URANIUM MARKET TRENDS

Abstract

The recent UN Climate Talks in Paris have put forward the goal of limiting the global temperature rise to two degrees Celsius by the end of the century. This is providing a strong political base for expanding the nuclear power capacity because of the critical role that nuclear power plants play in the production of electricity without emissions of greenhouse gases. In all, more than a dozen countries get over 25% of their energy from nuclear power, with 437 nuclear reactors operating around the world. On top of that, there are another 71 reactors under construction, 165 planned, and 315 proposed. Global uranium demand is expected to rise 40% by 2025 and 81% by 2035. Mined supply of uranium will struggle to keep pace amid rising demand and falling secondary supplies. A cumulative supply deficit is expected to emerge by 2021 while 2016 marks a huge inflection point for the industry, beeing the first year that demand will actually exceed supplies, creating a 60,000-tonne shortfall by 2018. Over the next 10 years, we're going to see uranium prices more than double while the bull run will begin in earnest in 2016.

Headnote

Abstract

The recent UN Climate Talks in Paris have put forward the goal of limiting the global temperature rise to two degrees Celsius by the end of the century. This is providing a strong political base for expanding the nuclear power capacity because of the critical role that nuclear power plants play in the production of electricity without emissions of greenhouse gases. In all, more than a dozen countries get over 25% of their energy from nuclear power, with 437 nuclear reactors operating around the world. On top of that, there are another 71 reactors under construction, 165 planned, and 315 proposed. Global uranium demand is expected to rise 40% by 2025 and 81% by 2035. Mined supply of uranium will struggle to keep pace amid rising demand and falling secondary supplies. A cumulative supply deficit is expected to emerge by 2021 while 2016 marks a huge inflection point for the industry, beeing the first year that demand will actually exceed supplies, creating a 60,000-tonne shortfall by 2018. Over the next 10 years, we're going to see uranium prices more than double while the bull run will begin in earnest in 2016.

Keywords: nuclear power, uranium supply, uranium demand, uranium prices.

Introduction

In 2015 the dynamics of supply and demand for industrial and precious metals were out of favor. The worst performer, with a decline in prices of about 40% is rhodium. The next two are nickel and iron ore, each down more than 30%. Tin, zinc, palladium, platinum and copper aren't far behind, each down more than 20%. Gold and silver were down about 5%. Uranium is one of the few commodities that hasn't gotten trounced. It's traded roughly flat over the past year. That's because, here, the supply-demand fundamentals have already begun to turn.

But here's the secret about commodities: They're elastic. As they get cheaper, demand increases and supplies shrink. It happens every time.

This chart shows how commodities have performed over the last 160 years.

As you can see, every sharp decline is followed by an equally dynamic rebound.

Each boom and bust cycle lasts about seven or eight years. The down-cycle we're witnessing right now began back in 2010. So if the pattern holds we'll see another boom begin around 2017.

That's not a given, of course. These cycles can be extended by overarching circumstances.

For instance, the boom cycle that began in 1933 was exacerbated by World War II. As a result, it lasted almost two decades. Similarly, the commodity price collapse that occurred from 1974 to the late 90s was exacerbated first by Fed Chairman Paul Volcker's war on inflation, and then the collapse of the Soviet Union.

These kinds of watershed events are atypical but they do happen. Still, it doesn't change the fact that the trend always reverses.

For instance, platinum and palladium are set for an annual deficit this year - 20.3 million tonnes for platinum and 13.3 million tonnes for palladium. Yet, these metals are at their lowest level in seven years. Copper and nickel will eventually come back into fashion, but not for a while. Silver is expected to double its present value of around 15$ per ounce in the next two years, but after a possible fall to 10$ per ounce.

The Third Energy Era

There have only been two true eras of energy so far - the chemical and mechanical. Only recently have we started the transition to the third - the elemental.

