We all know that China, Russia, India and Brazil are deploying a large number of nuclear reactors. England and a few middle eastern countries like Saudi Arabia and the UAE also have big plans. Not only is the world’s population reportedly growing from about 7 billion to 9 billion + by 2050, the proportion of the population using significantly more electricity, i.e. middle-class citizens of the world– is growing as well. The world’s middle-class could rise from 4-5 billion today to perhaps 7 billion. On top of that, there’s the possibility (some would say likelihood) that the mix of base load power generation (coal, gas, nuclear, hydro, etc.) will shift towards nuclear. I’m certainly in that camp.
Only about 30 countries currently utilize nuclear power at all. That’s less than 20% of the world’s nation states. No matter how one slices it, there’s going to be a huge increase in the amount of uranium required. Cameco’s 10-yr forecast of uranium demand is a CAGR of 3.5%. Where will an additional 70 million pounds of annual supply come from? That’s a good question. There are many problems on the supply side, ranging from terrorist activity and resource nationalism in select African countries, to severe water scarcity concerns, to depleting reserves in key countries, most notably Kazakhstan. While we may not be looking at, “Peak Uranium,” it appears that the low hanging fruit has been harvested in many parts of the world, especially the lower-cost supply.
Supply challenges could be more problematic than pundits realize
But, here’s where it gets interesting, virtually all of the talk about uranium revolves around when will demand pick up to move spot and long-term contract prices higher? Some pundits are calling for a shortfall in supply as soon as 2016, others say 2018-21. But, in looking at the data from the World Nuclear Association, a different worry surfaces in my mind. Of the top producing uranium countries (those producing at least 1,000 tonnes in 2013) are countries such as Kazakhstan, Niger, Namibia, Russia, Uzbekistan, China, Malawi and Ukraine. This is not all that comforting. Yes, supply could keep up with demand over the next few decades, but I would not count on consistent growth or no supply disruptions from some of these countries. In addition, Russia has considerable influence in Ukraine and Russia’s power base is increasingly centered around its abundance of natural resources. Do I trust Russia (or China) to supply the world with uranium without fail for the next several decades? Has Russia ever used oil or natural gas delivery as a sanction or threat against another country? I’m not saying that Russia or China will be the aggressor in some sort of geopolitical event, just that $%^& happens!
Global demand is probably understated by the World Nuclear Association
Switching gears to the demand side, many commentators refer again to the World Nuclear Association’s list of global reactors that are; “operable, under construction, planned and proposed.” I think this data underestimates long-term demand. Consider this–3 of the top 10 populations on the planet have virtually no nuclear aspirations (yet). Indonesia, (5 reactors planned or proposed), Bangladesh (2 reactors planned) and Nigeria, (0 reactors planned or proposed). Japan is a top 10 populated country with zero reactors in operation. I believe that 20-25 reactors will return to service in Japan before the end of this decade. That’s as important as China and India’s aggressive growth plans for intermediate-term demand.
Compare Bangladesh to Canada with about 1/5 the population and 24 operable, under construction, planned and proposed reactors. I think that long-term demand will be greater than expected, especially as BOTH the World Bank and IMF have recently proposed curtailing or heavily taxing the construction of new coal-fired plants. Other global agencies and countries are following the World Bank’s lead in just saying no to coal. Therefore, countries like Indonesia, Bangladesh and Nigeria, will have to turn to nuclear in a much more meaningful way.
Who will pay for third world countries multi-billion dollar nuclear programs?
Giant conglomerates and/or State sponsored entities in France, Russia, China, South Korea, Japan and the U.S. are fighting for this business. Programs to build and operate nuclear facilitates can be very lucrative. For some countries it’s a matter of pride and power projection to get as many contracts as possible. Contracts including permitting, design, testing, building and maintaining reactors as well as selling the uranium, installing the fuel and removing spent fuel rods. Better still if the World Bank or IMF guarantees the loans from the third world countries!
I believe that there will be a widening gap between supply and demand that may grow to levels not anticipated by market participants who rely largely on World Nuclear Association data. The WNA is an excellent source of information on all things nuclear, but it’s a snapshot in time. I believe that both supply will be lower due to some questionable countries as the world’s top producers and that demand will be greater due a number of the most populous countries with virtually no nuclear programs.
By Peter Eptsein, Courtesy of InvestorIntel August 8, 2014
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