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Uranium is a metal whose most well known commercial use is as fuel for nuclear power plants, which provided around 16% of the world's electricity in 2007. (Other uses include counterweights for helicopters, ammunition and radiation shields. The exact use depends on the specific isotope.) Nuclear power is slowly making a comeback as an electricity source of choice in the U.S. market. At the middle of 2009, the U.S. Nuclear Regulatory Commission (NRC) had received 17 applications for combined construction and operating licenses (COL) for 26 new nuclear reactors. Also, in June of 2009 there was evidence of growing U.S. government support; the Energy Department said it would invest $18.5 billion in federal loan guarantees to four U.S. firms to help build a new generation of nuclear reactors.
Nuclear power is also likely to be key to the ongoing emergence of such economies as China and India, seen in their goals to double their nuclear capacity within the next 5-10 years. On the supply side, uranium production has been growing at a snail's pace, the major players have started locking up long term supply, and Russia and the U.S. have slowed down their refined uranium sales programs. As a result, demand for uranium has outstripped supply for every year since 1989. Despite all this, uranium prices fell 40% from October 07 to March 09. The global financial crisis is to blame - nuclear power plants represent huge capital investments, and demand for electricity is driven by business activity. With cheap credit a luxury of the past, raising billions of dollars for projects that won't start earning for at least six years has become very difficult. Still, expecting the nuclear industry to partially recover, analyst estimates compiled by Bloomberg in April of 2009 forecast that uranium prices will rise 30% by the end of the year.
Uranium Futures contracts are traded on the New York Mercantile Exchange under ticker symbol UX and are delivered in every month of the year. (For more information on commodity tickers, check out the commodity ticker construction page.)
Uranium spot prices have increased dramatically since 2003, when the commodity was under $10 per pound. Its peak spot price in 2007 was over $125 per pound and have since fallen to $50 as of November 2008.
Most utility companies secure a significant percent of their uranium fuel through long-term (i.e., multi-year) contracts with companies such as CCJ. These contracts are often priced in accordance to market conditions with uranium spot prices (i.e., short-term purchases for uranium within one year).
Every year since 1985, the world's consumption of uranium has been greater than its production. In 2008, uranium producers met only 66% of worldwide demand. To help meet this shortfall, reprocessed uranium and plutonium from the dismantling of Russian and U.S. nuclear weapons has been used. The World Nuclear Association estimates that uranium mining will need to increase by almost 300% in the next two decades. The Australian Bureau of Agricultural and Resource Economics estimates that uranium prices will rise 22% from $46.4 in 2009 to $56.7 in 2010 due to the widening gap between uranium supply and demand. NYMEX Uranium futures for December 2010 are in the $48.50 range.
As of January 2009, there were 436 nuclear reactors operating worldwide and a total of 115 reactors under construction or planned for completion by 2020. The demand for processed uranium continues to rise as countries throughout the world increase their reliance on nuclear energy for electricity:
Nuclear energy is expensive. Said in 2005 by the CEO of Dominion Resources, "A new 1,400-megawatt nuclear power plant is going to cost about $2.6 billion. It is going to take 6 1/2 years to build. While you are building, you have to issue equity, you have to service that equity. You have to issue bonds; you have to service the bonds with interest. You don't have any money coming in. You have an average of $1.3 billion out for 6 1/2 years that is not earning anything.". This was said 2 years before the credit crunch, and 3 years before the credit collapse. Now, the cost of borrowing $2.6 billion is going to be much higher. Furthermore, with economies across the globe slowing down, demand growth for electricity is falling off. The combination of the two makes nuclear power plants a bad investment, which is why uranium prices have been falling at a record pace - from $138 in July 07 to $45 in October 08.
New nuclear power plants are very safe, and in a bid to combat global warming and keep up with soaring demand for electricity, countries are rushing to build nuclear power plants. As of October 2008, there were 439 nuclear reactors in operation that generate about 15% of the world's electricity. In September 2007, 16 were under construction, 34 were on order and 86 were proposed. A year later, 26 were under construction, 99 were on order, and 232 have been proposed. That uranium prices have fallen 40% from October 2007 to October 2008, shows that the market expects large delays and cancellations.
In 2009 Indian reactor demand for uranium was estimated at about 3 million pounds and is expected to rise to as much as 10 million pounds in 15 years. India has 17 reactors operating and six under construction, and another 23 reactors are expected to come on line in the next eight years. China has 11 reactors operating, 16 under construction and 35 new plants expected to come on line within the next eight years. China's uranium demand is expected to grow 4-6 times by 2020, as the country increases its annual installed nuclear power capacity to 40 million kilowatts from 9 million present. The sharp increase in the demand for uranium from India and China will continue to raise the price of uranium.
As the price of coal and natural gas increase, electricity production based on traditional sources of fuel becomes more expensive. Nevertheless, nuclear energy is still the most expensive of the three. Several things could change that. One, government incentives have and will continue to make the construction and operation of select nuclear plants profitable. Two, the implementation of carbon taxes or a carbon trading scheme (as President Barack Obama has suggested) would make nuclear energy significantly cheaper than fossil fuels.
Wind, hydroelectric energy, and solar energy all compete with nuclear power for a share of the alternative energy market. In 2008, production costs were 8.8 cents (U.S.) per kilowatt hour for nuclear, 7.4 cents (U.S.) for coal, and 10.6 cents (U.S.) for natural gas. Though renewable energy sources will need to become more affordable and more widely adopted in order to become a more serious competitor to uranium, advances in technology are making investment in renewable energy more attractive.
|Fixed Cost (cents/kWh)||Variable Cost (cents/kWh)||Total Cost (cents/kWh)|
|Energy return on Energy Invested|
|Coal-fired power plant||2.5|
With every passing day coal power, wind energy, hydroelectricity and solar power all become more cost efficient and eco-friendly. Nuclear energy is still the cheapest renewable source of energy. That lead won't last forever though. New technological developments are making the most viable of the competition, solar energy and wind energy, cheaper every year. However, it'll take a very long time until widespread reliance on alternative energy will be possible. Even the most optimistic projections by the Energy Information Administration (EIA) don't see more than the addition of a couple gigawatts of renewable energy capacity over the next ten years.
As the importance of securing renewable sources of energy rises, uranium is becoming more valuable. China is involved with long term deals that would effectively take Kazakhstan and some African countries out of the uranium production market. Russia has stopped selling its uranium at market prices, and is now building up large stockpiles for future use. Russia has also started signing deals with Australia, one of the two largest producers of uranium in the world. China isn't leaving Australia for Russia though, having made a multi-billion dollar deal themselves. Although these deals will take large supply off of the market, it will also take large demand with it. However, in a market where demand outstrips supply, these deals will take out a higher percentage of supply than demand, pushing the price of uranium upwards.
Because nuclear weapons contain ultra-enriched uranium, a single ton of military high-enriched uranium is equivalent to 350 tons of uranium oxide. Since 2000, uranium from the U.S. and former countries of the USSR has provided 13% of the world's uranium requirements. However, Russia's supply is slated to end around 2013, and the U.S. has started to downsize its uranium selling program.
Traditionally 20-40% less than consumption (last 25 years), production is closing the gap enabled by positive pressures on uranium prices (which directly affect the rate at which new projects are developed) and declining inventory supplies/sales. Between 2007 and 2010 primary production rose 25%.