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One in every 10 lightbulbs in the United States gets its power from Russian fuel. It's been that way ever since 1993, when the Megatons to Megawatts program began.
Under this agreement, the highly enriched uranium (HEU) contained in ex-Soviet nuclear weapons was downblended and converted into nuclear fuel.
It was a win-win arrangement. Americans got the nuclear fuel they needed; the Russians got the hard currency they needed. And the world got a cleaner, less dangerous environment, as around 20,000 warheads were stood down.
But this era is rapidly coming to a close. The very last shipment of the program's uranium recently left St. Petersburg, Russia, for Baltimore, Maryland.
By the end of December, the deal that helped provide about half of all commercial nuclear power in the United States… will simply end.
And that's going to open up a fantastic opportunity for us…
Surging Uranium Demand
As the world turns away from coal and toward nuclear, demand will increase – by more than double, as the chart below shows. The current uranium picture will reverse, moving quickly from glut to severe shortage.
Drastic Changes Seen for the Global Uranium Supply
These events mean that, starting in 2014, 13% of global uranium supply will simply dry up.
And not just uranium, but high-grade uranium. That's a serious challenge to replace.
America's nuclear plants, all 104 of them, consume a whopping 43 million pounds of uranium every year.
There are 435 nuclear reactors in the world, with another 66 under construction. That's 15% more than are currently operating. By some estimates, 408 more will be added in the next couple of decades.
China already has 26 projects under construction, and 30 more are planned. That nation's expected to account for as many as 90 of the more than 400 future reactors.
The United States, India, South Korea, Russia, and a host of others will be adding new facilities and increasing capacity at existing plants in the coming years.
Despite Japan's tragic Fukushima disaster, the huge cost of importing liquefied natural gas (LNG) has caused that nation to do its best to restart some of its own nuclear reactors.
The outlook is simple. We're going to need to produce more uranium. A lot more…
The question is: Can this uranium be produced cost-effectively?
What You Need to Know About Uranium Prices
Through all of this, uranium prices – both spot and long-term – have been struggling since early 2011.
Have a look…
But here's what you need to know about the uranium price: although the spot price (currently $36/lb.) is the one most often quoted, as much as 85% of all uranium is sold under long-term, multi-year contracts (currently averaging about $50/lb.).
The other salient point is that, according to some experts, it actually costs $85/lb. to produce.
So the average miner is losing about $50 on every pound of uranium sold at spot and $35 for each pound sold on a long-term basis.
How long do you figure that can last, really?
On Sale, for Now
Nuclear fuel is so concentrated, that just 0.035 ounces of uranium packs the power of three tons of coal.
Besides, it's a lot cleaner and produces far less carbon emissions than many alternatives, a fact growing numbers of environmentalists have come to accept.
Dr. Patrick Moore, founder of Greenpeace, has said, "Nuclear energy is the only non-greenhouse gas-emitting power source that can effectively replace fossil fuels and satisfy global demand."
President Obama himself said he was "Looking forward to working with Congress on implementing policies that ensure that our nation can continue to rely on carbon-free nuclear power."
Next to coal steam, nuclear also provides the lowest cost electricity – just $0.024 per kilowatt hour (KwH).
There's little doubt nuclear will remain a cornerstone of the world's future energy mix.
And uranium producers won't keep losing money indefinitely. The price simply has to rise, and here's how we can benefit.
The Best Uranium Play in the World
Uranium Participation Corp. (TSE: U) is a physically backed uranium ETF. The fund's manager simply buys uranium oxide and uranium hexafluoride, with the purpose of selling those holdings in the future.
According to their most recent statement of investment, Uranium Participation Corp. holds about 5 7.5 million pounds of uranium oxide and about 4.85 million pounds of uranium hexafluoride.
While there's no leverage like that which comes with uranium miners, U.P.C. also carries little more than uranium price risk.
And right now, spot uranium is changing hands at a 60% discount to the cost to produce it – never mind turning a profit.
Current low prices are a disincentive to build new supply, as well as to expand mine output.
The Megatons to Megawatts program was clearly a win-win arrangement, but it's over.
That means about 13% of global supply, 24 million pounds of high-grade uranium, is about to be erased.
This situation cannot last. Uranium prices must rise… which makes Uranium Participation Corp. the best uranium play there is.
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About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.
