Supply and Demand
Driven by Energy Demand
Our industry is driven by energy and electricity consumption, which continues to increase. Since 1980, global electricity consumption has tripled, and is forecast to increase by 70% over the next two decades. The largest growth is coming from countries with rapidly expanding economies, like China and India. To put it in perspective, of the seven billion people on the planet, there are almost two billion people who do not have access to electricity. Many more only have access to a fraction of what we use in the western world, and demand among those consumers continues to increase.
Nuclear is an Important Part of the Energy Mix
Nuclear power is a clean, reliable, affordable and, most importantly, baseload energy source. The areas of the world where we're seeing the most growth in new nuclear construction is in regions where baseload power is needed – that fundamental, 24-hour power that is required to have healthcare, education, transportation and communications systems.
But it's also important to provide that energy reliably and affordably. Nuclear reactors can run on a single load of fuel for 12 – 18 months, helping to shield utilities from possible fuel cost swings and supply interruptions.
New Reactor Construction
As a result of the many benefits of nuclear power, we are seeing a level of new reactor construction unparalleled in decades: approximately 70 reactors are under construction around the world, right now, with a total of 524 operating reactors expected by 2023, up from today's 433. More reactors mean more demand for uranium. Cameco estimates world uranium consumption will increase from 170 million pounds today to about 240 million pounds by 2023.
Secondary Supply Challenges
Secondary supply – uranium in various forms that is already out of the ground and sitting in stockpiles around the world – has been filling the gap between consumption and production for more than 20 years. For example, in 2013 world consumption was 167 million pounds, while there was only about 156 million pounds of fresh uranium production. The largest contributor to secondary supply has been the Russian Highly Enriched Uranium (HEU) agreement, which provided approximately 24 million pounds of uranium to the market every year. However, secondary supplies in general are decreasing and the HEU agreement came to an end in 2013, removing the equivalent of a mine the size of McArthur River from the market. These challenges will put more pressure on an already strained primary supply.
Primary Supply Challenges
There are two key challenges to primary supply: timeliness and cost. The long-lead nature of uranium mine development means that our industry is unable to respond quickly to sudden increases in demand or significant supply interruptions – bringing on new production can take between seven and 10 years. And now with recent lower uranium prices, we're seeing delays and cancellations as new projects become uneconomic.
Supply-Demand: Putting it Together
An Expected Gap
When we put the expectations for demand together with the expectations for supply, we see a growing gap between the two as more new reactors increase the demand for uranium, while at the same time secondary supplies diminish and primary producers experience economic challenges that will make it difficult to bring on new production. These long-term fundamentals are the drivers behind Cameco's strategy over the coming years.
Near- to Mid-term Uncertainty
While the fundamentals of the market remain strong over the long term, the near- to medium-term outlook for the growth of nuclear power has been complicated by the decisions of some countries to move away from nuclear over time and the slow return to operations of Japan's nuclear fleet. This has reduced the demand outlook over the next few years from what was previously expected. At the same time, utilities' needs have been well covered in the near term, so there has not been pressure to contract for new material. These are the issues that need to be addressed before we start to see significant positive movement in the market.
We believe that Japan will resume restarts of their reactor fleet as nuclear power is important to Japan for industrial, economic and clean air reasons. And as inventories are absorbed by the market and utilities are less covered and need to begin contracting in a significant way, we expect the market will respond. The big question – and an unanswerable one at the moment – is when.
Caution about Forward-Looking Information
Please click here for additional information about the assumptions applied in making the forward-looking statements on this page and the factors that could cause results to differ materially.