Imagine the pollution caused by 100 million additional cars on US roads every year—that's what we avoid by using nuclear power.
Nuclear power plant in Germany Photographer: Julian Stratenschulte/picture alliance/Getty Images
The Prospects For Uranium
The war in Ukraine has bolstered the case for clean energy — rising energy prices have impacted the global economy. The need for carbon-free electricity is clear, and nuclear energy — fueled by uranium — is a key ingredient in the future energy mix. Currently, though, nuclear power only provides 20% of electricity in the U.S.; globally, this is around 10%. However, those numbers are due to rise.
There are several benefits to nuclear power. First, nuclear power generation produces almost no carbon. Second, uranium is an extremely efficient source of energy: one uranium fuel pellet (about the size of a sugar cube) creates as much energy as one ton of coal or 150 gallons of oil. Third, uranium is an abundant metal. Lastly, other green energy sources like solar and wind are weather-dependent — nuclear power is not. As such, nuclear power can provide stable base load energy throughout the year, complementing other energy sources.
Nevertheless, there are tradeoffs. There are inherent dangers with nuclear reactors, as the 2011 Fukushima disaster in Japan demonstrated, and radioactive waste disposal presents challenges. In addition, nuclear power plants are expensive to build — anywhere from $10B to $30B for new construction. However, the burgeoning development of small modular reactors (SMRs) could reduce new reactor construction costs to $2B and provide safety enhancements.
Recent Demand Developments
In the Western world, the electrification of transportation represents rising electricity demand. The war in Ukraine has spurred governments to adopt (or re-adopt) nuclear power to reduce their dependence on Russian energy. In addition, specific weather deficiencies in Europe — namely an underabundance of wind and rain — have highlighted shortcomings of wind and hydro-power. To respond to these challenges, both Germany and Belgium announced they’re extending operations of their nuclear plants rather than shutting them down as previously planned. The U.K. is considering doing the same for two of its nuclear plants, and France — which derives more than 75% of its electricity from nuclear energy — has reemphasized its longstanding commitment to nuclear power.
Global uranium consumption now exceeds levels predating the Fukushima disaster. In addition to the more than 440 reactors operating globally, another 155 are under construction or in planning — an increase of more than 30%. And of those 155 new nuclear plants, almost 50% are in China, Russia, or India.
Nuclear Power Capacity in China (gigawatts)
Supply-Demand Economics
Uranium Concentrate, commonly known as yellowcake
Global consumption of uranium is about 180 million pounds annually. Of that 180 million, 135 million pounds come from primary mining with another 45 million pounds coming from secondary sources (e.g., inventory drawdowns and government stocks). In 2021, Russia supplied 20% of European and 13% of American utilities’ respective uranium needs. But, Western utilities are increasingly looking toward Canadian and African sources as viable alternatives.
While uranium isn't scarce, new production presents certain challenges: it requires multi-year lead times and many new mines require an incentive price of well over $60+ per pound (compared with the recent price of ~$50).
Cameco Corp
Uranium is very much a global industry with listed companies in Australia, Canada, and the U.K. Cameco Corp, a leading Canadian uranium producer (and a holding in both our global equity strategies), has taken steps to enhance its own prospects.
Earlier this year Cameco announced plans to resume operations at its mines in Saskatchewan. In October Cameco formed a strategic partnership with Brookfield Renewable Partners to acquire Westinghouse Electric Co. This $8 billion purchase will see the partnership take control of one of the world’s largest nuclear services businesses.
Westinghouse services approximately half the nuclear power generation sector; it’s also the original equipment manufacturer to more than half of the global nuclear reactor fleet. Westinghouse helps Cameco vertically integrate at a time when American and European dependency on non-NATO sources of nuclear fuel is under scrutiny.
As with any investment, there are risks to consider: uranium demand likely will not grow quickly, and there is always a chance a nuclear accident could disrupt the industry. However, projections for modestly rising demand, coupled with constraints on new uranium supply, seem to create a constructive backdrop for the uranium industry in the coming years.
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