The first two eras are marked by two tracts of knowledge. The first is chemistry, and the development and exploitation of fuel sources. The second is engineering, and harnessing potential through efficiency and transmission. In many regards, we haven't changed our ways since we started using wood fires for heat and light.

What we do to coal, natural gas, gasoline, and jet fuel is the same. We exploit the chemical structure of a fuel to break down molecules in an exothermic reaction.Then we use the heat however we can. The problem, to date, has been how much heat we end up losing in the process, or building something robust enough to contain the reaction.

If you have a fireplace, you aren't too far offfrom where we started when our ancestors learned how to burn wood. Only 10% of the heat released actually heats your house. The rest goes right up the chimney. With so much energy being lost, increasing the fuel supply is a terrible idea. The scaling at 10% efficiency is horrendous. A constant stream of incremental improvements resulted.

Using the same principles of mechanical force used for wind and water mills, engineers drove up efficiency by using turbines, coupled with closed steam pipe systems. The discovery of ideal fuel-to-air ratios led to efficient pistons that, when paired with camshafts, opened up even smaller engine designs that could be mounted on vehicles. Coolants and lubrication reduced friction and excess heat, allowing more efficient, higher RPM designs. Weight reductions from material changes drove down weight.

The dynamo transformed mechanical energy into a stream of electrons. Wires were thrown up worldwide to blanket the world in an electrical grid carrying power from chemical reactions. Even state-of-the-art batteries simply exploit unbalanced chemical reactions to generate a constant flow of electrons. So much has changed in recent history, but it has all been through incremental improvements upon tried and true chemical and mechanical laws of nature, often rapidly adopted whenever a new scientist's discovery or engineer's design is revealed.

It wasn't until the middle of the last century that the third era started to emerge, marking fundamental breaks from both the chemical and mechanical eras.

The Elemental Era

The new era of energy dives into our relatively new understanding of our universe. We are going beyond molecular reactions to exploit the fundamental properties of atomic forces and physics. Power generation from basic nuclear physics is becoming the norm. In regard to the nature of the fuel, nuclear and solar power, so different in public perception, must be lumped together.

Nuclear power, as we know it, approaches elemental power via ultra-heavy atoms that can be forged by nothing less than the crucible of the catastrophic explosion of ancient stars. No burning, no chemical reactions, no carbon pollutants. The fundamental, unstable nature of the radioactive isotopes we refine are enough to create constant heat to turn steam turbines.

The energy potential is unfathomably greater as well. By weight, uranium packs about 17,000 times the energy potential of modern fossil fuels.

Solar energy exploits the other end of the nuclear spectrum. Hydrogen and helium fuel the 10 billion year-long thermonuclear explosion, barely contained by gravity, commonly known as the Sun. We capture the tiniest hint of a fraction of the energy that rains down on us as solar radiation, with maybe 15-20% efficiency. Yet it is still enough to be economically feasible and capture over half of the total world energy market by 2050.

This third era is going to change so much that we cannot possibly imagine the full implications today. The latest designs for both power sources have shed their early limitations, and the world is rapidly moving to exploit element-based power sources as quickly as possible to reap unprecedented benefits. New generation designs for nuclear power, such as molten salt reactors, cannot melt down and can reprocess old fuel.

...there are several things that are making it more likely that we are going to see some real progress on the nuclear front. Certainly at the top of the list is the emergence of global concern over climate change issues. It's hard - even for the people who've long opposed nuclear power - to fight nuclear energy and global warming at the same time. People now recognize the critical role that nuclear power plants play in the production of electricity without emissions of greenhouse gases.

How long will our supplies of uranium and thorium last?

Ask a geologist how much uranium we have and he won't give you an easy answer. Or maybe he will, but then the answer is not of much use. The simple answer is: the earth's crust contains 2,8 parts per million (ppm). That's enough uranium to serve us until the time the sun turns into a red giant, more than a billion years from now. But it would mean ploughing over the planet and most people would want to avoid that - so let's get practical.