Thanks for this report, I have acted on it. Shorted yen, bought some Uranium. Scary to be in this market but long term, I really think this should work out.
Ahhh this story shows me the wisdom that Buffett has by buying coal for the long term!
As much as I agree that nuclear energy is a necessary aspect of our future and will at some point offer excellent upside, one should exercise caution over the medium term. The Fukushima debacle is far from over. One small misstep in dismantling the fuel rods could set back the uranium business for decades. Fukushima remains a disaster-in-waiting. Radiation toxicity in the Pacific as far as North America is disturbingly high, yet under-reported. Serious health problems related to Fukushima radiation spread are increasingly evident.
This story has many chapters to be written. No one knows how it will end. I have many good uranium plays on my watchlist, but will sit tight until this is resolved.
There's 60000 plus tons of the stuff at Fukishima alone ,with dodgy Mixed Oxide Fuel all waiting to be reprocessed .
Iraq is contaminated with depleted uranium…….in effect poisoned for thousands of years……
Yeah , you could make a good bit of wonga betting on Frances and Americas not so secret international co operation . The ' war on terror', especially Islamic groups in western Africa , the recently upgraded west African drone program , and the opening of new French processing will make sure its a good play .
As for uranium and making money though……it always seems a dead horse only worth riding very occasionaly when the little profit available is created by lumbering goverment decisons .
Long term , nuclear is uneconomic and old tech , like oil and gas .Big energy is losing the battle though , when UNSUBSIDISED homeowners can produce their renewable energy far cheaper than the big boys , the days of retail electricity profits are getting shorter.
Until 'we' have a positive method for getting rid of nuclear waste in a timely manner [not thousands of years from now] or hiding it under mountains, I will be ANTI-nuclear. The latest Japanese incident is now POLLUTING the Pacific Ocean and the fish which can't be reversed. Some of these free thinking Countries should view the http://www.Thrivemovement site for other alternatives such as FREE energy for everyone which our gov has been trying to stop !
Peter,
Uranium One, one of the largest producers, and now private, last reported an average cost per pound of production of $16; where do you get your $85 per pound number? and why would anyone produce anything to lose $35-50 per pound. Something is amiss here.
Small Uranium specific miners (like Uranium One) do not and can not produce at a loss since they'd be out of business. They either produce efficiently and profitably or they do not produce at all.
But huge mining multi-nationals like Rio Tinto do mine uranium at a loss because it makes up less than 1% of its total production, but keeps its mines active so they don't have to go through the cost and hassle of mothballing them one year and then activating them again the next. The losses are not that great to them in the over all scheme of things compared to the potential profits when the price rises.
I'm also having a problem digesting some of his numbers and the larger economic scheme.
How can this conversation not include the words renewables — and the damage cheap nat gas has done to the nuclear electricity component? They are two 800lb gorillas in the corner and aren't or scarcely mentioned.
Furthermore, lets look at the economic disaster the operators have become.
1) TVAs Bellefonte plant coming in ~100% over budget, whilst the TVA President Bill Johnson said.
"Projecting a need for Bellefonte today is difficult because there is no short-term demand for its power. We're more in the retiring mode than the building mode right now."
2) Californias San Onofre disaster.
Boxer Calls for Criminal Investigation of Edison’s San Onofre Dealings
Sen. Barbara Boxer upped the stakes in the battle over the shuttered nuclear generator by accusing SCE of misleading regulators.
Edison tells customers they should pay for San Onofre shutdown
SACRAMENTO — Closing the San Onofre nuclear power plant is in the "best interests" of Southern California Edison's 4.9 million customers and those ratepayers should be prepared to pay a portion of the shutdown costs.
Edison pegs the cost at $4.1 billion to safely dismantle Units 2 and 3. Unit 1 was decommissioned in 1992.
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This a blog dedicated to economics. From my perch, I see that there is a slim to none chance that the economics of nuclear will ever make sense ($cents) ever. Now or in the future.
Furthermore, consider the context here. If the cost of Uranium is to rise, then the cost electricity customers MUST also rise. Thats simple business 101. If it is uneconomic now, then how will it accelerate in development if it gets more expensive.
The cure to high prices is simple. High prices! High prices only accelerates development elsewhere, such as nat gas and renewables.
I firmly believe nuclear is simply rearranging the deck chairs on the Titanic as the band plated on…