Nuclear Power Is in Demand 22 comments
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By Darcy Keith
Not surprisingly, the nuclear renaissance on this power-starved planet is not without debate. How it all plays out will surely provide some interesting opportunities for investors.
Nuclear power promises to displace the naughty carbon-producing plants, such as those that burn coal and oil, with a cleaner energy source for decades to come. That could mean less demand for fossil fuels and more for uranium, the fuel most widely used by reactors for nuclear fission. It almost certainly will mean increased consumption of some of the metals and steel that go into the construction of the gigantic nuclear reactors.
Looking at the figures, you'd think the world has embraced nuclear energy once again with open arms. There are currently 439 nuclear plants in operation worldwide, 33 under construction and 94 that are in advanced planning stages, according to Jeremy Gordon, a spokesperson for the World Nuclear Association in London. There are a large number of additional facilities - 222 - that are less firmly planned. Four plants in the United States have applied for regulatory permission to begin construction, says Gordon, but the bulk of the new construction is targeted for China, India, Russia, South Korea and Japan.
But the industry is still the subject of much debate in environmental circles worldwide, and many governments, including those in the United States, have been quick to hand out the red tape to projects seeking approval. Three Mile Island and Chernobyl may now be just distant memories, but fears over splitting atoms still persist to this day despite advances in technology that have made the nuclear process safer.
Let's take a closer look at nuclear power and how investors can position themselves.
Is Nuclear Power Green?
It depends on how you look at it. The actual generation of power through nuclear fission does not produce greenhouse gases. But preparing for the process certainly does, when you take into account the mining of uranium ore, the refining and enriching of fuel, and plant construction.
That doesn't mean nuclear power produces as much carbon dioxide as other dirtier sources of electricity such as coal plants. But, indirectly, there's certainly some impact on the environment when taking into account the entire life cycle.
According to a research paper conducted last year by Uwe Fritsche, a researcher at Germany's Institute for Applied Ecology, a standard 1,250 megawatt power plant indirectly emits between 276,250 and 1.3 million tons of carbon dioxide per year.
That's still generally less than what most coal-fired power plants and natural-gas turbines emit, and comparable to renewable forms of electrical generation, such as wind and hydropower.
A University of Wisconsin analysis found that nuclear's life-cycle emissions are 17 tonnes of carbon dioxide equivalent per gigawatt hour, just slightly more than wind (14 tonnes of carbon dioxide equivalents per gigawatt hour) and geothermal sources (15 tonnes).
Another study, by the International Energy Agency, found that nuclear power's life-cycle emissions range from 2 to 59 gram-equivalents of carbon dioxide per kilowatt-hour. Only hydropower's range ranked lower, at 2 to 48 grams of carbon dioxide-equivalents per kilowatt-hour.
But environmentalists are also quick to point out other risks attached to going nuclear, including the release of hazardous pollutants into ground water and the production of toxic waste that can't be disposed of. Overall, nuclear power isn't considered the perfect solution for a cleaner environment, but it certainly has some advantages over some of the other power-producing alternatives.
How To Invest In Nuclear
It's a little tricky. Uranium isn't publicly traded; its pricing terms are set through private, long-term negotiations. Furthermore, most companies that construct nuclear plants are privately held or have shares trading in hard-to-access foreign markets. General Electric (GE)), a major provider of boiling water reactors, is an exception.
The problem is that GE is such a huge conglomerate, and its energy business - which itself comprises more than just nuclear interests - only accounts for 10% of GE's annual revenues. So, by buying GE stock, you'll not only get exposure to the nuclear industry but also to many other business segments, including, say, NBC television. And you might just find the rising (or falling) popularity of Howie Mandel has more impact on the bottom line than a new order for a nuclear plant.
But you could invest in electric utilities that actually own the plants. They include Entergy (ETR), Exelon (EXC) and Dominion Resources (D). As nuclear power becomes more popular, these companies, which entered the nuclear industry early in the game, should realize a cost advantage amid the skyrocketing prices for coal, oil and natural gas. According to the Nuclear Energy Institute, nuclear plants cost about 1.72 cents per kilowatt-hour to operate, compared with 2.21 cents for coal plants, 7.51 cents for gas and 8.09 cents for oil.
There's a risk though: The cost of new reactors, already an expensive proposition, could go much higher given the rampant inflation in major project costs that the world is facing. That could limit future growth of nuclear interests among the utilities, not to mention slow growth among nuclear plant builders. Already, preliminary reports in the U.S. have estimated a near doubling in some cases of costs associated with new reactor projects on the drawing boards.
