Owners of uranium stocks still have a distracted look. Since Fukushima yellow cake prices have more than halved as Japan’s demand collapsed and stockpiles of enriched uranium rose.
Relief may now be on the way. While Japan’s restarts may be protracted, economic forecaster Julian Tapp believes that a nuclear upturn is not only inevitable globally as China ramps up nuclear power and the limitations of renewables become more evident. He forecasts a slowly developing, but sustained long term uranium boom bigger than what we’ve seen in iron. He calls it “uranium on steroids”.
As the COO of the uranium miner, Energy & Minerals, Tapp will be accused of talking his own book, but relatively conservative assumptions about China’s energy demand combined with practical and political restraints are compared his target of US$100-120 per is relatively persuasive.
Tapp is not new to tracking long term economic trends. He is a former chief economist for Ford Europe and then worked for both BP and British Aerospace before turning his hand first to iron ore projections. His early identification of China’s steel upswing played a part in Andrew Forrest’s plans for Fortescue. (Forrest, it should be, said, recapitalised Energy & Minerals)
Tapp believes this slow building boom will be not be a typical commodity upswing as coal’s growth in China will be restricted in several dimensions: first, its railway system is already at full capacity, second because deposits are generally long distances from urban demand and perhaps most importantly its particulate emissions and the its CO2 emissions are creating headaches for the administration. This was a clear message at last month’s very sober Dalian Iron & Steel Conference where it was clear to all that the Government is showing little mercy to the older, heavily polluting plants which circle Beijing.
But while emissions are an important component of Tapp’s case, the core of the argument circles around China’s energy options, their restraints and costs. The most telling aspect is his view that China can roll-out nuclear more quickly and cheaply than ever before and by the combination of the inherent 24 hour and 90% operating capacity of safer nuclear plants under cut solar and wind when true, all in operating costs are calculated.
Renewable advocates will blow a fuse as his proposition that China’s planning and engineering will produce power at 4.5Kwh with capex per annum as low as 3.2c per Kw H, but this is plausible given that China is not attempting to re-invent the wheel, but will instead “digest, absorb and improve” as it does with other western technologies. Its nuclear program will use one or possibly two of next generation designs, modify them and then stick to a blue-print as it aims for dominance in nuclear technology. The French path
“One mistake often made,” Tapp says, “is to think of nuclear power in terms of US costs. US nuclear power was originally planned to follow the successful US naval nuclear program based on uniform reactors and very high standards of maintenance and inspection. Instead, the US reactor fleet was built by a number of different contactors using different designs which inflated costs and prolonged construction…in some cases fairly blatantly.”
“The Chinese will follow the French path but with a much improved and safer design and plan to sticking to it as the French did. Their labour costs will be much lower. They will build plants both a lot faster and a lot cheaper than the US did.”
This raises a simple but perhaps critical global issue for politicians, autocrats, policy planners and the plain hoi polloi: if nuclear power China-style comes in cheaper using real all in costs there is not just an economic case for nuclear power, but a strong ethical one as well. Tapp doesn’t push the ethical case and largely confines himself to China’s difficulties in matching its growth in energy demand with the natural and specific limitations of the alternatives, particular wind and hydro, but to jump to the wider canvas, there may be little alternative for the world to combine the long-life advantages of “always-on” nuclear power with renewables. What they lose in unreliability and high cost (eg German’s floating North Sea wind towers) they make up in emission reduction and zero cost of fuel.
If we throw in ever increasing populations now that the UN’s latest figures say the 9 billion of 2050 may be 9.5 to 10 billion, the need for cheap, reliable, non-polluting power becomes a social and political necessity.
Clearly there has been a global shift in the last 18 months. China is itself the world’s largest green house gas emitter with close to 30% of global emissions, but is moving relatively rapidly to establish a national carbon trading scheme by 2016. Pilot schemes have started and while Canada and Australia are fulminating at growing negative attitudes to coal and extolling its virtues, the Chinese regime and people are living coal in their nostrils.
Coal is not only causing many of the wealthy elite to flee, but undermining the health of it population. No one in China these days could seriously suggest that “coal is good for humanity” when eyes smart and visibility falls to 50 metres or, on the worst days in the industrial cities, one or two metres. Last week, was much as it has been for many extended periods over the last decade. The reading for micro particulates in Beijing was 20 times levels considered safe by the WHO. This is not merely a matter of a grey film on the skin after half an hour in the street, but particles so small they through the lung and enter the bloodstream lodging in the heart and other organs. The health consequences are far from trivial in a society where the one child policy is still enforced. The administration seems is well aware of the political ramifications. It is one thing to have expensive air filtration in their luxury apartments, but it is another to be embarrassed at international conferences. A recent report by the Academy of Social Sciences didn’t mince words. It called the pollution levels of China “unbearable for living.”
