The last couple of weeks have been highly supportive for the nuclear industry, confirming that companies in the uranium/nuclear ecosystem are entering into a new era of growth.
It is indeed becoming evident that AI is going to drive electricity demand to new heights with the US Department of Energy undersecretary for infrastructure recently commenting that power demand growth, that averaged only 0.5% a year in recent years in the US (due to energy efficiencies), could now accelerate to 5-6%. This new environment should put a lot of strain on power grids over coming years and remind everybody that common green and intermittent energy sources like solar and wind will not be able to deliver the needed constant power flow.
News about plant restarts (Palisades in the US) and more ambitious nuclear programs (Italy, Netherlands…) are then piling up and should continue to do so in the foreseeable future, giving strong confidence in the nuclear demand environment.
On the supply side, tectonic shifts are also under way as President Joe Biden signed last week a legislation banning the import of Russian enriched uranium, which accounts for about a quarter of the reactor fuel in the US.
Even if the Department of Energy could issue waivers allowing the import of Russian enriched uranium until 2028 if no alternative source is found, the disappearance of Russia from the global uranium enrichment market will be a game changer as the country has a more than 40% share. This will put pressure on Western enrichment capacity, which also accounts for slightly more than 40% of the market.
While Western companies have already started to look to expand their capacity, this will take a couple of years at least to fill the Russian gap and we can then expect bottlenecks in the enrichment process, during which uranium-235 and -238 are separated.
These expected bottlenecks are expected to be a major tailwind for uranium price and miners. Indeed, Separative Work Units (SWU), that define the effort required in the uranium enrichment process, are expected to go down at Western enrichment facilities if these facilities want to process all the uranium required by US and EU/UK utilities. As reduced SWUs will result in a higher concentration of uranium-235 in the “waste”, the solution to get the same unit of enriched uranium will be to overfeed or boost the volume of feedstock in the process, a clear positive for uranium demand and price.
It’s also worth noting that the Russian ban is opening up the enrichment market to miners that already have an enrichment business (e.g. Cameco), or want to expand into it, and to enrichment pure players (e.g. Centrus). Interestingly, the US government announced it will offer $3.4 billion of funding to speed up the development of this domestic nuclear fuel supply chain.
In conclusion, nuclear is gradually emerging as a key pillar of the clean energy transition, with a favorable environment for both demand and supply. The next step would be a rising number of regulatory approvals for Small Module Reactors (SMRs), that are considered the next-generation of nuclear reactors thanks to their modular construction, reduced costs (15% to 40% lower capex) and better safety and that are highly suited to some specific needs (e.g. data centers).