Another Way to Play the Nuclear Comeback

Posted by Ian Cooper - Thursday, December 16th, 2010

From Energy and Capital:

Steven Chu, U.S. Secretary of Energy and Nobel Prize winner, has dubbed it a “Sputnik Moment”.

Chu's comment refers to the global race for clean energy.

And his analogy referenced the moment in 1957 when the Soviets launched their Sputnik satellite, an event that marked the beginning of the space race between the United States and the Soviet Union.

Now that we are pumping out the last of the world's easy-to-get oil — signaling the end of cheap, conventional sources of crude — the stakes are much higher...

Playing catch-up with the world

Today, I want to focus on a specific area of this energy investment: the nuclear revival.

Nuclear energy is one of the few sources that can provide clean power on the scale we need. Of course, that's also assuming we continue to develop it.

The 104 reactors operating across the United States generated approximately 20% of our electricity in 2009.

Last week, I talked about the reasons the U.S. is lagging behind the rest of the world. And during his speech, Secretary Chu made the point that the United States has lost its edge in the nuclear industry to countries like France, Japan, and Korea.

Even though the United States is the world's largest producer of nuclear energy — accounting for roughly 30% of worldwide output — it's clear we're moving to the back of the classroom.

According to the World Nuclear Association, 63 reactors are currently being built across the globe; we're only building one of those.

Meanwhile, China is accounting for 26 of those reactors.

It doesn't take much to realize that China could very well make their goal of generating 18% (possibly even 20%) of their electricity via clean energy. Not to mention the 120 proposals the Chinese have for new reactors, compared to just 22 for the United States.

But in order to kick-start the U.S. nuclear industry, there are several problems that need to be addressed.

Overcoming nuclear obstacles

There's no question about it, and I have a feeling that some of you will agree...

The largest hurdle for the U.S. nuclear industry to overcome is waste disposal. It’s perhaps the biggest issue when it comes to public dissent — and for good reason.

The current disposal conditions are far from permanent. Right now, most of the used nuclear fuel is stored at the plant sites in steel-lined concrete pools, or even within air-tight containers in a water-filled basin.

The Yucca Mountain debate

The Obama-condemned project to develop a waste disposal site at Yucca Mountain recently made headlines again.

For those new to the Yucca Mountain debate, here’s a quick rundown...

The plan was to create a national repository for nuclear waste. To the chagrin of environmentalists everywhere, the first phase was a tunnel bored into the mountain, where 70,000 tons of highly radioactive waste could be stored.

Earlier this year, the plan was slammed by Energy Department, which yanked an application for the nuclear waste repository.

The celebration may have been premature. The courts stepped in last week, challenging the authority of the Department of Energy to withdraw the license.

And so the government wheels turn.

The final result, however, is yet to be decided.

So how can investors still make nuclear profits?

Last week, I gave you several nuclear ETFs that gave investors a starting point. Personally, I prefer to cherry-pick my favorite stocks.

And while the fate of the Yucca Mountain is still up in the air, there's an easier way to invest in nuclear energy...

Uranium.

Uranium prices — which currently stand at $61.75 per pound — are set to move higher. Over the next several years, demand will inevitably rise as countries begin to ramp-up their own nuclear programs.

Now here’s the kicker…

Prices have plenty of room to run. Operators have boasted prices could go up several hundred dollars before a problem occurred.

They wouldn’t bat an eye if uranium prices suddenly shot over $100 per pound.

Unlike coal or natural gas plants, where fuel makes up three-quarters of their cost, nuclear fuel barely makes up one-quarter.

Also factored into those costs isn’t just the uranium, but also waste and enrichment costs.

And if you think you would’ve had success with those nuclear ETFs, uranium stocks have been on fire lately.

Take a look at this performance for yourself. Here’s how some of my favorite uranium players have fared during the second half of 2010:

uranium stocks

Cameco, for example, supplied 16% of the world's uranium demand in 2009. The company expects to double its production within the next decade.

Unlike oil — which ballooned to $150 per barrel — there was no major outcry when uranium prices reached $136 per pound in 2007...

Just another reason uranium producers and explorers remain on the top of the list of nuclear investors.

Until next time,

Keith Kohl
Editor, Energy and Capital

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