A Looming Uranium Shortage?

"Nuclear is wonderful as one of the sources of energy, one of the sources of sustainable energy.”

—Nvidia CEO Jensen Huang

The global nuclear renaissance is gaining steam. Our readers have seen our prior posts on the importance of nuclear power as a clean, efficient energy source (Investing in the Nuclear Renaissance) and how uranium—atomic number 92—is its indispensable fuel  (The Prospects for Uranium). We think society is coming around to the importance of nuclear energy in our global decarbonization plans, and there has been a burst of recent developments further propelling the momentum of this “Second Atomic Age”. 

Recall that nuclear energy is essentially carbon-free and is critical as the world combats climate change and reduces its reliance on legacy energy sources such as oil and coal. Moreover, nuclear power is stable and not weather-dependent (like wind or solar) and hence provides reliable baseload energy throughout the year -- necessary for powering data centers, for which 24-7 uptime is required. Nuclear energy is already a meaningful share of electricity generation for the United States and the world (approximately 20% and 10%, respectively) and this market share appears set to rise.  

Temelín Nuclear Power Station in Czech Republic 

Demand Developments

There are about 440 nuclear power reactors currently operating globally. In addition, about 63 reactors are under construction, and at least another 110 are actively in planning stages. However, this status quo does not reflect the many changes underway; we summarize here just a few recent developments. 

Perhaps the most important catalyst for nuclear energy demand is AI and the giant tech companies—they want lots of clean, reliable power, and they are willing to pay for it. This sparked recent plans for these companies to purchase the entire output of certain nuclear reactors. In September, Microsoft and Constellation Energy announced the restart of a reactor at the Three Mile Island plant in Pennsylvania to power data centers. This partnership is akin to one between Talen Energy (a City Different global strategy holding) and Amazon Web Services. In addition, the Palisades nuclear plant in Michigan is set to restart in late 2025.  According to the International Energy Agency (IEA), data center electricity consumption is expected to almost double by 2026 -- to between 650 terrawatt hours and 1,050TWh, compared to 460TWh in 2022.    

In May President Biden signed into law the bipartisan Prohibiting Russian Uranium Imports Act.  This law intends to reduce U.S. dependence on Russian enriched uranium as well as revive domestic nuclear fuel production. The likely result is an increase in demand for non-Russian uranium in the West.  Russia currently provides roughly 24% of the enriched uranium used by U.S. nuclear power plants.  “Our nation’s clean energy future will not rely on Russian imports” said Secretary Granholm. 

At the World Climate Action Summit in December 2023 (known as COP28), more than 20 countries, including major economies like the U.S., France, Japan, and Canada, pledged to triple nuclear energy capacity by 2050 to achieve global net-zero greenhouse gas emissions by 2050. This was a major announcement that solidifies the role of nuclear energy over the coming decades.   A September report from the Department of Energy states that U.S. nuclear capacity alone needs to triple from100 GW in 2024 to 300 GW by 2050. 

As shown in the chart below, a host of nuclear plants (both conventional and small modular reactors) are in planning and under construction. 

Supply Considerations

Where will all this uranium come from? We believe the uranium market faces significant supply constraints due to a combination of factors. Many mines were closed or production was scaled back following a long period of low prices after the 2011 Fukushima disaster (which had the dual impact of reducing global uranium demand as well as increasing supply from shuttered plants with unwanted inventory). Additionally, investment in new mining projects has been limited, leading to a lack of new production. And the International Atomic Energy Agency reports that, even when investment begins, it takes 10 to 15 years of lag time before a uranium mine begins operation. On top of that, geopolitical factors such as sanctions on Russian production plus associated logistical challenges in producing and transporting uranium have further strained the market. 

A prime illustration of these supply constraints comes from Kazakhstan, the largest producer of uranium in the world which accounted for almost 40% of global supply in 2023. (Canada is the second largest producer, but its uranium output is only one-third that of  Kazakhstan.)  Kazatomprom, the state-run uranium producer of Kazakhstan, faces production challenges due to capacity, logistical and permitting issues that could take years to resolve. This year, Kazatomprom warned that its 2024 production volume will be 20% below permitted levels, and it cut its output target for 2025 by 16%, citing a shortage of sulfuric acid needed to extract the uranium from the ground. Kazatomprom’s uranium inventory also fell by 20% in the first six months of 2024. 

A second example comes from Namibia, the world's third largest uranium producer, where production growth is expected to slow to about 3.6% in 2024 due to water shortages and mine expansion activity.  The government states that growth will pick up to about 5% in 2025, but the water shortages could persist. 

The Rössing uranium mine in Namibia 

Summing up these supply considerations, it appears that the importance of reliable, Western-sourced uranium is on the rise. Meanwhile, many analysts are projecting aggregate primary supply to decline over the next several years. 

Opportunity and Risks

The confluence of these demand and supply factors could cause the uranium price to surge in the years ahead. Global consumption of uranium is about 190 million pounds annually. Of that 190 million, primary mining provides ~155 million pounds, while ~35 million pounds comes from secondary sources (e.g., inventory drawdowns and government stocks). In other words, a primary supply deficit is currently being filled by depleting inventories and destocking.  

Owners of uranium assets such as Canada’s Cameco Corp. (a long-time holding in our City Different global strategies) play a critical role in powering a clean-air world in the decades to come. Cameco is the #2 uranium producer globally, and it also owns 49% of Westinghouse Electric, one of the world’s largest nuclear services businesses.  Westinghouse is a nuclear reactor original equipment manufacturer and a leading provider of highly technical aftermarket products and services to commercial utilities and government agencies. 

As with any investment, there are risks to consider: uranium demand will not grow swiftly; mining is notoriously difficult to predict; and there is always a chance a nuclear accident could disrupt the industry. Moreover, there are still countries (e.g. Germany and Taiwan) turning their backs on the nuclear power opportunity. But projections for modestly rising demand, coupled with supply constraints, seem to create a constructive backdrop.

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