Uranium: a tale of two tails

Uranium, and the nuclear power industry, have both gone through some lean years of late. The uranium market has been oversupplied, with end-user inventories rising steadily and prices halving from around US$40/lb in 2015 to around US$20/lb in 2017. Downstream of uranium mining, an increase in anti-nuclear sentiment has been evident in many traditional markets since the Fukushima tragedy.

Our belief is that the long run future of uranium is more likely to be in either the “left hand tail of the distribution” (i.e. a low case world where nuclear generation dwindles in importance) or the “right hand tail of the distribution” (i.e. a green world where nuclear generation increases in importance), than a traditional distribution scenario (i.e. the average of tomorrow will look similar to the average of the past). Hence, the uranium story is a “tale of two tails”.

Why so? On the one hand, following the Fukushima tragedy, with the nuclear power sector facing challenges with respect to public confidence, and the reactor fleet ageing, there is a plausible long run story where the uranium industry faces grave difficulties as its downstream consumer fades into obscurity. On the other hand, as the world moves towards greater decarbonisation of stationary energy generation, one can just as easily tell the story of nuclear as a ‘green knight’, providing a competitive source of low net emissions baseload power to pair with renewables, with the resulting power mix a clear win for the environment. Finding a plausible narrative that falls neatly between those two in terms of uranium demand and price, and is equally compelling, is hard to do.

Over the years, we have developed analytical tools that enable us to wrestle with this sort of uncertainty. That is why we can confidently say that our future plans for Olympic Dam remain comfortably robust to a “low case world” for uranium. Of course, we will continue to scrutinise the plausibility of our low case(s), and the appropriateness of our high(s), as the relevant signposts presented by national energy, climate, nuclear power specific and uranium mining specific policies are revealed over coming years.
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The global uranium (U₃0₈) market was around 73Kt in 2016.¹ More than half that demand came from the Americas and eastern and western Europe combined. China was next with around one-seventh of global demand. The average age of the 129 reactor units in the Americas fleet is 37 years; western Europe’s 134 units are slightly younger (e.g. France 31 years, UK 33 years); and eastern Europe’s 52 units are slightly younger again at 28 years.² China’s 33 units, by contrast, are 7 years old on average, while India’s 22 units are a more mature 21 years.

Why does the age of the fleet matter? It matters because when reactors (or any form of power generation capacity for that matter) come to the end of their effective life³, a decision is forced upon the owner. Should they extend or decommission? And if the latter, should they replace, and if so, with what?

The longer the forecasting horizon, the more important age of the fleet and its effective lifetime becomes. As our forecasting horizon extends to 2050, fleet lifetime is one of the major assumptions used in our range analysis. In our low case for uranium demand, we assume a reactor life of slightly less than half a century as a global average. In a high demand world, we stretch that to an average of almost 60 years.