Uranium Glows Ever Hotter in the UK

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"With little new generating capacity currently being developed, the UK risks a power supply crunch in just six years' time."

"The nuclear industry is on the cusp of making a huge comeback," predicts Dr Dougie Youngson, energy analyst at brokers Ambrian. The domestic driving force behind uranium's re-emergence is the fact that the UK will lose 30% of its current generating capacity by 2015 as aging power plants are retired from service. With little new generating capacity currently being developed, the UK risks a power supply crunch in just six years' time. "People should be worried about power shortages," cautions Dr Youngson.

Domestic generating capacity is being lost just as North Sea gas reserves are dwindling rapidly. After enjoying decades of plentiful North Sea gas, few predicted the sharp decline in reserves that will see the UK shift from being a net exporter until 2004 to an importer of 50% of its gas by 2010 and 80% by 2018.

The ideal solution to Britain's energy needs would be the commercial evolution of renewable technologies, which would also help it meet its commitment to the European Union's target to generate 20% of all electricity using renewable sources by 2020. However, wind generation is suffering problems and both wave and solar require technological leaps to make them commercially viable. First generation biofuels have disappointed and second generation fuels won't be available for several years.

Nuclear is the only option left. These factors, as Dr Youngson points out, leave nuclear as the only remaining viable option. After protracted legal wrangles, French energy giant EDF has finally completed the £12.5bn takeover of British Energy. EDF is now committed to the development of four new pressurized nuclear reactors on existing British Energy sites, which are projected to produce around 6,400 megawatts of generating capacity, enough to supply around 13% of the UK's projected 2020 energy needs.

Short of the rapid development of 'capture and storage' technologies for coal-fired power stations, it is difficult to see how the UK will secure its future energy needs without a substantial increase in nuclear generating capacity.

Global demand for uranium is expected to rise by over 18% in the years leading up to 2025 as China, Korea and India develop nuclear power industries and the UK and U.S. revert to nuclear. This could pose a major problem as some industry analysts believe that peak uranium (beyond which global production enters terminal decline) was reached as far back as 1980.

This creates an attractive backdrop for uranium miners. Charles Gibson, mining analyst at Edison Investment Research, identifies the cause of the supply shortage as countries imposing arbitrary production restrictions up until the early years of this century.

This has all changed since 2000 with the advent of Al Gore's crusade against global warming. Mr. Gibson shares Dr Youngson’s view of the consensus that nuclear is now the only credible alternative to fossil fuels. What does this mean for uranium miners? Mr. Gibson explains: "Extend the UK government's rethink over second generation reactors over a few more countries and combine it with the historical lack of investment and everyone believes that the stage is set for a bull market."

Analysts at RBC Capital Markets concur with the bullish outlook for uranium. They highlight the renewed interest shown by power utilities and investors, which has resulted in record spot volumes in 2008 and the spot price rebounding off its recent lows. RBC analysts are forecasting an average spot uranium price for 2009 of $60 per pound, which compares with under $10 per pound in the late 1990s and over $100 per pound at its height.

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