Uranium – facts and errors

By Roland Houghton*

Nuclear energy is arguably one of the most controversial topics, however, given the global energy crisis, there has been a shift in sentiment towards nuclear energy, particularly as countries seek to diversify away from Russian energy dependence.

But if you ask the average Aussie or Kiwi about their views on nuclear, the initial reaction is often one of fear and uncertainty. But if it’s so bad, why are people like Warren Buffet investing so much in next-generation nuclear technology?

uranium cycle

Uranium is a relatively common material, which is enriched, made into fuel rods which are then used in nuclear power plants.

Source: World-nuclear.org.

Source: Wikipedia.

In terms of energy production, nuclear represents 10% of the world’s electricity and the United States is by far the largest producer. However, France is the most dependent, since ~70% of its electricity is produced by nuclear energy.

Now, where this all gets very interesting is the supply and demand dynamics that we see playing out in the uranium sector. Basically, nuclear reactors consume 180 million pounds of yellow cake per year, but only ~130 million/pound per year is extracted.

So how does it work?

Well, the industry has been in a state of oversupply for years for a myriad of reasons, but the main driver was really Fukushima. In an instant, 13% of global demand plummeted overnight and as a result, the market went from slightly oversupplied to very oversupplied. Many mines have been put on maintenance and after many years of a very unbalanced market we are slowly heading into a net supply shortfall.

This, below, shows supply (bars) versus expected demand (line chart).

Source: Paladin presentation (PDN.ASX).

The spot uranium price is barely recovering (U308 USD/lb).

So what are the main advantages of nuclear energy?

It has one of the lowest carbon footprints of any power generation.

  • The use of nuclear energy today avoids emissions roughly equivalent to removing a third of all cars from the world’s roads. Plus, while it only accounts for 20% of America’s energy, it accounts for 55% of their carbon-free energy.

From a generation standpoint, it’s incredibly efficient and reliable.

  • It has a capacity factor of 92.5%, which essentially means that nuclear power plants produce maximum power for more than 93% of the time during the year. It’s much more stable than wind and solar which are subject to weather conditions, which means you can adjust the supply in real time.
  • Another interesting statistic is that a pallet of uranium fuel, the size of a 50c coin, creates as much energy as 17,000 cubic feet of natural gas, 564 liters of oil and one ton of coal. That is, one kg of natural uranium will yield approx. 20,000 times more energy than one kg of coal.

They can also last for decades once built, with some factories in the US having had their lifespan extended to 80 years!

What are the main negative points?

Nuclear waste.

  • While this is undoubtedly a risk, it has grown disproportionately larger over the years. 97% of the waste produced is low or intermediate risk. Recycling efforts are increasing and in France, given the reprocessing of a large part of their fuel, only 0.2% of total waste is considered high-level waste.
  • Now, it is undeniable that high-level waste takes 1,000 to 10,000 years to return to the same level of radiation as when it was mined, but after 40 years of storage, the radioactivity of most waste decreases to a thousandth of the level of when it was enriched. In addition, new technologies considerably reduce the waste produced.

The risk of a nuclear meltdown.

  • The Chernobyl meltdown will forever highlight the risk of a complete and uncontrollable nuclear meltdown. This led to thousands of deaths and radiation risks to this day. The 2011 tsunami-triggered Fukushima meltdown caused no deaths or adverse side effects, but the cleanup is expected to take up to 40 years and radiation was released into the ocean.
  • New technologies have greatly increased the safety of the world’s nuclear reactors and each negative event has seen significant advances in the safety of these reactors. Nevertheless, there will always be a risk, great or small, of collapse when it comes to nuclear energy.

The risk of weaponization of nuclear waste.

  • Nuclear waste has never fallen into the wrong hands, but as we see in Ukraine, nuclear facilities can become military targets. It is important to note that these facilities are designed to withstand bombings and terrorist attacks.

The cost.

  • Nuclear is very expensive to build, costs billions upfront and takes years to complete construction. Actual operating costs after construction are very low and much research is being done on reducing construction costs.

Source: OECD Nuclear Energy Agency.

There are many fascinating recent developments in nuclear, from Bill Gates and Warren Buffet spending billions on a nuclear reactor in Wyoming, to an exchange-traded fund called Sprott sucking uranium from the spot market, to the European Union considering including nuclear in its taxonomy – essentially labeling it as green energy.

Whatever its position on nuclear power; 2021 delivered a new record for the amount of coal burned globally, underscoring the desperate need for new energy solutions. Therefore, alternative energy sources will continue to gain momentum globally.

*Roland Houghton is an investment analyst at Milford Asset Management. This article first appeared here and is used with permission.

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