jump start buying as global utilities recognize the growing risk to future supply availability.
And of course it means Japan itself would be returning to a nuclear reactor demand of >10 Mlbs/year in less than half a decade as they would need to secure long term uranium deals well before their stockpiles ran out.
UUR: Cumulative uncovered uranium requirements (UUR). UUR represents what utilities have to buy to meet their needs in future years, while maintaining strategic inventory levels. Utilities contracted for 160 Mlbs (average) of uranium per year over the last decade yet utilities only contracted for 20 Mlbs in 2013.
According to UxC, in 2003, the 12-year forward uncovered requirements were 130 million lb U3O8. Today, the 12-year forward uncovered requirements are just short of 200 million lb.
UPC: Uranium Participation Corp. TSX – U, the world’s only physical uranium fund is raising $50 million, most of the $50m will be used to buy uranium.
The effect of a massive uranium purchase by UPC would be threefold:
- Reduction in current excess supply
- Upward pressure on the uranium price
- Another spark to ignite utility buying
A one million pound UPC uranium purchase would represent 2.3% of total 2013 spot market volum
Shale gas: The key to the U.S. natural gas boom is the use of new technology. Hydraulic fracturing, fracking, and horizontal drilling have tapped huge resources previously thought unrecoverable.
However the decline rate of shale gas wells is very steep. A year after coming on-stream production can drop to 20-40 percent of the original level.
Here’s James Howard Kunstler, author of "The Long Emergency" and his take on the situation:
“In order to keep production up, the number of wells will have to continue increasing at a faster rate than previously. This is referred to as "the Red Queen syndrome" which alludes to the character in Alice in Wonderland who famously declared that she had to run faster and faster just to stay where she is.”
Here’s something else, it’s a link to an Energy Report interview with energy expert Bill Powers.
The shale gas energy boom is not sustainable, will be shorter lived than most anticipate and its global potential is vastly overstated.
Consider also
Germany: the loss of 17 reactors will occur at approximately the same time as India’s rapid growth in nuclear energy - by 2030 India should have seven more reactors online than Germany will have taken offline.
AREVA has signed a €1.25 billion deal to build a new Angra 3 reactor in Brazil by 2016.
Canada and the European Union (EU) have reached a nuclear technology free-trade agreement.
China is going to help Pakistan build a US$9.6 billion nuclear power complex in Karachi.
The Russian federal government has approved plans (construction has already begun on several), to build 21 new reactors in nine different power stations by 2030.
China is currently building 29 reactors, India 6, Russia 10 and South Korea 5. The number of proposed nuclear reactors has been declining since 2010 but the number of facilities under construction, and planned, has increased every year. Projects are getting built and becoming operational.
BP projects that global energy consumption will rise by 41% by 2035, with 95% of that growth coming from rapidly growing emerging economies.
The United Kingdom has offered EDF Energy a power price guarantee for 35 years for a plant that the French utility plans to build in southwest England.
In the U.S. the Watts Bar Unit 2 nuclear plant in Tennessee remains on budget and schedule, commissioning is expected in late 2015.
Also in the U.S. construction of the Southern Company Unit 3 and Unit 4 reactors in Georgia is underway. These units are expected to be completed by late 2017 and 2018, respectively.
Opportunities
On May 31st, 2013 I published ‘Civil Nuclear Energy Renaissance Restart’ in which I highlighted several uranium companies I liked.
Cameco: closed @ CDN $22.54, May 31st 2013.
Uranium One: May 31st 2013 closed @ $2.77, last trade $2.85 defunct (taken private)
Uranerz: May 31st 2013 closed @ CDN $1.33.
Uranium One has been taken private, Cameco and Uranerz are still on my list and TSX-U is a new addition.
Cameco Corp. TSX: CCO, is the largest publicly traded uranium company and the world’s third-largest uranium producer.
CamecoHighlights:
- Vertically integrated
- Engaged in fuel conversion services and nuclear power generation
- Top-producer status
- High-grade deposits
- Low cash costs
- Organic growth in stable jurisdictions
- Healthy balance sheet
Cameco Corp. is the bellwether uranium mining company. The company is planning to increase its U.S. production in the Powder River Basin, Wyoming.
Uranium Participation Corp. TSX – U, UPCis a Canadian investment fund that purchases and holds both uranium oxide concentrate (U3O8) and uranium hexafluoride (UF6). The fund’s primary objective is to achieve capital appreciation through the value of its uranium holdings.
UPC would seem to offer investors all the upside of a potential uranium market rebound yet isn’t saddled with the exploration and operational risks other equities in the sector have.
Uranerz Energy Corporation, (URZ), is a U.S. mining company operating in Wyoming’s Powder River Basin where it controls a large strategic land position. URZ is expected to be in production (annual recovery targeted for 600,000 to 800,000 pounds after ramp-up) in early 2014.
Uranerz has a processing deal with Cameco and long term sales contracts for a portion of their production with Exelon (operator of the largest nuclear fleet in the U.S.) and an undisclosed U.S. utility. The Company’s Nichols Ranch ISR uranium project, in Wyoming’s Powder River Basin, is licensed for a capacity of two million pounds per year of uranium yellowcake.
There’s a significant uncovered long term uranium requirement. With so many projects being deferred or cancelled outright, with existing mines being shutdown, with Japan restarting and with continued demand growth from other regions of the world it’s going to become increasingly difficult for utilities to meet uncovered uranium needs.
Facts are:
- Globally mined uranium is far from abundant.
- It can take 11 or more years to develop, permit and build a mine.
- Uranium demand could more than double over the next 16 years.
- The here today (but unrecognized by most) uranium supply pinch is not going to go away for a very long time.
Are, 1. the truth that nuclear energy is our only option for base load power, 2. the here today uranium supply pinch, and 3. the aheadoftheherd.com investment opportunities presented in this report, all on your radar screen?
If not, they should be.
Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.
Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard does not own shares in any company mentioned in this report.
Uranerz Energy Corp. TSX – URZ is a paid advertiser on Richard’s website aheadoftheherd.com