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France's Nuclear Giant's Areva Stock Meltdown

Call it a post-Fukushima hangover.

On 12 December French nuclear energy giant Areva SA, the world’s biggest supplier of nuclear fuel and services, asked that trading in its shares be suspended shortly before the opening of the Paris Stock Exchange, the company said.

Areva SA shares subsequently fell 5 percent before modestly rebounding 1 percent on 13 December. Since the beginning of the year Areva SA shares have lost 47 percent of their value.

This will hit Jean Sixpack directly in the pocketbook, as Areva SA is majority owned by the French state.

Why the reversal of fortune? Areva SA acknowledges a 2011 consolidated operating loss of $1.84-$2.1 billion, but attributes it largely to debts incurred related to its June 2007 acquisition of South African uranium exploration company UraMin, running up $1.9 billion in depreciation.

Areva SA is a major player in the global nuclear energy market, with its activities covering the whole process from the extraction of uranium to the disposal of nuclear waste.

France's Industry Minister Eric Besson said that the country’s 58 nuclear reactors provided electricity at rates on average about 40 percent cheaper than other European countries, commenting, "German households, for example, pay twice as much for their electricity."

A little history - France first opted for a full blown nuclear energy program with minimal public debate after the first oil crisis in 1974 and continued to support nuclear power even after the 1986 Soviet Chernobyl disaster.

Scouring the world for new markets, Areva SA has been promoting its new-generation EPR reactors, which are expensive to build but which the company presents as being the safest in the world and is already constructing a new reactor in Flamenville, France, one in Finland and two others in China, and is in talks to sell more reactors or preparing for future tenders in other nations including India, South Africa, Britain, Poland, the Czech Republic and the Netherlands.

Seeking to staunch the ocean of red ink, Areva's Supervisory Board has approved the overall themes of the company’s "Strategic Plan 2016," which includes "a set of initiatives to reduce operating costs" by 2015 by $1.31 billion by slashing investments by 40 percent, a hiring freeze and the slashing of positions, which Agence France-Presse reported would number between 2,700 and 2,900 jobs, hoping to reduce its new capital investment by a third to $10 billion between 2012 and 2016.

But closer to home, it is increasingly clear that Areva’s eventual fate is ever more bound up with French politics, as with an April 2012 presidential election approaching and legislative elections shortly afterwards, the debate on French nuclear energy policy will move increasingly center stage.

While the center right Union pour un Mouvement Populaire (UMP) party of President Nicolas Sarkozy mostly supports the extension of the nuclear program, the opposing Parti Socialiste (PS) party has called for a moratorium on new reactors and promised a national debate on energy transition if elected in 2012. Last summer France's leftist Europe Ecologie-Les Verts green party warned the SP that it would not enter into a coalition with it if it did not come out strongly in support to an end to nuclear power in France, as Europe Ecologie-Les Verts wants the shutdown of all 58 French nuclear reactors by 2032 and the immediate closure of all reactors more than three decades old.

The issue heated up last month when France's conservative UMP government harshly criticized the PS and Europe Ecologie-Les Verts for a pre-electoral pact to close 24 of the country’s nuclear reactors by 2025, which government ministers said could deal a fatal blow to a leading French industry.

In order to win the Europe Ecologie-Les Verts backing, PS chief Martine Aubry committed the party to reducing France's dependence on nuclear energy for its electricity, leading Industry Minister Eric Besson to comment in the Assemblee nationale, "This is an industrial step backwards. It's the death of the French nuclear industry, which is today one of the most powerful in the world. This isn't just shooting oneself in the foot, it's an amputation." Budget Minister Valerie Pecresse said the closure of 24 reactors would increase French consumers' electricity bills by more than 50 percent as well as job losses, as France’s nuclear industry employs 400,000 people. Following news of the PS-Europe Ecologie-Les Verts alliance, shares in the French utility EDF, which runs France's 58 nuclear reactors fell 4.36 percent.

The next few months will undoubtedly be rocky for Areva SA, and it would indeed be ironic if after its savage belt-tightening its order books for its EPR reactors began to swell even as the PS-Europe Ecologie-Les Verts alliance won in next year’s elections.

Whatever happens, one thing is clear – the “grande” old days of French nuclear power are drawing to a close.

By. John C.K. Daly of Oilprice.com




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