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Cover Story

Nuclear Energy Back in Favour
By Piers Gladstone

Nuclear Reactor

The World Nuclear Association predicts that during the next 5 years, world energy demand will rise by 40%. Energy security is at the top of virtually every major government’s agenda in the world today. Nuclear energy is now the frontrunner in the race for securing the world’s energy needs for the future, proving to be a dark horse when one considers international public perception of the industry less than a decade ago. The word ‘renaissance’ is being continually used to describe the state of the nuclear industry, and while such a term may be a little premature, it seems that in the coming decades the nuclear industry will indeed see a renaissance.

In January of this year, the issue of energy security took a rather unexpected turn when Russia suspended the supply of gas to Ukraine over a price dispute, and this led to a temporary disruption of supplies across Europe. Some saw this as a politically motivated attack to punish Ukraine for its pro-Western stance, using a state controlled company, Gazprom, as a foreign policy tool. Others felt that it was high time that Ukraine should stop being subsidised by the Russian government and pay market prices for the gas they import from Russia. Either way, it put the cat amongst the pigeons of governments in Europe, whose domestic markets rely on Russia to provide them with 25% of their gas, mostly via Ukraine. In the words of George Soros, the dispute and its consequences were “a wake up call for Europe”. When OPEC announced in 1973 that they would no longer ship petroleum to countries supporting Israel, affected governments scrambled to find alternatives, and now just as in 1973, the nuclear power route is what they are opting for.

The cold snap in January also added to the problems of supply, and several European countries experienced up to 10% shortfalls. While nobody doubts the reserves that Gazprom has at its disposal, what is in doubt is Gazprom’s ability to meet the increasing demand from Europe, recently highlighted by the International Energy Agency. Production output has dropped significantly at the majority of Gazprom’s existing fields, and the vast supplies to be found at the Shtokman, Yamal Peninsula and Yuzhna-Russokye fields will not start coming online until well after 2010. It seems that Gazprom is keener on making acquisitions such as the $13 billion purchase of Sibneft last year and reducing its debt, than in investing in its production and delivery infrastructure.


The combination of these factors, as well as others such as reducing carbon emissions, dwindling fossil fuels and their current prices, and the fact that the cost of uranium is just 5% of the operating cost of a reactor as compared with gas which accounts for 75% of plant operating costs, has encouraged the nuclear energy lobby. Nuclear energy has almost overnight become ‘an alternative energy source’ and seems to be well on its course towards a renaissance.

As with defence, energy security is now seen as a strategic issue, and it is becoming apparent that many European governments have made the decision to reduce their dependency on Russian gas. Alastair Darling, the British Trade and Industry Secretary, presented his government’s new Energy Review in July, and said that new nuclear plants “could make a contribution to reducing carbon emissions and reducing our reliance on imported energy.” Without nuclear power and by 2020, the UK will be dependent on natural gas for 55% of its energy needs. It is no wonder that Tony Blair stated that nuclear power was “back with a vengeance”.

Not all European governments have shown the same enthusiasm and endorsement of the nuclear industry. Germany is committed to a phase-out of nuclear power stations by 2020. This fact, combined with the rise in gas prices and the uncertainty of supply, has led Germany to turn back the clock and use coal, despite the carbon emissions involved. 12 newly constructed coal-based power plants are planned to come online in 2011.

Other countries around the globe have all made commitments to nuclear energy as an increasing part of their ‘energy mix’, from the Baltic States to the United States, from China to India, and of course, what many are now calling ‘the energy superpower’, Russia.

Uranium Fuel in Transit

In his annual state address this year, Vladimir Putin stated that Russia must “take steps to develop nuclear energy, a nuclear energy sector based on safe and new-generation reactors. We need to consolidate Russia’s position on the world markets for nuclear energy sector technology and equipment, and make full use here of our knowledge, experience, advanced technology, and of course, international cooperation.”

In 2005, the Russian nuclear industry made $2.4 billion from the sale of nuclear fuel alone. Russia is well placed to significantly increase this figure because of its uranium deposits and its power plant construction industry. The sale of a power plant abroad usually goes handin- hand with contractual obligations on future fuel sales to power the plant. At present, 3% of Russia’s energy is exported to Asia, but this is set to rise to 30% in the next 15 years, and a significant part of this will come in the form of nuclear energy. In May the state-owned bank Vneshekonombank signed an agreement with Atomstroiexport, the state-owned nuclear plant construction company, to provide financing for the construction of nuclear reactors in India and China – both power-hungry developing economies. A total of 60 Russian nuclear power plants are planned for construction abroad.

Domestically, the Federal Atomic Energy Agency set a target in May to increase nuclear energy’s share of national energy production from 16 to 25% by 2025. In September, Sergei Kiriyenko, the head of the Federal Atomic Agency, said that Russia plans to start building 2 new reactors per year starting in 2007, with a total of up to 60 by 2030. «Russia, like much of the world, sees the sense in increasing nuclear generation, and has ambitious plans to do so”, states Al Breach, Chief Strategist and co-Head of Research at UBS Moscow, “but it is unlikely to radically change the energy balance and more likely will more or less keep nuclear generation constant as a share of total generation as the pie gets bigger.» With the cost of building these nuclear reactors set at $60 billion, the pie certainly is large.

