EXPLOSIVE POWER – Uranium, explained

This article is an educational piece about uranium and nuclear energy. For informational purposes only.

We have all heard about the electrification that needs to happen in our generation. You would have probably read countless articles on batteries, solar panels, wind farms – the whole gamut. But nobody seems to be talking much about uranium. Not until recently, of course.

This blog is dedicated to providing a layman understanding of uranium (and nuclear energy!), and also some thoughts on what’s ahead for this market.

Uranium 101

Uranium is the fuel most widely used by nuclear power plants for nuclear fission. It is a radioactive material which is found pretty commonly in many places worldwide, but mining is currently concentrated in mainly 4 countries: Kazakhstan, Australia, Canada, and Namibia, which account for 75% of the world’s uranium production¹.

Want to know how powerful uranium is? A single uranium pellet, slightly larger than a pencil eraser, contains the energy of a ton of coal, three barrels of oil, or 17,000 cubic feet of natural gas².

The best part? It is one of the cleanest and most cost-effective³ methods of producing energy. (See graph below for the pecking order, but no prizes for guessing which energy sources are the biggest polluters.)

Source: https://www.globalxetfs.com/uranium-explained-2/

Uranium’s messy past

So why is it that uranium and nuclear power are not particularly well covered by mainstream media?

Well, it is simply because nuclear energy is in fact an extremely contentious topic – the 2011 Fukushima reactor meltdowns really gutted the industry. Following the disaster, Japan’s nuclear power production dropped from 30% to just 2%; all nuclear plants in the country were either closed down or suspended, and many countries (Germany, France, Switzerland) became wary and scaled back on their own operations. The price of uranium plummeted and has yet to regain its peak ever since.

Source: https://www.wsj.com/articles/uranium-heats-up-and-hedge-funds-score-11631698681?mod=djemMoneyBeat_us

However the tide is changing for uranium, it seems.

The Paris Climate Agreement in 2015 has brought about an interesting change in fate for the sector, as it urges every country to seriously consider at least a portion of its energy portfolio in nuclear power, to meet the ambitious climate goals.

Its main aim: for countries to reaffirm their commitments to keep global temperatures from warming above 1.5 degrees Celsius (relative to pre-industrial levels⁴) and effectively reach net zero⁵ by 2050.

However, according to the UN, the unfortunate reality is in fact that the world is set to warm 2.7 degrees century, because the countries’ current pledges are simply insufficient. So far, the commitments would only reduce 2030 emissions by 7.5%, when what is needed is in fact a 55% cut of emissions by 2030!

To make the matter worse, the intermittency of wind and solar power⁷ are revealing early cracks in our efforts to transit to “greener” pastures, and we find ourselves ever as reliant on the very fossil fuels we have been trying to tear ourselves away from. Based on stats from International Energy Agency (IEA), the world still relies heavily on oil, coal, and natural gas which make up the lion’s share of the world’s energy supply (see graph below). And because of the pandemic-induced disruptions, countries had ironically set record global carbon emissions⁸ in 2021, instead of cutting it.

World Total Energy Supply, 2017

The spike in energy prices in 2021 (and into 2022) made it clear that the transition to green energy and cleaner sources of power, is not that easy after all. At point of writing, here are the stats from 4 Jan 2021 to present:

Coal                 +505% (from $64.25 to $324.75)

WTI Oil            +220% (from $50.83 to $111.75)

Natural Gas     +198% (from $2.73 to $5.41)

Uranium          +164% (from $30.35 to $49.90)

Source: https://markets.businessinsider.com/commodities as of 25 Mar 2022

Uranium’s future: Is nuclear about to have its next renaissance?

In a message released just before the climate summit, the Director General of IAEA⁹, Raphael Grossi acknowledged that “the choice of energy sources remains a sovereign decision and every country has different needs”. But he notes that more and more scientists, policymakers and members of the public are starting to recognize nuclear as a critical part of decarbonized energy systems¹⁰.

Two examples stand out for me.

Both England and France have shown that they are making nuclear energy a pillar of their energy strategies going forward.

France:

Nuclear power currently provides France with 70% of the electricity it consumes, the highest in the world.¹¹ As a result, France also boasts one of the lowest-cost electricity schemes in the EU.

In the face of Europe’s energy crisis, France has recently committed to investing €1 billion in nuclear power by 2030, as well as an intention to roll out small modular reactors (SMR). We’ll get to SMRs in a bit.

UK:

According to Yardeni research, nuclear power provides about 16.8% of Britain’s electricity generation in 2019.¹²

The UK’s plan to reach net zero carbon emissions by 2050 is expected to rely on building more nuclear power plants, which is necessary because almost all of the country’s existing nuclear plants, some of which date back to the 1950s, are scheduled to be retired by 2035. They currently have one large nuclear plant under construction, with two more on the drawing board. Similarly, UK is also looking to invest into the build out of SMRs as well.

Next Gen Nuclear: What are SMRs?

Small modular reactors (SMRs) are the less expensive and less risky cousins of traditional nuclear reactors. Fun fact: they are small enough to fit in the back of a truck! They have lower safety radius requirements (known as EPZ ie. Emergency planning zones), which means they could be more easily inserted into a community to be used to electrify a small town or provide the energy to an industrial plant.

SMR developers and potential operators argue that SMRs are safe enough to have a safety radius of under 5km, which would benefit local governments in that it would minimize disruptions to communities, and not drastically hamper federal budgeting or spatial planning. These SMRs could even sit on offshore floating rigs to power a coastal city or assist in water desalination¹³.

It is projected that the global SMR market could grow to USD 11.3 billion by 2026 from an estimated USD 9.7 billion in 2021¹⁴, the growth dominated by Asia Pacific, followed by Europe.

