How Will Vladimir Putin’s Power Play Change The Uranium Sector?
May 15th, 2013
""""" The agreement is scheduled to end in December 2013, at the same time as global demand for uranium is rising. The US will have to go on the hunt for new uranium suppliers just as the race to secure those supplies heats up… and Putin knows it.
Not only will he not renew Megatons, he will encourage the world’s uranium-needy nations – China, India, the US, France, South Korea, and Japan – to outbid each other for the opportunity to secure stable supplies of Russian uranium.
We’ve said it before: Putin is working to corner the global uranium market. He already has a strong grip over Europe’s gas needs and holds considerable sway over the continent’s oil supply. Why wouldn’t he want to also control the world’s supply of nuclear reactor fuel?
Uranium – a Hot Commodity Today there are no fewer than 60 nuclear plants under construction in 14 countries, with another 163 planned and 329 proposed.
Many countries without nuclear power are on the cusp of building their first reactors, including Vietnam, Turkey, Indonesia, Egypt, Kazakhstan, and several among the Gulf emirates. And while many countries with nuclear reactors took a moment to pause and reassess safety standards in light of the Fukushima disaster, almost all have reasserted their support for nuclear power as a major component of their energy strategies.
Uranium is simply the only fuel right now that can reliably produce large amounts of electricity without the release of greenhouse gases and other hydrocarbon pollutants.
Demand is clearly ramping up, and the world is already short on uranium. In 2011, world industry consumed 165 million pounds of U3O8 but produced only 143 million pounds.
Indeed, the world hasn’t produced enough uranium to meet demand for some two decades.
Secondary supplies have been filling the gap to date. For example, since 1993 the Megatons-to-Megawatts agreement between Russia and the United States has been working toward the goal to recycle 500 tonnes of highly enriched uranium (HEU) from Russian nuclear weapons into the LEU that reactors use to produce electricity. But remember, that deal is set to end next year.
The end of Megatons-to-Megawatts will eliminate 24 million pounds of uranium supply just as demand starts surging. The World Nuclear Association predicted global uranium demand will have increased 33% by 2020, and will then climb almost that much again in the next 10 years.
Those are huge increases. In 2011, the world consumed about 70,000 tonnes of uranium. By 2024, we are expected to need 100,000 tonnes. Can production keep up? Not likely.
If every potential uranium mine on the horizon were approved, built, and commissioned on schedule, supplies might just keep up with demand. But current uranium prices are rendering many potential mines uneconomic, and global economic uncertainty is making it very difficult for uranium companies to obtain the cash they need to build mines. It all adds up to one conclusion: a supply gap is looming.
A Near-Monopoly on Downblending
The global race to secure uranium resources is on. Russia already produces a fair bit of uranium; on top of that, Putin carries a lot of clout in neighboring Kazakhstan, the world’s top primary uranium producer. So Russia already controls a lot of primary production.
But that’s just the start. Since primary production won’t be able to meet demand, secondary sources will become extra important. And there is only one significant secondary source: downblended Russian warheads.
One American company, WesDyne International, has facilities in the US to downblend HEU, but its capacity is limited to roughly 8 tonnes a year. Russia can churn through 30 tonnes annually. It means the US has little choice but to send its old warheads to Russia for downblending.
So Russia has that secondary production well in hand, too.
And Russia isn’t just the world leader in downblending – the country also operates 40% of the world’s enrichment capacity, giving the Russian leader another avenue of control over the nuclear fuel market.
Control over so much LEU production capacity gives Putin the ability to ink supply deals with countries desperate to secure nuclear fuel for the future. For example, a new bilateral agreement between Russia and Japan is about to take effect, paving the way for Japanese utilities to secure uranium enrichment services from Russia.
Putin also finds long-term uranium customers in the countries that have asked Russia’s state nuclear utility, Rosatom, to build their reactors.
Rosatom is an absolute giant in the global nuclear sector. The company builds more nuclear power plants worldwide than anyone else, with builds currently underway in China, Vietnam, India, Iran, and Turkey. The 21 new builds in Rosatom’s order book are worth US$50 billion.
And how handy is it that many of those new builds include a lifetime fuel supply contract, such as the contract Rosatom signed with Bangladesh to build and fuel that country’s first nuclear reactor.
Rosatom is also the conduit through which Russia exports uranium, a trade currently valued at US$3 billion per year. One-fifth of those exports go to the Asia-Pacific region, a market growing so quickly that Rosatom is building a new Vostok complex for uranium-products transportation and logistics to better serve the region.
Nuclear power has been the world’s fastest-growing major source of energy every decade since 1960. That’s not going to change. Putin is acutely aware that uranium will be one of the most closely contested battlegrounds in the global race for resources.
Unfortunately for everyone else, he’s given Russia a significant head start.
The coming uranium supply crunch will lead to a bull market for the history books… with spectacular profit potential for early investors. To discuss uranium’s future, and the investment implications, some of the world’s foremost energy experts – among them a former US secretary of energy and the chairman emeritus of the UK Atomic Energy Authority – will gather for an unparalleled Webinar on May 21, 2013. Registration is free – click here to learn more
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PDN Price at posting:
99.5¢ Sentiment: LT Buy Disclosure: Held
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