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Low Oil Prices May Kill Off The Next Nuclear Boom Before It Begins

Alex Kimani

After a decade-long bear market, uranium has suddenly turned into a raging bull in an otherwise dismal market for commodities. 

Uranium prices have surged 35 percent over the past 30 days to trade at $33.30/pound - a level they last touched four years ago - thanks to shutdowns of critical mines at Canada's Cameco and Kazakhstan's Kazatomprom, suppliers of more than half of the global uranium consumption. 

Bloomberg has quoted Cantor Fitzgerald as stating that the shutdowns have wiped out ~46 million pounds of uranium - good for 35 percent of annual global uranium output - over three weeks, in large part due to the coronavirus crisis.

The rally comes at a time when the Trump administration appears hell-bent on reviving the country's faltering uranium industry ostensibly in the pursuit of energy independence and also for national security purposes.

But the third nuclear gold rush could be dead in the water amid low energy prices and stiff public opposition towards a sector that has increasingly fallen out of favor.

Uranium Price in USD



Source: Business Insider

Uranium

Bloomberg Commodity Index (BCOM)



Source: Bloomberg

Bloomber

Opening up the West

On Thursday, the Nuclear Fuel Working Group (NFWG) made recommendations to the U.S. Administration to open up ~1,500 acres outside the Grand Canyon for uranium production, arguing that the country needs to beef up domestic production to avoid an over-reliance on foreign sources. 

The organization has recommended spending $1.5 billion over ten years buying uranium from American producers to create a uranium stockpile that would necessitate buying about 10 million pounds a year.

The working group's report claims that the United States also needs more uranium for two other purposes:

-  Low-enriched uranium for the production of tritium for nuclear weapons through the 2040s, and

-  Highly enriched uranium to be used as fuel for Navy nuclear reactors through the 2050s

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The Nuclear Energy Institute (NEI) is in support of the proposal, saying that creating a federal stockpile is necessary for the development of next-generation technologies and advanced fuels. 

At first glance, the proposal does appear meritorious, considering the sorry state of the country's uranium industry, a fuel that is critical to its energy industry.

The numbers tell the tale: In 2017, American uranium miners produced just 2.4 million pounds of uranium concentrate (U3O8) compared to 44 million pounds they produced at the height of the atomic age in 1980. American mines accounted for just 7 percent of uranium bought by domestic plants last year, a surprising revelation when you consider the country has 98 operating nuclear power reactors in 30 states that generate 807 TWh per year, or 20 percent of the total electricity generated.

The industry now employs just a few hundred people each year, a far cry from the nearly 22,000 jobs it created in the 80s.



Source: CNBC

Uranium

The slow and painful demise of the American uranium mining industry can be chalked up to the fact that the country is not endowed with the most abundant and most accessible uranium deposits, with resources in Canada and Australia boasting significantly higher uranium content and a lower production cost per unit. 

American miners have had trouble making a profit from their operations even at the best of times. Consequently, the industry has historically had to rely heavily on government largesse.

During the golden age of American uranium that spanned from 1955-1980, the U.S. government offered fat uranium bonuses in a bid to shore up its stockpiles during the Cold War. These included 10-year price guarantees for certain kinds of ore as well as $10,000 discovery and production bonuses for new sources, which pencils out to nearly $100K in today's dollars. The incentives set off a mad gold rush in the nation's vast Western region as every man with a jeep and a Geiger counter set out to make the next significant discovery.

The program was a resounding success: U.S. uranium stockpiles skyrocketed so much that the government stopped paying out the bonuses sometime in the 1960s.

Victim of Government Policies

Suddenly, an industry that had come to depend so much on government incentives fell victim to its policies.

In 1975, the government began allowing a growing percentage of overseas supplies into the domestic market. This opened the doors to low-cost supplies, mainly from Canada and Australia.

By 1987, the tables had turned completely, with the country importing nearly 15 million pounds of uranium while domestic production clocked in at just 13 million. 