Well, if these stats failed to pique your interest in SMRs, then perhaps this will: Bill Gates, – yes, the same forward-looking guy that pretty much predicted Covid would happen¹⁵ – Bill Gates is excited about and has been investing in SMRs, in fact since 2006!¹⁶

In June 2021, Reuters reported that Bill Gates’ advanced nuclear reactor company, TerraPower, would launch their first nuclear project on the site of a retiring coal plant – a sign of the changing times. In that same report, it also mentioned how the project would lift up that region’s once active uranium mining industry.¹⁷  

So what are the investible opportunities out there?

Quite a number of the major players in the SMR market are currently private¹⁸. As such, for retail investors, perhaps the easiest way to gain access to this sector is via Uranium-themed ETFs for now.

• Global X Uranium ETF (URA) – incepted in 2010 and the largest by AUM & volume, provides investors targeted access to companies involved in uranium mining and the production of nuclear components. Its 3 largest holdings are:

    ◦ Canadian uranium miner Cameco Corp (CCO),

    ◦ Kazakhstan’s state-owned uranium producer Kazatomprom (KAP),

    ◦ Nexgen Energy (NXE).

• North Shore Global Uranium Mining ETF (URNM) – incepted in 2019, also provides concentrated access to a similar set of uranium miners, plus it also invests into companies that hold the physical element. Its 3 largest holdings are:

    ◦ Canadian uranium miner Cameco Corp (CCO),

    ◦ Kazakhstan’s state-owned uranium producer Kazatomprom (KAP),

    ◦ Sprott Physical Uranium Trust (U-U), which holds physical uranium.

• VanEck Uranium+Nuclear Energy ETF (NLR) – incepted in 2007, provides investors with a slightly different exposure. 87% of the fund’s assets are invested in utility companies that produce electricity from nuclear sources. Its largest holdings include names like:

    ◦ Dominion Energy (D),

    ◦ Duke Energy (DUK),

    ◦ Electricite De France (EDF).

Concluding Thoughts

The use of nuclear energy is definitely not an easy topic to cover. As with many controversial topics these days, there is both a “pro-nuclear” camp as well as an “anti-nuclear” camp. Beware: discussing this topic over a casual coffee may potentially invoke spirited discussions and big emotions, and is quite often politically divisive too¹⁹.

On the “anti-nuclear” camp, the downsides would include:

• Concerns around radioactive waste management

• Nuclear energy’s dangerous proximity to nuclear weapon proliferation

• Adverse public opinion

• Fear of nuclear accidents occurring

Ultimately, I believe it might boil down to how urgent the climate agenda is, and how open each country is to seeking out alternatives to the traditional fossil fuel sources. In the end, it is likely that countries would settle for a compromise of several different sources of energy for diversification²⁰.

While the outlook for uranium remains uncertain, it does seem clear that people are starting to approach the adoption of nuclear power with a much better disposition than before. It might be early days for us still, but this asset class is definitely worth keeping an eye on.

Map of countries with operational nuclear power programs

Source: https://www.iaea.org/sites/default/files/21/10/nuclear-energy-for-a-net-zero-world.pdf

About the writer

Cheryl is a (hard)working mom with three school-going kids, and identifies as a millennial. She enjoys converting difficult concepts into simple and bite-sized ideas that people can use.

In her free time, you will find her nurturing (read: nagging) her three beautiful children towards following the Singapore dream (whatever that means). In this post-Covid world, she often daydreams about the next time she will get to hike in some faraway mountain where the weather is not eternally humid.

References

1. https://www.world-nuclear.org/information-library/nuclear-fuel-cycle/mining-of-uranium/world-uranium-mining-production.aspx
2. https://www.globalxetfs.com/uranium-explained-2/
3. https://www.iea.org/reports/projected-costs-of-generating-electricity-2020
4. Generally, the “pre-industrial” period refers to the time before the start of the industrial revolution, roughly around 1850-1900.
5. Net zero means net zero carbon emissions
6. https://www.reuters.com/business/cop/un-warns-world-set-27c-rise-todays-emissions-pledges-2021-10-26/
7. https://www.thegreenage.co.uk/why-is-intermittency-a-problem-for-renewable-energy/
8. https://www.bloomberg.com/news/articles/2021-10-08/energy-crisis-sets-stage-for-record-global-carbon-emissions
9. International Atomic Energy Agency – an international organization that seeks to promote the peaceful use of nuclear energy
10. https://www.iaea.org/sites/default/files/21/10/nuclear-energy-for-a-net-zero-world.pdf
11. https://www.power-technology.com/features/top-ten-nuclear-energy-producing-countries/
12. Disruptive technologies: The Nuclear Option. https://www.yardeni.com/premiumdata/mb_211021.pdf
13. https://esi.nus.edu.sg/docs/default-source/doc/smrs_website-publication.pdf?sfvrsn=2
14. https://www.marketsandmarkets.com/Market-Reports/small-modular-reactor-market-5001546.html
15. On a Ted talk in 2015, Bill Gates warned that the next biggest challenge coming our way was a pandemic. You can look for “Bill Gates: The next outbreak” on Youtube for a recording of this.
16. https://www.forbes.com/sites/kensilverstein/2021/07/15/why-bill-gates-is-banking-on-small-modular-nuclear-reactors/
17. https://www.reuters.com/business/energy/utility-small-nuclear-reactor-firm-select-wyoming-next-us-site-2021-06-02/
18. NuScale Power, Moltex Energy, TerraPower, Terrestrial Energy, General Electric-Hitachi Nuclear Energy to name a few.