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A looming battle for uranium pits the world's major powers
against each other and presents America with a stark choice.
It can be overwhelming to think about energy
security in the United States. Fully 55% of the nation's oil suppliers are
inherently unstable or are unfriendly toward it, while another 14% have
declining production. As the world's biggest per capita consumer of oil, it's
not a good situation.
The Global Race for Uranium
Unreliable oil supplies are a big problem for the
US. Things are better on the coal front: The country produces lots of thermal
coal domestically, providing one stable contribution to the energy scene.
Natural gas is another stable path forward, provided the fracking
debate doesn't derail domestic production increases. But there's another
resource that plays a major role in America's energy scene, and the outlook
for that resource is as bad as the outlook for oil.
(As an aside, a Canadian company is developing
breakthrough technology that the Middle East sheiks desperately need to
extract "new" oil – oil that until now has been trapped by
impenetrable rock deep beneath the desert. Learn more about it.)
We're talking about uranium. The United States is
the world's largest producer of nuclear energy. The 104 nuclear reactors
spread across the country provide 20% of the nation's electricity. And unless
the country starts to take some proactive steps to lock in long-term supply
agreement and encourage greater domestic production, the US is going to find itself very short on this essential resource.
The US was once one of the top uranium producers in
the world. Today, there are only nine uranium mines operating in the country,
which means the US has to import more than 90% of the yellowcake it needs to
feed its reactors. Sourcing all those imports has been relatively easy until
now, because of a deal with Russia to decommission nuclear warheads.
At the end of the Cold War, the US and Russia both
had too many nuclear warheads, so they joined forces to build a downblending facility in Russia that turns the highly
enriched uranium used in weapons into the partly enriched kind used in
reactors. The result is that the US has become accustomed to cheap, reliable
nuclear fuel. No less than half of the 40.5 million pounds of uranium used to
feed US reactors comes from this deal, which is known as "Megatons to
Megawatts."
The problem is, the deal is
ending. After 18 years, Megatons is set to expire in 2013. It will not be
extended because it made the US reliant on Russia for uranium but also
restricted Russian uranium producers from selling directly to US utilities.
With the States now addicted to uranium, Russia is drooling over the
opportunity to sell uranium to the US at market rates.
When Megatons ends, the US will be forced to join
the global battle for uranium. And guess what? There is not enough. Well,
right now there is just enough uranium – including that from
decommissioned warheads – to feed the world's 440 operating reactors. But
with 62 more under construction, another 156 planned, and a further 343
proposed, uranium demand is set to outpace supply in the next five to ten
years.
(Click on
image to enlarge)
After Japan's double whammy earthquake-tsunami hit
the Fukushima Daiichi nuclear power station, swamping the backup generators
that power the essential cooling systems and leading to the worst nuclear
disaster since Chernobyl, it seemed as though the world was turning away from
nuclear power. The key word, however, is "seemed" – in
reality, the powerhouses behind nuclear growth barely blinked. China's
nuclear program is the world's largest by far, with 26 reactors under
construction, 51 planned, and other 120 proposed; after a brief pause to
review safety regulations China is continuing with its plans unabated. The
nuclear future also continues in India, where six plants are being built and
another 57 are planned or proposed, and in Russia, which is building 10
nuclear reactors and laying the groundwork for another 44. In this context,
Germany's decision to shutter its nine reactors is pretty much insignificant.
The nuclear renaissance is in full swing and a
supply crunch is looming, even if uranium prices don't yet reflect these
realities. In a coincidence of timing, this is happening just as the US needs
to find itself new uranium suppliers. With so much competition for global
supplies, the answer lies underneath its own soil. The question now is
whether Americans can embrace – or at least accept – the need for
new uranium mines in the United States.
The nuclear industry has struggled against
anti-uranium mentalities since its inception. People are right to be
concerned about a substance that emits radiation and which can be used to
make the most devastating weapons known to man. But society also needs to
recognize that nuclear reactors play a vital role in our world, generating baseload energy while producing very low emissions and
maintaining an impressive safety record. (For all the angst about nuclear
safety, the only time people have died from a reactor problem was at
Chernobyl, and the problems there were human, not technical. Compared to the
number of people who die every day in the world's coal mines or who suffer
from asthma or other health problems because of coal-related smog, nuclear
generators are the far safer option.)
Despite the fact that one in every five homes or
businesses in the US is powered by nuclear energy, this kind of logic has not
yet penetrated the mainstream. Scores of Americans still associate
"nuclear" and "uranium" with radiation, illness, and
catastrophe to such a degree that many states have banned uranium mining and
the United States has not build a new reactor for 30 years. Thankfully,
attitudes are starting to change.
After that 30-year hiatus, over the last four years
the country received 16 license applications to build 24 new reactors and the
first four to six units are expected to come online by 2020. The Virginia
state legislature has the National Academy of Sciences working on a study of
uranium mining and milling, meant to advise legislators ahead of a 2012 vote
on whether to lift the state's uranium mining ban. Several junior uranium
companies are advancing projects in America and are finding supporters.
The US is by no means the only country to battle
with anti-uranium ideologies. As a major uranium producer, Australians have
had to learn to live alongside uranium mining, transportation, and
exportation. In the latest step in this long process, Australia's governing
Labor Party recently decided to overturn a decades-long ban on selling
uranium to India. The ban was based on India's refusal to sign the Nuclear
Non-Proliferation Treaty, but that refusal is more nuanced that it first
appears: India is committed to the complete abolition of nuclear weapons, and
therefore refuses to sign a treaty that enshrines the double standard whereby
those who already have the bomb can keep it but others are banned from
developing it.
That Australia is acknowledging this level of nuance
is encouraging, because issues around uranium mining and nuclear power are
always complicated. It is difficult for populations to understand the
difference between radioactive and harmful, or between 100% safe and
acceptably safe. More generally, choosing between energy options is always
difficult: Would you rather allow new domestic uranium mines (potentially in
"your back yard") or be forced to shutter your country's nuclear
reactors because of insufficient uranium supplies and therefore have to burn
even more on coal and natural gas to generate electricity?
Questions like that aren't pretty, but they need to
be answered, because the US needs uranium and global supplies are being
snapped up. For example, just last week the China Guangdond
Nuclear Power Corp finalized a deal to take over Kalahari Minerals (LON.KAL)
for US$991 million to get its hands on Kalahari's 43% interest in Extract
Resources (T.EXT). Extract owns the Husab uranium
project in Namibia, which is currently the fourth-largest pure uranium
deposit in the world. If built, the mine being planned at Husab
would be the second-largest uranium mine in the world. Gee, wonder why China
would want an ownership stake in that?
The starting gun on the global race for uranium
already went off. China, India, and Russia are maneuvering for position. The
United States needs to decide whether it wants to lace up its runners and get
in the race – an expensive course with an uncertain outcome – or
surmount the social obstacles around domestic production and start tapping
into American uranium deposits. With Megatons ending, it's one or the other.
In our upcoming Casey Energy Report
(which will be released just before Christmas), the energy team will be
laying bare our forecasts for the entire energy sector in 2012, including an
examination of uranium price movements, political developments, and market
events. If you're interested in learning more about the coming uranium
crunch, consider a risk-free trail subscription to Casey Energy Report
– and if you try it before December 16, you'll also get a free trial subscription to Casey
International Speculator.
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