By Michael Brush
Suddenly, nuclear energy looks a lot more attractive.
Russia’s invasion of Ukraine and the awkward exclusion of energy from sanctions serve as a powerful reminder that Europe is too dependent on Russia for natural gas. The crisis has European countries thinking more seriously about adding nuclear power generation. Germany is even reconsidering its nuclear ban.
In the background, factors including slow progress on decarbonization to counter climate change, China’s aggressive nuclear buildout and years of chronic underinvestment in uranium mining could drive uranium prices for years.
The bottom line : Even though uranium prices are up nearly 200% since I suggested it in this 2017 column , I think it can go higher.
“The developments in our industry over the past year support our belief that there is durability to demand that I am not sure we have ever seen in our industry before,” says Tim Gitzel, CEO of uranium miner Cameco /zigman2/quotes/204088869/composite CCJ -0.28% .
“I’ve been in the nuclear industry for 20 years now, and I’m not exaggerating when I say that it’s actually never been brighter,” agrees Per Jander at WMC Energy, which helps companies secure uranium.
Some of the best ways to invest in this trend include: Cameco, Uranium Energy /zigman2/quotes/205649659/composite UEC -1.22% , Uranium Royalty /zigman2/quotes/215941483/composite UROY +2.86% , the Global X Uranium /zigman2/quotes/201570425/composite URA +0.42% exchange traded fund, the North Shore Global Uranium Mining /zigman2/quotes/215396693/composite URNM +0.17% ETF, and Exelon /zigman2/quotes/205982254/composite EXC -0.76% and Duke Energy /zigman2/quotes/201480230/composite DUK +0.95% , which have lots of nuclear plants.
We’ll get to more detail on those names and a few others later in this column. But first, here are the three big-picture trends that will drive uranium prices higher, with lots of volatility, of course, since that is typical with commodities. It’s better to have a multi-year, medium-term time horizon.
1. Geopolitical risk in fossil fuels
Europe gets 40% of its natural gas from Russia. So, when Western countries slapped sanctions on Russia, they had to exclude this fuel, weakening the measures considerably. Sanctions aside, it’s obviously poor security policy to be so dependent on Russia for natural gas. This has European countries rekindling their interest in nuclear or rethinking their aversion to it, notes Goldman Sachs strategist Jeffrey Currie.
“Hopefully, it is now extremely obvious that Europe should restart dormant nuclear power stations and increase power output of existing ones. This is *critical* to national and international security,” tweeted Tesla /zigman2/quotes/203558040/composite TSLA +1.73% CEO Elon Musk.
“The Ukraine situation would be much easier to handle if Germany had not made the decision to close all of its nuclear reactors by the end of 2022,” says Carl Delfeld, chief analyst of the Cabot Explorer stock letter. “Germany’s decision to shut down its nuclear energy program exposed Europe’s vulnerability and surely emboldened Russian President Vladimir Putin to invade Ukraine.”
Here’s how much European countries import:
2. The ESG effect
After the Russian invasion, Poland’s undersecretary of state for climate said the country may slow its transition to gas from coal. For anyone concerned about climate change, this should serve as a wakeup call on nuclear energy.
Wind and solar will eventually be meaningful solutions, but they’ll always be inconsistent, creating risks until electricity storage gets more developed. Even hydro power is far less reliable than you might think. A drought in China last year cut hydro production, creating a spike in aluminum prices because producers lost juice, notes Larry McDonald of the Bear Traps report, a uranium bull. Baseload power from nuclear can add stability to the grid.
“Carbon-free nuclear power is an absolutely critical part of our decarbonization equation,” Energy Secretary Jennifer Granholm recently told a Nuclear Energy Institute online conference.
Nuclear is already contributing greatly to decarbonization. Nuclear energy diminishes carbon dioxide emissions by 470 million metric tons each year, the equivalent of 100 million cars, according to the Nuclear Energy Institute . “If you are concerned about climate change, you should be a supporter of increasing nuclear power,” says Delfeld, at Cabot Explorer.
This chart from Uranium Royalty shows the relative carbon production of various sources of energy.
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