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? Read on to find out…
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.
Nuclear Saves New England…
“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).” James Conca, Polar Vortex – Nuclear Saves the Day, Forbes
The
latest forecast from the World Nuclear Association (WNA) has a base case demand 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 shutdowns include:
- 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 volume.
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.
Cameco
Highlights:
- 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, UPC is 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 Corp. NYSE
– MKY, TSX.V – URZ, Uranerz
Energy Corp. (NYSE: MKT, TSX: 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.
Conclusion
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.
Richard (Rick) Mills
Richard
lives with his family on a 160 acre ranch in northern British Columbia. He
invests in the resource and biotechnology/pharmaceutical sectors and is the
owner of Aheadoftheherd.com. His articles have been published on over 400
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***
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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
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opinion are those of Richard Mills only and are subject to change without
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Uranerz Energy Corp. TSX – URZ is a paid advertiser
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