Uranium market expected to soar with renewed global commitment to nuclear energy
By Andrew Livingstone, The Leader-Post May 24, 2014
Demand for uranium, the fuel of the nuclear industry, is influenced by global perceptions regarding nuclear power. Recent reassessments of the merits of nuclear energy production have resulted in a greater interest in the technology by nations across the globe, a demand that will quickly encounter a uranium production deficit and raise the price of the commodity.
When a disastrous tsunami shut down the backup generators at Japan's Fukushima Daiichi nuclear power plant and damaged several of its reactors, the resulting panic deflated the world market for uranium. "The whole nuclear industry around the world has been in a period of uncertainty following the incident at Fukushima in 2011," said Gord Struthers, director, communications at Cameco. "There's been a lot of uncertainty in markets for the products and services needed to create fuel for nuclear reactors.
"Following the incident, the Japanese wanted to slow down their nuclear generation program in order to review it and assess the safety of it under some considerable public pressure. As a result, the reactors there - I believe there's about 54 of them - stopped producing, a surplus of uranium built up on the market, and that's really what caused the period of uncertainty that we're in."
Japan was not the only country to question the value of nuclear power in the wake of the accident in Fukushima. "It did cause a pause in countries like South Korea and China," Struthers said. "They slowed down and rethought their position."
Unlike in previous generations, that analysis occurred while the world was also seriously examining the sustainability of other sources of electricity and power, including the tendency of fossil fuels to endanger human survival in both the short and long terms. In March of 2014, the World Health Organization (WHO), citing air pollution as the killer of 7,000,000 people annually, even identified the increasingly toxic atmosphere as the world's largest single environmental health risk.
A greater understanding of the future of the world's atmosphere has led back to nuclear power as a solution to humanity's physical and economic needs. "Really, the advantages of nuclear are primarily that it's clean - that it's a non-greenhouse-gas-emitting source of electricity," said Struthers, "and the world values that now, and it will value that increasingly in the future as climate change becomes a more and more acute problem.
"It's also reliable. It generates what they call a steady baseload of electricity, which means that, once a nuclear power plant is on, it's generating that electricity. You don't turn it on and turn it off according to demand as you do with some other types of generation, such as gas-fired plants. Nuclear provides the foundation of your electricity system, day in and day out, for 90 per cent of the time. Typically, nuclear stations are producing very large amounts of electricity, and, even accounting for their capital cost, they are very, very efficient and economic sources of baseload electricity."
The re-examination of the record of nuclear power generation has also revealed that, high-profile incidents to the contrary, nuclear power is safer not only for the environment, but also for those working in the industry. Since the Fukushima incident, when some of the major users of nuclear power reconsidered their nuclear policies, "They've all come back, and they've fully recognized the environmental advantages of nuclear energy," said Struthers. "When you look at the safety record of the industry over time, you see that it is actually exceptionally safe compared to other generation forms, so they've restored it."
As a result, there are currently efforts to restart and expand nuclear power production in major industrialized nations. "The big thing is the aggressive reactor-building programs that are underway in China, India, South Korea and Russia - these are greatly increasing the number of reactors around the world," Struthers said. "We can be quite confident that the increase in the number of reactors that has been projected by countries like those are going to happen as they say.
"So, it's clear that there is going to be a very significant increase in demand for uranium in the future - and not in the distant future either. We're talking about over the next
decade."
Furthermore, the advantages of nuclear energy are spurring economies that have traditionally relied on fossil fuels to make the switch. "There's quite a few countries that don't have nuclear now that are considering it as an option," said Struthers. According to the World Nuclear Association, that list includes over 45 nations, some of which have already signed contracts or even begun construction on their new facilities.
"One of them is the United Arab Emirates," said Struthers. "It's not like they're short of energy there - they recognize that it would be far more efficient for them to export the hydrocarbon fuel and generate their electricity using nuclear."
Even Japan, whose recent disaster prompted the global pause, has recognized that nuclear power generation is essential for its future. "Japan doesn't have a lot of energy resources on its own land mass and they were running unsustainable trade deficits buying the fuel to provide their electricity," said Struthers. "While there was a pretty intense political debate going on in the country, I think it's become clear to them that nuclear really was the best alternative for them.
"At the same time, they've instituted a new regulatory authority to oversee the nuclear industry and apply a lot of new standards that are improvements to a large number of the reactors that are in the country. I think we're getting to the end of that process, and several of these reactors should go back online starting in August."
It would, however, be inaccurate to say that all of the world's nuclear powers have publically recommitted to the technology. "The only one that announced that it would be pulling back and did so was Germany, which still seems to be on that path," Struthers said. "Though I think the jury's still out on that due to the uncertainty of their natural gas supplies, brought into focus by events that are happening in Russian and the Ukraine right now."
Germany's uncertain future will do little to affect the global situation. "Currently there's 433 operable reactors around the world. By 2023, we expect that to increase to 526," said Struthers. "As you might expect, that's going to require a lot more uranium, so, if the supply-demand picture is positive for the commodity now, once all of these new reactors are brought online, it's going to improve dramatically. We expect consumption to increase to about 240 million pounds annually by 2023, which reflects a growth rate of about four per cent per year."
"Once you get past the short-term uncertainty that relates to the accident at Fukushima, the way that the market stands is that consumption is about 170 million pounds of uranium a year to fuel these nuclear plants, and the mines only produce about 160," said Struthers. "So, we are, have been for some time, and will be into the
future in a sort of supply deficit position."
In the past, that deficit was mitigated by an agreement between Russia and the United States. "The difference has been made up by what are called 'secondary supplies,' and those are inventories that are held by various entities within the industry: utilities and enrichers and converters," Struthers said. "A big source of it has been highly-enriched uranium [HEU] from surplus Russian nuclear weapons, which has been recycled to produce reactor fuel, primarily for U.S. reactors. This agreement has been running for more than a decade, and it has brought a large amount of uranium to the market."
When that agreement came to a conclusion at the end of 2013, the supply deficit returned in full force. "We're at a point now where these secondary supplies are running out," said Struthers. "As these secondary supplies become exhausted, it will result in upward pressure on the price, so the supply-demand fundamentals of the market are very positive for uranium."
As a uranium-rich province, Saskatchewan stands to gain a great deal from a healthy uranium market. "We're one of the world's largest uranium producers," Struthers said. "Given the quality of the resources here, when the market fundamentals are reflected in the prices, that opportunity for the uranium industry around the world is going to boom in Saskatchewan in the same way."
Many of Saskatchewan's highly concentrated uranium assets are already having an impact on the world market. "The mine at McArthur River is the world's largest uranium mine by production, and they're also the world's highest grade mines," said Struthers. "The mines at McArthur River and Cigar Lake have ore grades ranging from 15 to 18 per cent uranium, whereas the world average for a uranium mine is probably 0.1 to 0.2 per cent uranium."
"With that, in the long term, when the fundamentals are reflected by prices, you can expect that there'll be quite a bit of exploration activity and potentially mine development going on in Saskatchewan as a result," Struthers said. The Cigar Lake mine just started ore production in early 2014, proposed mining of the Millennium deposit is currently undergoing environmental assessment and Cameco is proposing increased production for its mines at both McArthur River and Key Lake.
"We have been investing very heavily in our facilities in Saskatchewan for the past decade, and we are very confident that the markets for our product will be very strong in the future. We're just working through this period of short-to mid-term uncertainty and we believe after that it's going to be very strong growth."
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