Uranium is literally everywhere, in rocks and in oceans. How much of it we can use, depends on how hard we look for it and on what we are willing to pay for it. Let's start with a moderate estimate of available resources of uranium. On world-nuclear, we see the known supplies of the world: 5.327.000 tonnes. In our extreme scenario, using 70.000 tonnes per year, this would last us 76 years. Not really a an impressive number. Even if we add the known supplies of thorium (3.385.000 tonnes worldwide), we would only roughly double this number to, say, 150 years. (To make things appear even worse, the number of tonnes per year in our extreme scenario is almost the same as the amount our present nuclear power plants use: 68.000 tonnes annually. That's mainly because conventional nuclear reactors use only about 0,5% of the energy content of the uranium)

But the quantity of thorium quoted above (5.327.000 tonnes) is the thorium that can be sold for the market price of 80$ per kg (and hence, must be produced cheaper). What if we are willing to pay more? How much more uranium and/or thorium does that make available? For instance for Thorium, the Atomic Energy Commission has studied the available resources in 1969. Of this thorium, we've hardly used anything since those days. The report raises the question how much thorium is recoverable at a price of 500$/kg in 1969 dollars, perhaps 3000$/kg today. The answer is 3 billion short tonnes or 2.700.0000.000 metric tonnes, enough to last us 40.000 years in our extreme scenario. For uranium, the figures will be not much different. (And no, 3000$/kg is not a ridiculous price. At this price, we'd need to pay $3.000.000 for the fuel to produce 1GWe-yr. And 1 GWe-yr equals 8.760.000.000 kWh, which means a fuel cost of $0,0004 per kWh.) This means that even in our extreme scenario, the combined uranium and thorium of the United States would be enough to power the world for about 100.000 years.

If that is not enough to be called 'sustainable', consider yet another option: seawater. Uranium forms soluble salts and the seas contain 0.003 ppm Uranium. Again, that doesn't sound like much, but according to Masao Tamada of the Japanese Atomic Energy Agency it adds up to about 4.5 billion tons, adding another 64.000 years of sustaining our extreme scenario. The technique of winning this sea-uranium is still in its infancy, but Japanese researchers have succeeded in winning it at a cost of $240/kg. And here's an article that describes the technique of extractring the uranium. The production speed is still very low and not nearly enough for the yearly refill of a single molten salt reactor, but we have all the time in the world to improve our technique... Still not satisfied on the sustainability? The concentration of the uranium in the sea is an equilibrium. Meaning: if we take some out, nature will refill the store through rivers and rock-weathering - it already does: rivers carry uranium to the sea all the time.

Charles Barton - a respected blogger on the subject of molten salt reactors estimates that dissolved natural uranium from terrestrial sources, that rivers continually carry to the seas, amounts to about 32,000 tons per year*. Finally, uranium in seawater is in equilibrium solution. 'Added dissolved uranium causes other dissolved uranium to precipitate out of sea water. The uranium precipitation is deposited on the sea bottom, but may re-dissolve at some future time.' In short: even in our extreme use scenario, we won't run out of uranium.

And remember, our extreme scenario was pretty extreme: energy produced by solar and wind, and saved by energy conservation, were all discarded. While in reality, these will fill in a substantial part of our energy demands. These sources combined will provide us with all the energy we need.

World Nuclear Power Reactors & Uranium Requirements (1 January 2016)

This table includes only those future reactors envisaged in specific plans and proposals and expected to be operating by 2030.

The WNA country profiles linked to this table cover both areas: near-term developments and the prospective long-term role for nuclear power in national energy policies. They also provide more detail of what is tabulated here.

WNA: Global Nuclear Fuel report Sept 2013 (reference scenario 2015) - for U. 66,883 tU = 78,875 t U3O8

Operable = Connected to the grid.

Under Construction = first concrete for reactor poured, or major refurbishment under way.

Planned = Approvals, funding or major commitment in place, mostly expected in operation within 8-10 years.

