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Introduction

The world became pre-occupied with economic recovery, but then we had a coal mining disaster and a massive oil spill, reminders that our energy problems have not gone away. The global recession caused energy use to fall in 2009 for the first time since 1981, but the International Energy Agency (IEA) projects energy demand to grow by 41% between 2007 and 2030[1] unless major policy changes occur.

Table 1. – Energy Projections, Current Policies

Fuel

2007

2030

07-30 % Change

Oil

4,090

5,104

25%

Coal

3,248

4,934

52%

Gas

2,526

3,743

48%

Nuclear

722

851

18%

Hydro

241

340

41%

Other

1,203

2,042

70%

Total (MTOE)*

12,029

17,014

41%

Source: IEA

* Million tons of oil equivalent (MTOE), is a standardizing measure for energy; one million tons of oil equivalent is the energy generated by burning 1,000,000 metric tons of crude oil.

To meet this growth in demand, fossil fuels (oil, coal, and gas) are expected to grow most rapidly. Coal use is projected to grow by 52%, with its share increasing from 26.5% to 28.8%, unless major policy changes occur. Under this scenario, the number of railroad cars loaded with coal leaving mines every day would increase from 225,687 to 343,044.

IEA Projections: How Realistic?

These projections are disturbing: if nothing changes, forget about efforts to curb global warming. And sadly, there are a couple of reasons to think they are quite realistic:

· Momentum/existing infrastructure: 343,044 coal cars leaving the mines daily - a reminder that the world has invested a tremendous amount in its “energy infrastructure delivery system,” and any major change will be costly.

· Oil companies control oil and gas supplies: and they want to protect their markets for these products; and while they don’t work entirely in consort, they will work to keep prices low enough to keep alternative energies from being profitable in the foreseeable future.

Consider now coal and nuclear energy. Both industries are profitable at existing oil prices. What can we expect in these two industries?

Coal

The World Coal Institute likes to remind us that there is enough coal to last us over 130 years at current rates of production. In contrast, proven oil and gas reserves are equivalent to around 42 and 60 years at current production levels.

But there are problems. Coal travels well in trains, but ocean transport is very expensive. So while Russia and the US are sitting pretty with more than 100 years of coal left at current production rates, coal will never be a leading export.

And then there is the China situation to consider. In my last energy piece, I noted that 72% of China’s energy comes from coal. China is using 2.4% of its proven reserves of coal annually, suggesting it has coal supplies left for 42 years at current use rates. Of course, more reserves will be discovered, but China is growing rapidly, and that growth will increase coal demand.

Suppose coal demand grows at the same rate as GDP. Table 2 indicates what this means: a growth rate of 8% implies that China has only 32 years of coal left. To put this in context, the World Bank estimates that China’s GDP will grow at 9.5%, 8.5%, and 8.2%, in 2010, 2011, and 2012, respectively.

Table 2. – China Coal Use at Different GDP Growth Rates

GDP Growth Rate

Years of Coal Left

0

42

6%

36

8%

32

10%

30

Of course, China is not sitting on its hands: it is scouring the world for oil and gas contracts. The China government could be thinking of trying to buy control of BP (NYSE:BP) as its stock price falls.

But its actions in the nuclear sector are most interesting.

Nuclear

As Table 3 indicates, estimated for installed nuclear capacity in future years continue to rise. The second column is the IEA’s estimate for 2030 mentioned above. Column 3 is a second projection done by the IEA is major policy changes to reduce global warming occur. The OECD is now estimating as much as 680 GWe capacity in 2030, and The International Atomic Energy Agency (IAEA) now anticipates at least 73 GWe in net new capacity by 2020, and then 511 to 807 GWe in place in 2030.

Table 3. – Installed Nuclear Capacity Estimates (GWe)

IEA
IEA
IEA (Green)
OECD
IAEA
2007
2030
2030
2030
2030
328
386
651
680
807
Feasibility - Costs

The World

Is this feasible? What will it cost? A joint study by the Nuclear Energy Agency of the OECD and the International Energy Agency estimated that is would cost $3.974 trillion (in 2008 constant US$) to increase global nuclear capacity from 370GWe in 2007 to 1,200GWe in 2050.That works out to US$4.8 billion per GWe. That figure is consistent with other numbers that range from US$5.0 billion per GWe in the US to US$1.5 billion per GWe in China.

A jump from 328 GWe to 680 GWe installed capacity would cost US$1.7 trillion at US$4.8 billion per GWe. Let’s come at this from another direction.

