Whenever I mention the name M. King Hubbert, the first thing that comes to my readers’ minds is probably peak oil.
That’s understandable, right?
Even the few of you (very few, I hope) who are stubbornly optimistic about the world’s future oil productoin have at least heard of peak oil. Okay, you’re probably wondering how uranium comes into play here.
As many of you are aware, the concept of Peak Oil was first presented in Hubbert’s famous speech to the American Petroleum Institute conference in 1956. What you may not realize is that Hubbert actually titled his speech, "Nuclear Energy and the Fossil Fuels."
Don’t believe me?
Well, I’ll let you read the original paper for yourself. For those of you interested in viewing that piece of history, I’ve provided a link in a note below. Please feel free to leave a comment and let me know what you thought of it.
As the age of fossil fuels comes to an end, Hubbert argued in his 1956 paper, nuclear energy has the potential to take over oil’s throne. And to be honest, part of me can’t help but agree.
However, as much as I’d like to get behind renewable energy, the fact remains we’re decades away from renewables’ being able to produce energy on a such a massive scale.
The scale of energy is simply amazing. Here’s a breakdown you might remember from before:
1 kg of firewood equals about 1kWh of electricity.
1 kg of coal or oil comes out to about 3 or 4 kWh of electricity.
And 1 kg of natural uranium equals nearly 50,000 kWh of electricity!
Don’t get me wrong, dear reader, we need to develop every source of energy we can get our hands on. Nobody should be arguing otherwise, especially considering global oil production is in for a serious wake-up call. And there really isn’t a better time to get a piece of the action than right now.
Uranium Price Outlook
Now, uranium has always been one of the best ways to play nuclear energy. Many of you may even recall when uranium prices had a huge run between 2002 and 2007. Uranium rose as high as $136 per pound in 2007 (from a low of $8 per pound in 2002). That means the price of uranium jumped about 1600% between 2002 and 2007.
However, prices soon came crashing down:
As you can see, things haven’t been pretty for uranium lately. The spot price for U3O8 recently fell another $2 per pound and now stands at $49 a pound.
So, in which direction is uranium headed?
It’s going to boil down to two things. The first is how tight the world’s uranium supply gets during the next few years. And, of course, how much growth we see in the development of nuclear energy.
According to the World Nuclear Association (WNA), the 436 reactors operating across the world will need approximately 65,405 tonnes of uranium in 2009. In 2007 when prices peaked at $136 per pound, the world only mined 41,279 tonnes of uranium. In other words, mining makes up about 64% of the demand.
While demand looks to get tighter over the next few years, growth in the nuclear sector is a point of debate. Last Friday, the IEA warned that the fate of new projects may be in trouble. As the IEA puts it, "The global economic downturn could lead to delays or cancellations of new nuclear power plant projects."
Meanwhile, G8 ministers expressed their support for nuclear power. During a meeting last week in Rome, the group stated that nuclear energy could help diversify the energy picture.
China is certainly taking advantage of nuclear power. The country believes nuclear power could make up 5% of its generating capacity within the next decade. That would require building another 60 reactors over the next eleven years. According to the WNA, China already has 12 new reactors under construction, with another 33 planned and 80 being proposed.
Here in the U.S., nuclear power still makes up nearly 20% of our electricity demand. We have over 100 reactors currently operating across the country. Like I said before, if we’re on the verge of sliding down the other side of Hubbert’s peak, we’re going to have to develop all our energy sources.
So, are uranium prices headed back into record territory?
I wouldn’t expect another price shock for uranium. However, I do believe spot prices could easily reach between $60-70 per pound as early as next year. And obviously, any economic recovery could potentially tip the scales.
But here’s a little secret. . .
It doesn’t matter if uranium prices fail to reach $136 per pound over the next few years. You see, many investors are already cashing in their profits. These nuclear stocks are precisely the kinds of energy plays that members of The $20 Trillion Report are taking advantage of right now. You can learn more about it here if you’re interested in making these gains for yourself.
3 Top Uranium Plays
The first uranium play that is Cameco (NYSE: CCJ). The company reported a 38% decrease in their quarterly profit due to higher production costs. Yet since March, the company has still managed to gain an impressive 114% for investors.
Naturally, investors looking for more than a straight mining play have several options. Playing a nuclear ETF gives you the opportunity to play more to your comfort level. Two options open to investors are the Market Vectors Nuclear Energy ETF (NYSE: NLR) and the Powershares Global Nuclear Energy ETF (NYSE: PKN). These nuclear ETFs will offer you a chance to invest in a basket of stocks, rather than focus on an individual company. If energy continues to trend higher on news of a global economic recovery, we’ll continue to see a growing interest in nuclear energy.
Until next time,
Editor’s Note: I’ve managed to track down the original 1956 Hubbert report. If any of you are interested in looking at history firsthand, this is for you. And even if you’re not, it’s still a fascinating read. The paper gives you insights on a nuclear future from M. King Hubbert himself. So without further ado, you can read it for yourself in a PDF format by simply clicking here.