To get greater investment exposure to uranium, you could turn to buying shares of Cameco (CCJ), a Canadian miner that has about 17% of the global market for the commodity. The company has been plagued with production problems at some of its mines, but will soon have a new mine coming online and is renegotiating a number of its contracts this year.
Uranium One (SXRZF.PK) is another Canadian-based miner to consider. The company has assets in Kazakhstan, South Africa, Australia, the United States and Canada, and some are already in production.
And here's another interesting play: USEC (USU). The company operates the only uranium-enrichment facility in the United States.
All these stocks have come under considerable pressure as of late and are trading well below their 52-week highs. A key reason is a slide in the price of uranium, which has been softening amid perceptions that supply is more than adequate to meet demand. As of early May, spot prices were hovering at $63 to $65 per pound, down from about $113 a year ago, according to Ux Consulting Company and TradeTech. That's getting close to the cash costs of some producers.
Some would say this is a good buying opportunity for the long-term investor. If you believe nuclear power will continue to see a rise in popularity, uranium prices should go up from here. UBS, for instance, expects spot prices to average $88 this year and $100 in 2009. It believes strong long-term fundamentals will push the price up to an average of $110 in 2010.
Can Nuclear Boost The Fortunes Of Metals Producers?
A lot of steel goes into a nuclear plant, but atomic plant construction will still only represent a drop in the bucket for world demand for steel.
According to Brian Wang, a consultant who runs an advanced nanotechnology website, the nuclear industry is completing 4 to 10 reactors per year worldwide. On the optimistic side, 20 gigawatts of new reactor generation will be built annually until 2015, which would require 800,000 tonnes of steel per year, based on 1970s plant designs. By contrast, world production of steel totaled 1.24 billion tonnes in 2006. So, the number of nuclear plants being built would have to be multiplied 15 times to represent just 1% of world annual steel demand.
Yet, there are still some significant ramifications for some of the metals used in the alloying of steel.
Nuclear plants have reactor vessels that contain long metal fuel-element rods that are made of steel and metal alloys. These rods, which are inserted or withdrawn from the core to control the rate of nuclear fission, are made with neutron-absorbing materials such as cadmium, hafnium or boron. Copper was also used in the rods in some of the older steel pressure vessel reactors.
Molybdenum appears to be the alloying metal most likely to see a ramp-up in demand. While many older reactors tended to use standard steel with stainless cladding on the inside of the pressure vessels, newer ones use high-performance stainless steels that contain as much as 7.5% molybdenum. The addition of molybdenum helps to increase the thermal conductivity that is lacking in nickel, iron and steel.
According to the International Molybdenum Association, larger reactors could utilize up to 1 million feet of stainless steel. Given higher molybdenum grades found in the super alloys, it suggests new nuclear reactors may ultimately need many thousands of tonnes of molybdenum.
So, in a very indirect way, you could get some exposure to the nuclear industry by investing in a molybdenum producer such as Canada's Thompson Creek Metals (TC).
But, for those looking for a more direct stake in the future of nuclear power, uranium producers and utilities may be the ones to turn to. Remember, though, just how big a role nuclear power will play in the future is still murky terrain.
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This article has 22 comments:
Now oil $125, yellowcake $65. Looks like a lot of upside potential
here. Thanks to our foot dragging for 25 years, we will be forced to devolve from oil in the next 5 - 10 years.
Personally, I not a big fan of nuclear power is produced here in the U.S. I wish we had standardized reactor design, and ceramic encapsulated fuel to prevent core meltdown. Most of all, I wish
we had a proper disposal facility not located near the most geologically unstable areas of the country.
That being said, I'm leaning away from URRE and other miners, even though they have substantial mineral rights in N.M. I have yet to see any pickup in uranium mining activity in the Grants area. My choice is USU, mainly due to U.S. govt contracts. It doesn't hurt to be supplying is the reactors in the US, and most of our allies overseas.
I realize that USU has severe cost overruns on their new centrifuge.
But when compared to laser processing, which has yet to proven in a commercial application, I'm taking my chances. I minimize my risk
by balancing my portfolio with GE. I'm not a fan of NLR due to their
small market cap, and expense ratio.
I've been watching USU for awhile... They've had a bump up lately and maybe the prior poster is correct that it is headed to $10 a share .. It was at a peak of around $80 not too long ago .. Too bad.... Bottomed about $5.25 very recently and is around $6.75 now...