Proposed = Specific programme or site proposals, expected operation mostly within 15 years.

New plants coming on line are largely balanced by old plants being retired. Over 1996-2013, 66 reactors were retired as 71 started operation. There are no firm projections for retirements over the period covered by this Table, but WNA estimates that at least 60 of those now operating will close by 2030, most being small plants. The 2015 WNA Nuclear Fuel Report reference scenario (Table 2.4) has 132 reactors closing by 2035, and 287 new ones coming on line (figures include 28 Japanese reactors on line by 2035).

TWh = Terawatt-hours (billion kilowatt-hours), MWe = Megawatt (electrical as distinct from thermal), kWh = kilowatt-hour.

** The world total includes six reactors operating on Taiwan with a combined capacity of 4927 MWe, which generated a total of 40.8 billion kWh in 2014 (accounting for 18.9% of Taiwan's total electricity generation). Taiwan has two reactors under construction with a combined capacity of 2700 MWe. It was expected to require 972 tU in 2015.

The Economics of Nuclear Power

* Nuclear power is cost competitive with other forms of electricity generation, except where there is direct access to low-cost fossil fuels.

* Fuel costs for nuclear plants are a minor proportion of total generating costs, though capital costs are greater than those for coal-fired plants and much greater than those for gas-fired plants.

* Providing incentives for long-term, high-capital investment in deregulated markets driven by short-term price signals presents a challenge in securing a diversified and reliable electricity supply system.

* In assessing the economics of nuclear power, decommissioning and waste disposal costs are fully taken into account.

* Nuclear power plant construction is typical of large infrastructure projects around the world, whose costs and delivery challenges tend to be under-estimated.

Assessing the relative costs of new generating plants utilising different technologies is a complex matter and the results depend crucially on location. Coal is, and will probably remain, economically attractive in countries such as China, the USA and Australia with abundant and accessible domestic coal resources as long as carbon emissions are cost-free. Gas is also competitive for base-load power in many places, particularly using combined-cycle plants, though rising gas prices have removed much of the advantage.

Nuclear power plants are expensive to build but relatively cheap to run. In many places, nuclear energy is competitive with fossil fuels as a means of electricity generation. Waste disposal and decommissioning costs are included in the operating costs. If the social, health and environmental costs of fossil fuels are also taken into account, the economics of nuclear power are outstanding.

At 5% discount rate comparative costs are as shown above. Nuclear is comfortably cheaper than coal and gas in all countries.

Uranium Will Be 2016's Best-Performing Commodity

In a bad year for metals and commodities in general, uranium has been the lone bright spot. The glowing green stuffsurged almost 40% since bottoming out at $28.25 per pound in 2014. It's currently trading around $37.

Uranium was drastically oversold in the wake of the 2011 Fukushima disaster. World energy demand is set to rise 37% by 2040, according to the IEA.

Not every country is blessed with massive reserves of natural gas and coal. And the ones that are are rethinking that model in light of climate change. Carbon emissions are no longer en vogue. They pose a serious risk to our health and our environment.

Of course, green energy sources - such as solar, wind, and hydropower - aren't capable of carrying the load on their own. They're too expensive, and they simply don't have enough juice to power the planet.

Nuclear power is necessary. It's cheaper than alternative fuel sources, and it emits no carbon. In that capacity, nuclear energy is actually good for the environment. Nuclear power has avoided the release of an estimated 56 gigatonnes of CO2 since 1971. That's almost two years of total global emissions at current rates.

In all, more than a dozen countries get over 25% of their energy from nuclear power, with 437 nuclear reactors operating around the world. On top of that, there are another 71 reactors under construction, 165 planned, and 315 proposed.

China is the biggest driver by far. The country currently has 17 reactors in operation, another 28 under construction, and more than 100 planned. Beijing is spending a whopping $2.4 trillion to expand its nuclear power generation by 6,600%.

