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.
EXT Price at posting:
$8.50 Sentiment: LT Buy Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)