Weekly Reports | Mar 21 2017
The world’s largest source of uranium is grappling with the issue of just how it might ensure future baseload power supply.
By Greg Peel
The Great Australian Joke
Energy, or the lack thereof and the cost thereof, has been the hot topic in Australia this past week. The issue has come to a head for two reasons: the inability of renewable energy sources in the state of South Australia to provide reliable baseload power; and the bans placed on coal seam gas exploration in the states of New South Wales and Queensland.
The first issue ties in with the gradual closure of Australia’s legacy coal-fired electricity plants, particularly brown (“dirty”) coal plants. As Australia’s electricity generation capacity diminishes, and the South Australian experience of state-wide blackouts shows renewables have not yet reached baseload capacity, where is Australia’s future electricity going to come from? Everything has been touted, from Tesla’s offer to build a battery storage facility to overcome the shortcomings of renewables, to the federal government’s plan to expand the hydro-electric generation network constructed in the 1950s.
In the meantime, the South Australian state government has suggested it will take things into its own hands. Electricity is currently provided by the private sector.
The second issue highlights the fact Australia is almost alone in the world in being a major energy producer with no public quarantine of energy produced. Shortly Australia will become the world’s biggest exporter of liquefied natural gas, and LNG will become Australia’s biggest export, overtaking iron ore. The vast bulk of that LNG will end up in Japan, Korea, and particularly, China.
The abundance of shale gas in the US should mean the US could also be a major global exporter of LNG and those wheels are now in motion. But the process is slow, given government approval is required vis a vis energy that is quarantined for domestic use against exported to trading partners for that partner’s economic benefit. The government’s quarantine means US businesses and households enjoy the economic benefits of cheap domestically produced power.
Not so in Australia. Australian businesses and households pay the same price the Chinese are prepared to pay for gas because why would the private sector, which poured billions of dollars and years of time into building LNG facilities, sell at any less a price than the most a customer, export or domestic, is willing to pay? There is no government quarantine.
There is, however, plenty of natural gas in Australia. On the east coast, this gas is all coal seam. When the big oil & gas companies began building their massive LNG facilities a decade ago, the availability of gas was not an issue. But when those companies started drilling, uninvited, on agricultural land, the political backlash was such that east coast state governments bowed to pressure and banned such exploration.
In the US, landowners own what’s under the ground. In Australia, the government owns what’s under the ground. Hence gas companies are permitted to enter a property and drill for what’s under the ground, unless the government bans them from doing so.
The result of the bans is that the big LNG facilities are now struggling to source enough gas to satisfy export demand. The response is to redirect gas earmarked from sale on the domestic market to export. The lack of available gas domestically means the price of gas has risen exponentially, to the point Australian manufacturers have, or are threatening to, shut down operations due to economic unviability.
The response for the federal government is to ask the oil & gas companies, politely, if they would be so kind as to keep a little bit of gas back for sale domestically at a reasonable price. They have of course agreed, perhaps fearing the possibility of a legislated quarantine. But as to how much of their profits the companies in question, many struggling with debt, will give up, is yet to be seen.
The Great Australian Paradox
What has any of this got to do with uranium?
Australia boasts the largest reserves of uranium in the world (Kazakhstan boasts greater accessible reserves). Australia has not one nuclear power plant (other than a small plant producing medical isotopes). Successive governments over the decades have considered nuclear energy to be politically unsavoury, with events such as Three Mile Island, Chernobyl and Fukushima providing every reason throughout history not to alter such a view.
But Australia is happy to sell uranium to others, including, most recently, a deal struck with India. India is nuclear-capable and not a signatory to the nuclear non-proliferation treaty, but has promised it will only use Australian uranium for power generation. At home, the federal government has limited the number of uranium mines allowed to operate, and state governments have the power to ban uranium mining altogether.
Other than one mine in the Northern Territory that is not currently mining fresh uranium and perhaps never will again, all Australia’s mandated uranium mines are in South Australia, ironically. Queensland boasts large uranium reserves but mining is banned in that state. Mining in Western Australia was banned for decades before the most recent conservative government overturned the ban. That government was able to issue a handful of mining approvals before it lost power last week. It is yet to be seen what the incoming socialist government will do.
Nuclear power has often been touted by some Australian politicians as an answer to Australia’s carbon emission reduction/baseload power requirement problem. The issues regarding South Australian blackouts and rising east coast gas prices has brought nuclear to the fore once more.
Which is most likely as far as it will get. No Australian government has ever had the stomach for being seen as a supporter of nuclear energy.
Meanwhile in the US, the recently published Trump budget blueprint included funding for the construction of a nuclear waste dump in Nevada – a project which has been stalled for years by legal action and public protest. The lack of a dump facility is one reason US legacy nuclear plants have become economically unviable despite historically low uranium prices. This budget entry suggests the Trump administration is looking to do something about that.
Last Week’s Market
The spot uranium market has recently become a bit of an up again, down again affair, with no clear price trend evident since the rebound earlier in the year from the December low. Two weeks ago industry consultant TradeTech’s weekly spot price indicator fell -US$1.00 on low volume, last week it rose US$1.75 on even lower volume, to US$25.75/lb.
Traders and speculators again dominated in the four transactions reported, totalling 400,000lbs U3O8 equivalent, although TradeTech does report some limited buying interest emerging from utilities.
No new demand was reported in term markets. TradeTech’s term price indicators are unchanged at US$28.25/lb (mid) and US$35.00/lb (long).
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