People don’t like to talk about nuclear power – especially after the disaster at Fukushima four years ago. But that doesn’t change the fact that it’s still a major piece of our global energy mix… one that isn’t going away anytime soon.
As Japan restarts its first nuclear reactor since 2011 – with plans to bring a second reactor online as early as October – let’s take a look at this controversial power source. I’ll also show you why I think uranium is about to feel some serious upward pressure.[ad#Google Adsense 336×280-IA]But first, a little background…
The World’s No. 1 Nuclear Power Consumer
Back in 1993, the U.S. and Russia entered into an agreement to safely repurpose highly enriched uranium (HEU) extracted from nuclear weapons.
The idea was to convert the HEU from 20,008 excess Russian warheads into low enriched uranium (LEU) for use by nuclear power plants.
Nicknamed “Megatons to Megawatts,” it was a historic agreement at the time.
And over the course of nearly 20 years, it provided the U.S. with 15,000 tons of LEU.
By the time the Megatons to Megawatts program ended in January 2014, nearly one-third of the world’s bomb-grade uranium had been down-blended into nuclear power plant fuel.
In the end, the Megatons to Megawatts program provided about 40% of the fuel required for America’s 104 commercial nuclear reactors. Down-blended fuel from Russian nuclear warheads heated roughly one out of every 10 American homes.
Sound crazy? With all the recent talk of oil and gas prices, it’s easy to forget that the U.S. has more commercial nuclear plants than any other country. That makes it the biggest consumer of LEU in the world. To meet consumption, the federal government has converted 174.3 tons of bomb-grade HEU from our own surplus nuclear warheads into power plant fuel.
These days, no country is producing weapons-grade HEU. (Well, with the possible exceptions of North Korea and Iran…) Since the end of the Megatons to Megawatts program, Russia has about 3,000 nuclear warheads awaiting dismantlement. The U.S. has about 2,500 retired warheads it plans to dismantle.
However, there is no formal agreement in place between Russia and the U.S. to continue the Megatons to Megawatts agreement. And with current relations on the cool side, it’s unlikely there will be a new agreement reached anytime soon.
That is very good news for uranium miners and processors.
Upcoming Opportunities for Miners and Processors
Why do I think uranium prices are going back up from here? It’s a simple supply and demand issue. According to the latest data, 30 countries have a total of 438 nuclear reactors in operation.
Their total generation capacity is over 378 gigawatts of electricity. Together, they supply about 11% of current global electricity needs.
And right now, 69 more nuclear reactors are under construction in 14 countries. Five are under construction right here in the U.S. However, China has the most, with 27 new reactors being built.
Looking forward, a total of 253 reactors are either planned or in the beginning stages of construction worldwide. By 2040, the International Energy Agency predicts electricity from global nuclear power plants will increase by more than 60% – to over 620 gigawatts.
What effect will all these new nuclear plants have on the demand for uranium oxide? The Ux Consulting Company estimates uranium demand will increase to 266 million pounds by 2030.
Compare that to 2014, when demand was just 167.5 million pounds. That represents an increase of 59% over the next 15 years.
Long-term oriented investors who want to make an upside bet on uranium prices might want to consider the Global X Uranium Fund (NYSE: URA). It’s a simple way to invest in a basket of uranium miners. At the same time, it will allow you to mitigate your risk.
Income-oriented investors will like URA, too. It pays a healthy 6% dividend. Shares are currently trading at a 52-week low, making this a perfect time to add a few to your energy portfolio.
Source: Investment U