India is in a similar situation. It's pledged to grow its nuclear power capacity from 5,000 megawatts to 63,000 megawatts by 2030.

And Russia aims to boost the share of electricity it gets from nuclear power to 25% in that time, up from 16% now.

Even Japan is restarting reactors. In all, 15 Japanese nuclear plants housing 25 reactors have applied for permission to resume operations. Five reactors have already been cleared. This, predictably, has led to a sharp rise in uranium demand.

Industry consulting group UXC Consulting believes uranium demand will grow 61% by 2035 to 238 million pounds, up from 173 million pounds in 2014. And that may even be lowballing it.

An early 2015 Morningstar report declared: We expect global uranium demand to rise 40% by 2025. Annual growth of 2.8% might not sound like a lot, but is massive for a commodity that has seen precious little demand growth since the 1980s. Consider that average annual copper demand growth of less than 3% from 2002 to 2012 was enough to drive a 336% price increase.

Mined supply of uranium will struggle to keep pace amid rising demand and falling secondary supplies. Low uranium prices since Fukushima have leftthe project cupboard bare. We expect a cumulative supply deficit to emerge by 2021.

These shortfalls should begin to have an impact on price negotiations in 2017 because utilities tend to secure supplies three to four years prior to actual use. We estimate prices must rise from $50 a pound to $75 a pound to encourage enough new supply.

No doubt, the five-year bear market in uranium prices was devastating for producers. Prices slid from $52 per pound to just $28.25 in June 2014. Mining the metal quickly became unprofitable, leading to mine closures and even bankruptcies. Several years ago, there were 500 companies mining uranium. Today, there are just 20. The uranium crash removed 96% of suppliers from the market. Now, 80% of the world's primary uranium supply comes from just 10 mines. And future global supply is dependent on just five newly proposed projects.

That hasn't been a problem up until this point, because the world had adequate reserves to cover for declining production. But 2016 marks a huge inflection point for the industry. This is the first year that demand will actually exceed supplies, creating a 60,000-tonne shortfall by 2018.

Over the next 10 years, we're going to see uranium prices more than double, surging from less than $40 per pound today to more than $80 per pound in just a few short years. That bull run will begin in earnest in 2016. You can expect the metal to rise to at least $50 per pound next year. That alone would be a 35% jump from current levels. After that, it's likely to hit $60 in 2017 and $70 or even $80 in 2018.

Conclusions

The recent UN Climate Talks in Paris have put forward the goal of limiting the global temperature rise to two degrees Celsius by the end of the century. This is providing a strong political base for expanding the nuclear power capacity because of the critical role that nuclear power plants play in the production of electricity without emissions of greenhouse gases. Nuclear power is also cost competitive with other forms of electricity generation, except where there is direct access to low-cost fossil fuels.

Green energy sources - such as solar, wind, and hydropower - aren't capable of carrying the load on their own. In all, more than a dozen countries get over 25% of their energy from nuclear power, with 437 nuclear reactors operating around the world. On top of that, there are another 71 reactors under construction, 165 planned, and 315 proposed.

In this context, a cumulative supply deficit is expected to emerge by 2021 while 2016 marks a huge inflection point for the industry, beeing the first year that demand will actually exceed supplies, creating a 60,000-tonne shortfall by 2018. Over the next 10 years, we're going to see uranium prices more than double, while the bull run will begin in earnest in 2016.

References

References:

* OECD/IEA OECD Nuclear Energy Agency Report 2010;

* US Energy Information Administration Reports;

* The IEA-NEA Nuclear Energy Roadmap 2015;

* The US Nuclear Energy Institute Reports;

* OECD study on Projected Costs of Generating Electricity 2015;

* Ecofys report for the European Commission on Subsidies and Costs of EU Energy 2014;

* Institute for Energy Research (IER) 2015 report on The Levelized Cost of Electricity from Existing Generation Resources;

* WNA Global Nuclear Fuel Market Reports;

* Outsider Club 2016.