Table 4 provides data on how electricity is generated worldwide. Suppose we want to replace half of the electricity generated by coal to nuclear. 1 GWe can generate 8,760 GWh in a year. That means you would need 470 GWe of installed capacity to produce 4,113,975 GWh annually. At US$4.8 billion per GWh, that would require an investment of US$2.3 trillion.

Table 4. – World Electricity, by Fuel, 2007

World
Electricity (GWh)
Share %
Production from:
- coal
8,227,950
41%
- gas
4,126,912
21%
- hydro
3,162,165
16%
- nuclear
2,719,058
14%
- oil
1,114,455
6%
- biomass
190,468
1%
- wind
173,317
1%
- other
140,546
1%
Total Production
19,854,871
100%

Source: IEA

Is such an investment feasible? With global GDP of US$60 trillion and investment normally running at 22%, or $13.2 trillion, finding US$2.3 trillion over a couple of decades should not be a problem.

China

Let’s look at China. The World Nuclear Association (WNA) reports that China, with eleven operating reactors on the mainland, has 22 reactors under construction. China aims at least to quadruple its nuclear capacity from that operating and under construction by 2020. It hopes to have 250 GWe capacity by 2030.

Table 5 provides data on electricity generation in China. Note the extremely heavy dependence on coal.

Table 5. – China Electricity, by Fuel, 2007

China
Electricity (GWh)
Share %
Production from:
- coal
2,656,434
81%
- hydro
485,264
15%
- nuclear
62,130
2%
- oil
33,650
1%
- gas
30,539
1%
- wind
8,790
0%
- biomass
2,310
0%
- other
116
0%
Total Production
3,279,233
100%
Quadrupling its nuclear capacity would mean being able to produce 248,520 GWh per year. That increase, 186,390 GWh, would require increasing its capacity by 21GWe. Using US$2 billion as the GWe cost (some estimates for 1 GWe in China are as low as US$1.5 billion), this will cost only US$42 billion. This should be no problem for China.

But let’s consider something somewhat more ambitious: could China replace half its electricity generated by coal with nuclear? That would mean increasing nuclear production by 1,328,217 GWh annually. That would take an additional 151 GWe of capacity. At US$2 billion per GWe, that would cost US$302 billion. With a GDP of US$5 trillion annually, this investment would also seem feasible over a couple of decades.

Feasibility – Technical

There are exciting new technical developments taking place in the nuclear industry:

  • Breeder reactors are under development;

  • More advanced reactors such as Bill Gates' Traveling Wave Reactor are in the planning stage;

  • Work is on-going to use Thorium in reactors; Thorium is 4 times as abundant as Uranium;

  • Efforts to obtain uranium from the sea continue.

But a word of caution: In our new information age, we tend to assume that all technical problems can be resolved. But things can and will go wrong. The following is from a long-standing nuclear critic:

Technically the nuclear energy system is by far the most complex energy system ever designed. Apart from its technical complexity, the nuclear system is also unique by its exceedingly long stay time. The completion of the sequence of activities related to one commercial nuclear power station, here called a nuclear project, from the start of construction through the safe disposal of its last radioactive waste, may take 100-150 years. The ease with which the nuclear industry waives the unsolved problems of nuclear power suggests an attitude of ‘après nous le déluge’.

Feasibility - Other

The joint study referenced earlier by the Nuclear Energy Agency of the OECD and the International Energy Agency gave the impression that most of the concerns with nuclear are manageable. But there are extraordinarily complex logistical and regulatory problems that still must be faced. China is in a much better position to deal with these problems than is a democracy.

Investment Opportunities in Nuclear

Who develops and produces nuclear power generating plants? Westinghouse, originally an American company, is now part of Toshiba. Toshiba is too large for any growth in its nuclear business to have a significant impact on its profit. AREVA (CEI.PA) is the major European nuclear group: the French government holds a majority of its stock. General Electric, Toshiba, and Hitachi are also big players in nuclear. But again, their other operations are too large to make them a nuclear pick. The Russian and Canadian governments are also important nuclear players.

How about uranium as a commodity? Very tricky. The speculators are already in. There are a lot of uranium reserves that can be tapped. The one thing we do know: nuclear power will grow rapidly over the next decade, and the demand for uranium will grow along with it.

I am sure there are some great nuclear investments: every industry has someone making “widgets” that turn out to be very profitable.

Acknowledgement: I want to thank davewmart for a number of helpful comments on this piece.


[1] International Energy Agency, Key World Energy Statistics 2009.

Disclosure: No positions

Source: From Coal to Nuclear: A Look at the Numbers