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The now all-but-forgotten Global Summit on Climate Change (known as COP 26) took place in Glasgow, Scotland last November, with the ironic sight of numerous global leaders jetting in to discuss how to reduce carbon emissions. Many arrived after attending the G20 summit in Rome. Of course, the leaders of two of the countries amongst the largest carbon emitters, namely China and Russia, did not bother to attend, pointing up one of the difficulties that the drive to reduce emissions faces, namely that some of the major emitters only pay lip service to the goal of carbon reduction.
Such developing countries make the point that they are only attempting to grow their economies to permit their populations to enjoy the same standard of living which developed countries have taken for granted for many decades. Raising living standards involves using more energy as people buy automobiles, use more electricity, and enjoy more consumer goods. There is a feeling that developed countries are “pulling the ladder up after them” by attempting to prevent developing countries from using the same methods to attain similar living standards.
China, which is by far the largest carbon emitter on the planet, continues to build coal-fired plants, which are generally regarded as the highest emitting form of power generation, while Russia’s oil dependent economy relies on exports of gas to Europe to fund its spending, and has just completed the Nordstream 2 pipeline to Germany, which will almost double its gas exports. Other developing economies such as India, which has just asked for $1 trillion from developed countries to hit its net zero emission goal by 2070, and Brazil also are expanding their carbon emitting power generation, partially due to concerns over energy security, as reliance on imported fuel can leave countries vulnerable to supply interruptions or sharp price increases.
One of the major difficulties facing attempts by nations at COP 26 to phase out coal power is that renewable “green” electricity generating sources such as wind power, solar, and to a lesser extent hydro are intermittent in nature and unsuited to providing the base load power on which modern economies depend.
Replacing coal-fired power stations requires a dependable alternative. The least carbon-emitting fossil fuel is natural gas, which produces barely half the carbon emissions of the same British Thermal Unit (BTU) as coal. Even propane is less than two thirds as polluting as coal.
This makes the objections by some environment groups to building gas pipelines difficult to fathom. Given that the world will still be reliant upon fossil fuel power sources for most of its electricity and transport needs by 2050, using the least carbon-emitting and easiest to transport fuel would seem to be the sensible path to follow.
However, there is a fuel source which ideally suited to baseload power generation, and doesn’t emit carbon at all. This is, of course, nuclear power, and it’s been interesting to see how attitudes towards this former pariah fuel have gradually changed over the last couple of years.
It’s hard to believe it’s been more than a decade since the Fukushima earthquake and tsunami in Japan led to its decision to close down its nuclear power plants. This was followed by former German Chancellor Angela Merkel’s strange decision to also close down Germany’s nuclear plants, even though the conditions that led to the events at Fukushima didn’t apply in Germany, which doesn’t experience severe earthquakes.
Demand for uranium, which is required to fuel nuclear power plants, was obviously severely affected by these developments at two of the major nuclear power users. The price of uranium, which had been over $85 per lb. in 2007 during the commodity boom, and was still over $60 per lb. before Fukushima, fell to $10 per lb. for most of the last five years. The share price of those companies involved in mining and refining uranium followed suit.
With the global drive to reduce increases in temperatures to less than 1.5°C above pre-industrial levels, and with the determination to phase out coal-fired plants, opinion on the use of nuclear plants has gradually changed. Oil prices at their highest level in seven years above $80 a barrel and natural gas prices more than tripling in the last year on reduced supply and worries over harsh winters have led some governments to re-examine their opposition to building nuclear plants or restarting mothballed ones.
The price of uranium has almost tripled to $30 per lb. since its lows 18 months ago, and several investment vehicles have been floated to take advantage of this recovery, including the Sprott Physical Uranium Trust (TSX: U.UN) in Canada and Yellowcake in the UK. Just in the fourth quarter ended Dec. 31, 2021, uranium spot prices rose 34%.
One of the difficulties that nuclear has faced is that building nuclear power plants is a very lengthy and expensive business. Almost every plant built in the last couple of decades has gone vastly over budget and taken two or three times as long as originally estimated to complete. One of the most interesting developments in the field has been much smaller reactors known as small modular reactors (SMRs), which are in some cases based on the power plants used in nuclear submarines, and which supposedly would be much cheaper and quicker to build.
Instead of building a massive traditional plant, a network of several SMRs could be constructed and linked together to produce the same output. UK aerospace and marine power plant company Rolls Royce (LSE: RR), which has extensive experience in nuclear submarine power plants, has put forward proposals to the UK government to utilize its technology for civilian use, while the UK government is contemplating building the first new nuclear power plant in the UK in over 25 years.
One of the best ways to play this increased interest in nuclear power is Canadian uranium miner and refiner Cameco Corp. (TSX: CCO), even though its share price has already risen almost 124% in the last two years. This still leaves it one third below its level a decade ago before Fukushima.
Gavin Graham is a veteran financial analyst and money manager and a specialist in international investing, with over 35 years’ experience in global investment management. He is the host of the Indepth Investing Podcast.
Notes and Disclaimer
Content © 2022 by Gavin Graham. This article was originally broadcast as a podcast on Indepth Investing, hosted by Gavin Graham. Used with permission.
The commentaries contained herein are provided as a general source of information, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Investors are expected to obtain professional investment advice.
The views expressed in this post are those of the author. Equity investments are subject to risk, including risk of loss. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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