Growing competition weighed heavily on domestic production while the country's love affair with nuclear energy got its first dose of the harsh reality of nuclear technology thanks to the Three Mile Island nuclear disaster in 1979 as well as the Chernobyl reactor meltdown of 1986 that turned an entire Ukrainian city into a ghost town. Meanwhile, utilities began to grow weary of the time and cost of building reactors, which further depressed demand.

The result: U.S. uranium production had sunk to a 35-year low by the time the last wave of reactors came online in 1990.

The industry got a reprieve in 1992 when the Commerce Department put restrictions on uranium imports from the Soviet Union to stop it from dumping cheap uranium into the American market.

The relief was only to be short-lived: One year later, the U.S. and Russia struck a deal to buy 500 tons of Russia's weapons-grade uranium from the nation's dismantled nuclear warheads that the U.S. would convert to low-enriched uranium for its nuclear power plants. Russian uranium provided about a third of U.S. needs over the next two decades under the Megatons to Megawatts program.

By the turn of the century, U.S. uranium production plunged to its lowest level in a half-century.

Around that time, former Soviet state Kazakhstan rapidly ramped up uranium mining and rose to the top of the global uranium players ranks while becoming the United States' second-largest supplier. Kazakhstan's lax regulations allow miners to use in situ leaching, which carries serious environmental risks certainly have helped in the country's meteoric rise.



Source: CNBC

Nuclear

Brief Renaissance

The U.S. uranium industry enjoyed a renaissance in the early 2000s as falling global stockpiles, and booming economies in China and India drove new demand.

Unfortunately, this, too, was not to last as the financial crisis of 2008 destroyed demand, while the Fukushima nuclear disaster of 2011 led to another severe backlash that set off a new round of reactor closures while Germany set to phase out the technology by 2022.

The third nuclear gold rush is starting off on very shaky grounds, too.

First off, the world's strategic uranium reserves are not in any immediate danger of running out. In 2016, the International Atomic Energy Agency said that the global nuclear fleet has enough stockpiles for 130 years, more than enough for the markets to respond to any shortfalls rapidly as they have done in the past. 

"Regardless of the role that nuclear energy ultimately plays in meeting future electricity demand and moving towards global climate objectives, the uranium resource base … is more than adequate. In the wake of recent significant reductions in uranium production, the coming challenges are likely to be those associated with constrained investment capabilities …"

But more importantly, trying to open up the west for uranium mining is bound to be met with stiff resistance and widespread public uproar.

For all its setbacks over the years, nuclear power has remained broadly popular in the United States. However, the turning point came in 2016 when the majority of people turned against the technology. 

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The latest poll last year revealed that American public opinion remains split over nuclear power, with 49 percent of U.S. adults either strongly favor (17 percent) or somewhat favor (32 percent) it in power generation while 49 percent either strongly oppose (21 percent) or somewhat oppose (28 percent) its use.



Source: Gallup

Gallup

The funny thing is that Gallup has found that American opinion on nuclear power does not have much to do with radiation or safety concerns; rather, it is driven by prevailing fuel prices.

That seems quite odd considering that gasoline and nuclear power really aren't substitutes; gasoline is used primarily in the motor industry, while nuclear power generates electricity for our factories, businesses, and homes. But the thing is that gasoline prices have an outsized effect on the American psyche, often becoming a proxy for the overall energy situation. 

Americans tend to view nuclear power negatively when they are paying less at the pump and positively when fuel prices skyrocket. The relationship is not entirely tenuous since the fracking boom that has led to low gas prices has also created a deluge of natural gas, which is also used to generate electricity. With natural gas prices at historical lows, nuclear power's competitive edge has been severely dented.

Indeed, a 2020 Colorado College Conservation in the West Poll found that 71 percent of voters in the Mountain West and 77 percent of Arizona voters oppose the development of new uranium mines on public lands adjacent to the Grand Canyon. It's the kind of backlash that no president wants to deal with, whether they are seeking re-election or not.

By Alex Kimani for Oilprice.com

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