Supply & Demand
Low uranium prices, government-driven trade policies, and the COVID-19 pandemic continued to have an impact on the security of supply in our industry. In addition to the decisions many producers, including the lowest-cost producers, have made to preserve long-term value by leaving uranium in the ground, there have been a number of unplanned supply disruptions related to the impact of the COVID-19 pandemic on uranium mining and processing activities.
Uranium is a highly trade-dependent commodity, and adding to security of supply concerns is the role of commercial and state-owned entities in the uranium market, and trade policies that highlight the disconnect between where uranium is produced and where it is consumed. About 80% of primary production is in the hands of state-owned enterprises, after taking into account the cuts to primary production that have occurred over the last several years. Furthermore, about 80% of primary production comes from countries that consume little-to-no uranium, and nearly 90% of uranium consumption occurs in countries that have little-to-no primary production. As a result, government-driven trade policies can be particularly disruptive for the uranium market.
In this environment, we believe the risk to uranium supply is greater than the risk to uranium demand and expect it will create a renewed focus on ensuring availability of long-term supply to fuel nuclear reactors. Over time, we expect this renewed focus on security of supply will provide the market signals producers need and will help offset any near-term costs we may incur as a result of the current disruptions to our business.
The world needs electricity
Around the globe there is an increasing focus on electrification for various reasons. There are countries looking to install baseload power, while others are looking for a reliable replacement to fossil fuel sources, and finally, there is new demand for things such as the electrification of transportation.
|Source: IEA World Energy Outlook 2019 New Policies|
The world needs clean-air electricity
Increased demand is occuring at precisely the same time that countries and companies around the world are committing to net-zero carbon targets. This has led to the recognition, from a policy point of view, that nuclear will be needed in the toolbox to sustainably achieve electrification and decarbonization goals. Many countries, states and utilities continue to announce net-zero carbon targets and many of the plans include an important role for nuclear. Several recent developments include:
- The Biden Administration’s Fiscal Year 2022 budget request for the Department of Energy’s (DOE) nuclear office was $1.8 billion, which is the largest proposed US nuclear investment ever.
- In the first quarter of 2021, 26.2% of Europe’s electricity came from nuclear generation. The largest percentage of all fuels.
- Duke Energy has filed applications for their three Oconee units in South Carolina to operate up to 80 years. The company has eight additional units which it previously announced plans to file similar applications for.
- On June 15, Energy Secretary Jennifer Granholm confirmed that the DOE intends to proceed with establishing a Uranium Reserve as proposed by the Nuclear Fuel Working Group and issued a request for more information imminently.
- New Jersey regulators have approved the extension of the state’s Zero Emission Credits for three additional years through 2025, to support Public Service Enterprise Group’s three reactors in the state.
- The DOE announced on June 22 the award of $61 million (US) to 99 advanced nuclear technology projects.
- Bill Gates and the company he co-founded, TerraPower, announced plans to build a 345 MWe next-gen Natrium reactor at a retiring coal power plant in Wyoming.
- On July 7, Cameco, GE Hitachi Nuclear Energy and Global Nuclear Fuel-Americas announced they have entered into a Memorandum of Understanding to explore several areas of cooperation to advance the commercialization and deployment of BWRX-300 small modular reactors (SMRs) in Canada and around the world.
Demand gap filled
The demand gap left by forced and premature nuclear reactor shutdowns since March of 2011 was filled in 2018. According to the International Atomic Energy Agency there are currently 443 reactors operating globally and 51 reactors under construction. With a number of reactor construction projects recently approved, and many more planned, the demand for uranium is growing. This growth is largely occurring in Asia and the Middle East.
|China||Asia||EU||India||Africa & Middle East||Eastern Europe||Russia||
|Number of Reactors||13||9||9||6||4||3||3||2||2|
Some of this growth is tempered by early reactor retirements, plans for reduced reliance on nuclear, or phase-out policies in other regions. However, there is growing recognition of the role nuclear power must play in providing safe, reliable, affordable carbon-free baseload electricity and achieving a low-carbon economy.
Momentum is also building for non-traditional commercial uses of nuclear power such as development of small modular reactors and advanced reactors, with numerous companies and countries pursuing projects. Longer term, these projects have the potential to open up new fuel cycle opportunities and demand for uranium. In the medium-term, reactor life extensions are adding demand and in the near-term unplanned demand has come from junior uranium companies and financial funds purchasing in the spot market. Policy decisions to support the continued operation of existing reactors also have the potential to increase near-term demand.
Supply-Demand: Putting it Together
Like other commodities, the uranium industry is cyclical. History demonstrates that in general, when prices are rising and high, uranium is perceived as scarce, and a lot of contracting activity takes place. The heavy contracting that takes place during price runs, drives investment in higher-cost sources of production. Once that production is in the market, it tends to stay in the market longer than is economically rational, creating the perception that uranium is abundant and always will be, and prices decline. When prices are declining and low, like we have seen over the past number of years, there is no perceived urgency to contract, and contracting activity and investment in new supply drops off. After years of low investment in supply, as has been the case since 2011, security of supply tends to overtake price concerns at some point, and utilities re-enter the long-term market to ensure they have the reliable supply of uranium they need to run their reactors.
UxC reports that over the last five years only approximately 390 million pounds U3O8 equivalent have been locked-up in the long-term market, while approximately 815 million pounds U3O8 equivalent have been consumed in reactors. We remain confident that utilities have a growing gap to fill.
In our industry, customers do not come to the market right before they need to load uranium into their reactors. To operate a reactor that could run for more than 60 years, natural uranium and the downstream services have to be purchased years in advance, allowing time for a number of processing steps before it arrives at the power plant as a finished fuel bundle. At present, we believe there is a significant amount of uranium that needs to be contracted to keep reactors running into the next decade.
UxC estimates that cumulative uncovered requirements are about 1.4 billion pounds to the end of 2035.
The longer the recovery of the long-term market is delayed, the less certainty there will be about the availability of future supply to fill growing demand. In fact, recent data from the US Energy Information Administration shows that utility inventories are starting to decline and are approaching levels that could put security of supply at risk. Ultimately, we expect the current market uncertainty to give way to increasing concerns about the security of future supply.
As utilities’ uncovered requirements grow, annual supply declines, demand for uranium from producers and financial players increases, and with trade policy potentially restricting access to some markets, we believe the pounds available in the spot market will not be adequate to satisfy the growing backlog of long-term demand. As a result, we expect there will be increased competition to secure uranium under long-term contracts on terms that will ensure the availability of reliable primary supply to meet growing demand.
Global population is on the rise, and there is a growing focus on electrification and decarbonization. With the world’s need for safe, clean, reliable baseload energy, nuclear remains an important part of the energy mix. We remain confident in the future of the nuclear industry. With demand increasing due to restarts and new reactors, and supply becoming less certain as a result of low prices, production curtailments, lack of investment, and end of reserve life, unplanned production disruptions, shrinking secondary supplies and trade policy issues, we’re continuing to expect a market transition.
Caution about Forward-Looking Information
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