Uranium Layer

Recently, all industries connected with the nuclear energy sector have seen a significant upward shift, none more so than the uranium mining industry, and in particular the price of uranium which has risen six-fold in recent years. The uranium mining industry ground to a halt after the combined effects of accidents at Three Mile Island in the USA and Chernobyl in the former USSR. In the 1990’s Western power companies relied on their large stockpiles and the decommissioning of Russian nuclear warheads for their uranium needs.

The uranium stockpiles are now close to running out, and the Russian government has indicated it will not continue converting their warheads into uranium suitable for reactors when their non-proliferation agreement with the US expires in 2013. Demand is outstripping supply and at present, for every pound of uranium used, only half a pound is produced by the world’s uranium mines. The uranium market has seen a frenzy of activity recently, with HP Billiton last year paying $7 billion for the world's largest known uranium deposit, Olympic Dam, in South Australia, and also announcing plans to double production. Similarly, the number of uranium companies in Australia (which has the largest known deposits in the world) and in Canada (which is the world’s largest producer) has risen from 40 to 150 in the last year alone.

“India and China clearly are the two major new kids on the block when it comes to demand for uranium, and both countries will ultimately propel demand for uranium to new heights,” according to Sven Lorenz, a UK based fund manager. “The global stock markets have already seen a surge in uranium exploration companies, and gradually uranium is appearing on the radar screen of investors. Yet, taking a new uranium deposit to production takes years. The demand for uranium will continue to outstrip the mining industry's supply for years to come. Not surprisingly, during the recent correction of commodities markets, the uranium price only continued climbing. Producers of uranium and of nuclear plants will do brisk business in the next couple of years.”


The subsidiaries of the Russian nuclear holding TVEL, particularly uranium miner Priargunsk Industrial Chemicals and Mining (PGHO), have seen stellar share price performance in recent years, which at one point saw a one hundred-fold increase in its share price. Such stocks were particularly fashionable in the early part of this year among more speculative investors. However, PGHO sold off sharply in May this year, outpacing the decline of the rest of the market, and is now more than 30% off its highs. This perhaps reflects the considerable risks surrounding these highly strategic assets, whose owners have shown no interest in creating value for minority shareholders. A perfect example of this is the fact that PGHO sells uranium to its parent TVEL at roughly three times below the global market price.

Russian uranium companies such as PGHO are not the only ones that are benefiting, and will continue to benefit, from high uranium demand and prices. Plant machinery manufacturers such as EM Alliance, Electrostal, Novosibirsk Chemical Concentrates and OMZ are looking at significant increases in business with the proposed building of new power plants in Russia and abroad. OMZ looks set to be bought out by Gazprombank, and it came as no shock when Gazprom’s CEO, Alexei Miller, stated in May that Gazprom would be looking to get involved in the nuclear energy business.

It is not just in Russia that the nuclear boom (pardon the pun) is taking hold. In Kazakhstan, where 20% of the world’s uranium is to be found, the state owned uranium mining company is already benefiting from the growth in the nuclear industry and the high uranium price. Similarly, in Ukraine, plant manufacturers are well-placed to benefit from Russia’s plans for construction of nuclear reactors.

For many, this international race to embrace a new generation of nuclear reactors is somewhat unnerving. While the world’s energy needs cannot be ignored, neither can the fact that nuclear power is potentially extremely dangerous. An accident has potentially devastating affects both short-term and long-term, and the more reactors there are, the higher the risks. Many also warn that if people can fly airplanes into skyscrapers, they can also do the same to a power plant.

Measuring Radiation

Similarly, the fact that the by-product of producing nuclear power is highly radioactive waste, does point to the fact that using nuclear power as a way of providing cheap and secure energy could in fact be a potentially false economy. According to the Committee of Radioactive Waste Management in the UK, only 8% of the UK’s existing waste is secure, while the rest remains in temporary storage. They estimate that up to $150 billion is needed to build new underground bunkers for future waste and upgrading the present facilities to deal with the last 50 years of waste generated by the nuclear industry in the UK. These figures make the economic case for nuclear power’s future less attractive than previously stated, irrespective of the safety concerns, which Greenpeace describes as “a persistent, irreversible threat to future generations”.

In June, Mikhail Gorbachev warned those who were planning to build new reactors to “look before you leap”. And yet, the leap seems to have already been made, and an understandable one at that. Governments need to be able to provide their citizens and industries with the energy they need, and at present nuclear power is the most attractive source on offer, both in terms of cost and security of supply. However, those making the decisions should not ignore Mr Gorbachev’s warnings, because, as he stated; “With my knowledge of Chernobyl, I know what I am talking about.”

In next month’s edition of Passport, Piers Gladstone reports on a visit to Chernobyl and its 30 kilometre “exclusion zone”.

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