However, even though they have a steady government contract to purify spent rod and ship it etc., they are still having problems with getting their new centrifuge online .. When it does come on, it should save them a ton of money as their present generation is electric fed and very expensive... Also, it is supposed to be much larger than existing similar units already being used elsewhere in the world. Supposedly, the major problem with the construction is cost over-runs due to inflating material costs. They are trying to renegotiate their contracts with Honeywell and McDermott ( If I remember correctly )... Who knows...
Another upcoming problem is that the Russians are playing hardball and are expected to raise the costs of their spent nuclear which they are selling to USU as part of our peace agreements. (Have you noticed how pushy these Russians have become lately ... Tsk! Tsk! )
Happy Trails!! jegan ;-)
This [www.ecology.at/nucbiz/... link] shows that "who is who in nuclear business.
FSLR at highs... its just the next hot thing so CNBC can make money... what ever happened to the bird flue.. or the financial melt down
check out www.investorslive.com/...
This does not invalidate the nuclear energy proposition, but its clearly an issue worth evaluating in light of the climate change arguments.
From an investment standpoint, the single largest exposure to all aspects of the value chain from uranium exploration and production to nuclear plant construction and management is Areva (CEI.PA / ARVCF.PK). For a more diversified energy and infrastructure play, but with clear exposure to nuclear plant development, Shaw Group (SGR) is a good opportunity. Energy Solutions (ES) is a back-end play on the management of nuclear sites & waste.
Its important not to buy a basket of any old equities with nuclear attached to them. The utilities mentioned above are going to be the ones paying to develop nuclear plants, so its a capital drain for them for a long time. And with the latest estimates of plants costs at $5 billion to $12 (twelve!) billion, even with loan guarantees, this is a distant way to play nuclear.
Denison Mines (DML.TO / DNN) should clearly have been mentioned alongside Cameco and Uranium One. The point I would focus on here is a very strategic one: CHINA is likely to be both the nearest-term AND largest nuclear developer. Why? It can make it happen faster (for better or worse) because NIMBY concerns can be ignored. More importantly, remember that the Chinese lose 5,000 coal miners every year! These direct deaths coupled with the indirect health issues are a clear concern in China -- the government is aware and cares about these issues.
Many uranium-watchers claim China will try to tie up strategic uranium reserves by buying public explorers and producers. China has no reason to publicly announce this, but it has recently confirmed that its nuclear development is much further along that was expected. China also reportedly met with Cameco recently.
If China were to buy uranium companies, it would go for geographically accessible nations -- and ones without the finger-wagging they get from Australia (for example) about weapons proliferation. India is also going to have the same issues, given that even America will not sign a nuclear agreement with the largest democracy in the world!
Uranium One has operations in Kazhakstan -- very accessible to China and India. Despite its recent logistics challenges operating there, UUU.TO is a logical target, if you like this strategic reserve argument. The American and Canadian producers are not logical targets. Africa is a logical choice, although it a true energy crisis, the Chinese may feel safer having a source closer to home.
I'd steer clear of USEC -- the growth opportunity here has never been clear, and US uranium demand is years away from a significant increase. In fact, the biggest risk to US uranium supply is the Russia agreement being cut back -- but down-blending Russian HEU is a major revenue source for USEC, so it could even negatively affect them.
Finally, hedge funds enjoyed a huge run-up in both physical uranium and uranium explorers. They have reportedly been running from this sector, so the bubble in these shares could still be deflating for a while. Remember there are over 500 public uranium explorers -- clear indication of a bubble within this small sector of the market.
The public will eventually figure it out, demand heads on pikes and make the change in government but not expecting that until 2012 and thereafter. Meanwhile, I place more stake in the solar and hydrogren investments although they are certainly long-term play. I would love to see us team up more fully with Japan and subsidize a $25k hydrogen vehicle and pop the energy bubble, but such things are more like dreams until enough of us run for office.
We need to be very careful about limiting ourselves because of highly speculative theories like man made CO2 causing "global warming". Let's get real, we may be approaching a real global disaster here. See the May 8th commentary at my site (middle clumn, down a little).
As for the financial collapse, consider:
TakeBackTheFed.com
Think Big: I was once on the H bandwagon. One of the engineers
explained to me it just takes up too much volume for most transportation needs. A tank big enough to give me the same range my F-150 gets on gas would take up the entire bed! As for a subcompact, forget it. At best, hydrogen can be used for fixed plant installations, freeing up natural gas for vehicles.
This assumes water is available not only for hydrogen, but for ethanol, oil shale and oil sands. Oil sands in Alberta are already getting a bad rap for the square miles of waste lagoons being created. With water shortages projected just on population growth alone here in the west, this may be another cold fusion project.
You can get more info about this deal at thisweekinuclear.com