This is not good brand management. China is, after all, along with Germany, northern European, California and the north east of the US firmly in the camp of “secular”, “scientific” or “modernist” societies. It’s trajectory often overt and clearly states is all about achieving and bettering Western technology. Its dependence on coal is now becoming, not merely a health issue with long term economic costs, but an embarrassment and handicap to business. Saudi nuclear program
There is a broader context as well. It is not just that China is leaning towards nuclear power on social, economic and cost-benefit grounds, but that others are too. Saudi Arabia is preparing its own nuclear program to conserve its oil resources for export. It has budgeted US$80 billion to fund 17 reactors while it simultaneously rolls out $110 billion of renewables. It is almost the mirror image of Japan.
Japan has almost no fossil fuels and a surprisingly modest geo-thermal and wave potential. Its solar potential is relatively high and has now passed Italy for solar installations, but as with Germany, this is subsidy driven and while this helps its own solar industry, is in part feel-good politics in action. By the end of 2013 Japan’s solar power contribution was just 1.3% of its power capacity with target of 10% by 2050. As with Germany, Spain, Italy and other solar leaders have discovered, capacity is not generation. Apart from the relatively narrow peak generation period per day in the central and northern islands, Japan’s power utilities are a series of regional monopolies who are unwilling to cede priority to solar. Japan is outwardly the par excellence version of the modern electric economy now that the 600 km long Greater Tokyo – Yokohoma city glows through the night, but not all is modern. Japan has 10 separate grids with half running on 50 Hz and the other on 60 Hz. China’s renewables
In China solar is also growing rapidly but as in Europe as with Germany, there was little or no attention given to storage so while the capacity figures are growing rapidly, useful gigawatts are far lower. The north’s air quality means solar is largely useless north of Wuhan and if and when the skies turn blue again, there will be few low rise homes left for roof solar installations. Concentrated solar PV and solar thermal is expanding, but whether China builds 12, 20 or 50 solar farms, it will make little difference for a decade at least. Even when the contribution rises, there remains the reality that electric trains don’t stop at sunset.
Hydro is growing too and provides about 5% of China’s power demand, but it also has restraints: first because many of the best opportunities have been exploited on the upper reaches of the Yellow and Yangtze and second because the remaining options tend to be in geological unstable areas like Yunnan. Hydro has many pluses, but often negatives become apparent decades later. The silt that formed the agricultural foundation of China’s enduring civilization is now accumulating behind the walls of the great dams.
China’s conventional gas reserves are largish at about the levels of Indonesia’s or Algeria, less than Australia but 10% of Russia’s, but its shale gas resource is geologically immense and on paper twice the US shale resource. This sounds like a bonanza for China, but the geologists of the US Geological Survey estimate gas content by using assumptions which often don’t hold up in practice. It has written down the recoverable shale gas of southern California by 90%. China’s shale in the far western provinces is probably less fractured than this, but certainly deeper, older, with more clay and less organic content. While production is rising rapidly, China halved it targets for shale gas earlier this year as the cost of each well, the yield and most importantly the massive water requirement required for hydraulic fracturing lowered expectations.
Tapp may be generous with a forecast that conventional and shale gas will quadruple in coming years and yet still only provide about 10% of China’s demand by 2035.
Then there’s coal. It is now providing 61% of China’s energy mix and could rise by 50%, but whether that is politically possible is another matter as already discussed. China’s new coal tariffs reflect the tensions. Our coal miners were affronted by these sudden tariffs on high ash and high sulphur coal leading ANZ’s CEO Mike Smith to say that this looked like gamesmanship – typical Chinese hard bargaining. Maybe, but the comment suggests that he hasn’t spent any time waiting for a bus in Guangzhou, Xingtai or Chongqing. If he had read his newspapers and briefings more carefully he would have noticed that internal tariffs were also imposed on low quality coal movements. The energy gap
So in essence Tapp’s “uranium on steroids” is simply suggesting that these renewables, gas and coal will not make up the gap as China’s energy demand doubles to 2,500GW. The long wait until the uranium market clears may also store up supply issues as China, India, Saudi and others start to ramp up their plants.
Some may argue that the assumption of 6.5%-7% GDP growth is also generous given China’s sub-prime and sub-sub-prime securities issued by the shadow banks, trust companies and dubious property companies over the last five years, but if a general bank blow-up does occur as is possible given the $4-5 trillion that the shadow banks need to roll-over in the next three years, that will also affect funding for economically less attractive energy projects.
One thing is certain in all of this: China has realised that the confusion of means and ends has to change. Just as its skies and rivers are polluted, it green house gas emissions are contributing to the sea level rise, wild weather and drought that may turn to bite it. Economics is often seen purely in the macro, but in this case the macros are only aggregations of the factory workers bicycling past on their way to a coal preparation plant in Xingtai. For a moment they have a muffled shape and humanity, but then are swallowed whole by an enveloping haze. Open the suitcase a week later and that haze lingers as an acrid smell, so nauseating you shudder.
PEN Price at posting:
2.3¢ Sentiment: Buy Disclosure: Held
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