By Alberto Forchielli and Alberto Pagliarini
According to the IEA, power generation contributed 41% of the world’s global CO2 emissions in 2007, followed by transportation (23%) and industry (17%). Coal accounts for approx. 30% of the world’s primary energy consumption (after oil (35%), ahead of natural gas (24%)) but makes up the largest portion of CO2 emissions from power generation (73%). Coal is the most carbon-intensive fossil fuel and because such fuel contributed to 70% of China’s total primary energy consumption in 2008 (much higher than the global average of 30%), China has overtaken the US as the largest emitter of carbon dioxide (China and the US now account for ~40% of the world’s total CO2 emissions).
China’s climate change goal of reducing CO2 emission per unit GDP by at least 40% relative to 2005 levels has driven investments in alternative low-emission energy capacity (like hydro, wind, nuclear, and solar). China is already the largest producer of hydroelectric power globally (and has exploited most of its water generating resources), solar has not benefited from favorable government policies yet (probably because generating electricity from solar is still too expensive), while wind so far is the largest winner from the push towards clean energy (China’s installed wind power capacity posted a 100% CAGR over the 2005-10 period reaching 40GW currently).
Nuclear seems also poised to be a winner from the push towards clean energy thanks to three favorable characteristics: 1- Low to zero greenhouse gases emissions 2-Low generating costs (according to a 2005 study conducted by the IEA and NEA, the cost of generating electricity from nuclear is lowest than any other method) 3-Easy logistics in terms of fuel supply and electricity transmission (as opposed to coal fired plants, nuclear reactors do not need ad-hoc railroads to bring massive quantities of raw materials to fuel the plant; as opposed to wind farms, nuclear reactors can be positioned close to where electricity demand is located and therefore do not need large investments in transmission and distribution equipment). Because of its safety issues, nuclear power has been off to a slower start than wind but the WNA (“World Nuclear Association”) forecasts strong growth in nuclear capacity around the world. In particular, forecasts call for nuclear capacity to grow globally from 375GW in 2010 to 476GW in 2020 (2010-20 CAGR: +2%) and 600GW in 2030 (2020-30 CAGR: +2%) after two decades without growth (due to a surge in environmentalism, electricity market liberalization and lower than expected electricity demand).
If we look at Asia, the growth profile is even stronger: nuclear capacity in Asia is expected to grow from 83GW in 2010 to 161GW in 2020 (2010-20 CAGR: +7%) and 242GW in 2030 (2020-30 CAGR: +4%). Nuclear capacity in China is expected to grow from 9GW in 2010 to 50GW in 2020 (2010-20 CAGR: +19%) and 94GW in 2030 (2020-30 CAGR: +7%). In China there are 53 nuclear power reactors planned or under construction (equivalent to 56GW). China is followed by India (29 nuclear power reactors planned or under construction, equivalent to 24GW), Japan (15 nuclear power reactors planned or under construction, equivalent to 20GW) and South Korea (12 nuclear power reactors planned or under construction, equivalent to 15GW). As nuclear power development is picking up speed, uranium demand is set to grow roughly at the same pace with the increase of nuclear power capacity.
The increase in demand has seen an expansion in uranium exploration and production. Uranium exploration expenditures in 2006 were US$774mn, a 250% increase from 2004, according to the IAEA. Based on the WNA’s Reference Scenario projections — which make a conservative assumption that nuclear power capacity will grow only to 50GW by 2020F — China’s uranium requirement will grow by more than three times to 9,676 tons in 2020F from 2,875 tons in 2010F. The key feature of worldwide uranium resource distribution is its concentration: Australia, Kazakhstan and Russia hold approx. half of the world’s resources. China currently relies on imports for about 50% its uranium needs, with supplies coming from Russia, Namibia, Australia and Kazakhstan. With the future increase in uranium demand to fuel all the power plants currently being built, it is believed that a focus for China’s nuclear power sector in the coming years will be the acquisition of overseas uranium assets and supplies. Both CNNC and CGNPC (the only companies authorized to import uranium for civil use in China) have been actively looking for investment opportunities for overseas uranium assets, here’s a few examples:
In June 2009, CNNC International, bought 69.5% of Canadian company Western Prospector, which has a uranium mine in Mongolia with an 8,000 tons reserve and estimated annual production of 1,000-2,000 tons – In September 2009, CGNPC paid A$83.6mn for a 70% stake in Australian uranium explorer Energy Metals Ltd. – CGNPC and CNNC have begun cooperating with Kazakhstan’s state nuclear power firm for uranium: CGNPC is a 49% joint venture partner in the Irkol and Semizbai mines in Kazakhstan; CNNC is a 49% joint venture partner in the Zhalpak mine. After a couple of decades of stagnation, it seems nuclear power (and uranium with it) has a bright future: especially in China.
“Alberto Pagliarini is an associate at Daiwa Capital Markets Hong Kong. The views in this article are that of the author only. Daiwa Capital Markets and its affiliates take no responsibility and make no representation as to its accuracy or completeness.”
By Alberto Forchielli and Alberto Pagliarini