The Inevitability of the Nuclear Age

I am firmly convinced that one of the best investment opportunities in the world today is in nuclear power. In this article I will discuss why that is, and how one can go about making such investments.

The first point to be made in any discussion of a coming nuclear renaissance is that peak oil is real. In other words, oil production will continue to decline over the next couple decades, at a time when population and energy demand are rising. This creates a situation in which the energy market is being hit on both ends: on the supply side, oil is in decline, and on the demand side, more people results in a greater demand for energy. It is this basic economic situation that sets the stage for nuclear power to be an outstanding investment opportunity.

The chart below illustrates the situation with oil production via Exxon Mobil

Meanwhile, here is the projected energy demand over the next few decades (via the International Energy Agency)

So the next logical question is what can we use to close the gap?

There are two criteria that need to be mentioned here:

Baseload fuel. First is that the world needs baseload energy -- meaning energy that can be turned on at any time, on demand. This immediately rules out much in the form of solar and wind, which are not yet capable of providing baseload power; they require the sun and wind to be shining. There are some who argue that combining solar and wind properly will allow us to mix and match energy sources, thus achieving the equivalent of baseload energy; for instance, we can draw from wind when the sun is down, and vice versa. I find this to be very idealistic and not too realistic; the logistical challenges here are significant, and the assumptions that Mother Nature will cooperate with us even if we design adaptive systems are a bit too much, in my opinion. The simple fact of that matter is that storing solar and wind power is a challenge that has been with us for a long, long time -- and in fact it is perhaps the primary reason solar and wind have been such a small part of our energy mix for so long. We need energy to be available when we want -- it's that simple. Technological breakthroughs may enable solar and wind to meet this requirement, but for the time being, there is no such breakthrough in sight. Nuclear power, on the other hand, can provide baseload energy, as can coal and natural gas.

Energy density. Energy also needs to be cheap and scalable. In other words, we need energy systems that can service a population of 7 billion and growing, and we need this energy to be cheap. In terms of the physics of energy, what we are really looking for here is energy density: the more dense a source of energy is, the cheaper and more scalable it will ultimately end up being. Energy journalist Robert Bryce has an article on this subject entitled "Get Dense" which explains the situation very succinctly.  

The table below, courtesy of The Daily Reckoning offers a comparison of energy density by various sources of energy. 

Uranium is the fuel for nuclear power. It is clearly the winner here, and by a very wide margin.

So, because it is the most dense source of energy, it will prove to be the cheapest and most scalable. And because it can provide baseload power, it does not have the limitations that many renewable energy sources do.

Now, to be fair, there are other options -- specifically coal and natural gas. While coal and natural gas are not as dense as nuclear, they may be good enough -- and given that the US is going through a natural gas renaissance thanks to hydraulic fracking, natural gas may be the king of energy. There is, however, one advantage nuclear has that natural gas and coal do not: it is emission-free.  The Environmental Protection Agency in the United States is now looking to enact a regulation that will basically ban power sources in the US that generate significant emissions; I agree with the idea that such a regulation will do virtually no good, and will not reduce global emissions as much of the world outside the US still using coal. But the worldwide movement against emission does favor nuclear.

Because of all these factors, the demand for nuclear is strong. This is ultimately the bottom line; the World Nuclear Association reports that over 435 nuclear reactors are currently in operation, with another 60 planned at the time of this writing.

In conclusion, I'd like to examine the investment opportunity this is creating.

1. Uranium. Uranium is the primary source of nuclear fuel and is my personal favorite way of investing in nuclear power. There is a deep supply/demand imbalance in uranium, and I believe the stage is set for price to re-visit its all-time highs near $140 reached in 2007. From this perspective, uranium mining firms constitute an outstanding opportunity.

2. Graphite, Vanadium, and Lithium. Nuclear is used primarily to generate electricity, so implicit in expectations of nuclear power is greater usage of electricity. Moreover, better battery technology will be needed to make electricity more viable for powering everything that oil currently powers. Graphite, lithium, and vanadium are important minerals used in emerging battery technologies. 

3. Copper. Silver may be more conductive than copper -- meaning better at transporting electricity -- but it is too expensive. So, if greater nuclear power means greater electricity, then greater electricity means greater copper. Speculating on copper and promising copper miners is thus a great opportunity from this perspective.

There is much more to invest in terms of firms like Babcock WIlcox and TerraPower that invest in new nuclear reactors which could push the price of nuclear energy down even further. Personally, because of my background in gold, I prefer to focus on investing in the resource and mining sector as a way of helping the world overcome peak oil and unlock even greater sources of energy via nuclear power.

By. Simit Patel of Informed Trades