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« The Gold Drivers Competition: 8th place | Main | Uranium: How high could the price go…$576? »
Sunday
Feb112007

Uranium to Fuel Chinese Economic Advance

chinflag1

The rapidly growing economy in China is causing more that just ripples across the economic, financial and business community. Its is growing at an alarming rate and shows no signs of slowing down as it's GDP has been growing at 8% per year since 1978. However the question arises, how is this rapidly growing economy going to get the power to maintain this level of growth or simply to sustain current levels?

Although China does have a great deal of coal reserves, nuclear power is a cleaner more efficient way of producing energy. The Chinese government has already announced that they will be building a number of nuclear power stations but these estimates are a drop in the ocean compared to what China requires. The Chinese are savvy enough not to announce how many they actually need, as this would send uranium prices sky high.

So let us consider how much it would cost for China to get its electricity from nuclear power. Electricity consumption in China is approximately 2.494 trillion kWh. The cost of energy from nuclear power is around 1.68 cents per kWh. This is inclusive of the cost of fuel as well as operating and maintenance costs. Therefore to supply all of China's electricity needs for one year by nuclear energy would cost nearly $42 billion. (2.494 trillion kWh x 1.68 cents / kWh = 4189920000000 cents = $41,899,200,000.00) Although at a glance this may seem like a large figure, it is relatively very low considering the cost of running on other fuels and the fact that China has $1 trillion in US Dollar reserves.

Uranium is used in nuclear power plants in pellets. Typically a pellet of uranium weighs around 7 grams (0.24 ounces). This pellet is capable of generating as much energy as 3.5 barrels of oil, 17,000 cubic feet of natural gas, or 1,780 pounds of coal. Therefore if you compare uranium with oil in terms of energy produced, 3.5 barrels costs about $210 assuming $60 per barrel. For Uranium, it costs around $1.125 to buy 0.24 ounces of uranium at the current price of $75/lb. This is a vast difference in cost and shows how cheap uranium is at current prices.

costofoil11feb07

Yet even with this vast difference in cost, China continues to use oil at a rate of 6.534 million bbl/day. However China has seen that nuclear power is the far better option to supply its energy needs and they have started to switch fuels from oil to uranium. I will try to demonstrate the benefits to China of changing from primarily oil powered to nuclear.

If China was to replace its 6.534 million bbl/day oil consumption with energy from nuclear power they would need about 13,068,000 grams of uranium, around 28,810 pounds. So 28,810 pounds of uranium per day to replace oil would see China using 10,515,650 lb per year. Using the current uranium price of $75/lb that would cost China about $788,673,750 per year. The same cost in oil would be $392,040,000 a day at $60 per barrel, that's $143,094,600,000 a year.

oilcost11feb07

In other words China can run on oil for two days, or uranium for a whole year, at the same fuel cost.

This is why China is moving away from oil and towards nuclear power. It makes sense for China to stop using oil and change to uranium. Of course they could still use fuels like coal, which they have great supplies of, but oil is simply too expensive, not only in terms of money, but also in terms of risk. Oil comes with great geopolitical risk with problems in the Middle East and in oil rich countries like Sudan in Africa. The oil supply is vulnerable as it comes from areas where war and unstable regimes are rampant. Uranium on the other hand originates from “safer” countries such as Australia and Canada. A secure source of energy is a major issue in today's political world and China will ensure that it has a reliable supply of clean, safe and relatively inexpensive fuel. This is why China is going nuclear, like it or not.

As China shifts to using uranium as a fuel instead of fuel like oil, this will send the uranium price much higher. The above graphs demonstrate how much more China and other countries can afford to pay for uranium, as the yellow cake is still quite cheap. As the uranium price moves up, uranium stocks will surge dramatically upwards and you can profit from this by investing in uranium mining and exploration companies.

Do not simply buy any uranium stock, but look for well-managed, small to mid cap companies with proven reserves and preferably an operating mine. subscribe to the uranium stocks newsletter it is completely free of charge.


11 February 2007



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Reader Comments (7)

bob,
just found your site and will be reading and watching.
i own paladin ($5.50), jnr ($2.42) , purepoint ($1.39) and one other.

all bought much lower, but at one point doubled up so average doubled up too..

i agree with you on one point. that is, massive requirements will be needed for China alone.
my Chinese friends tell me you cant breathe in many large cities in China due to the pollution and the increase in cars,

coal is one thing, but health is another.
at least their power grid will be going that way in the future as I see it.

imagine if the policy in the USA was to go that way instead of the stupidity of ethanol for example for cars and lower imports of Arab oil or Venezuelan oil for whatever.

we'd have a different world out there.
anyways, will keep looking.
find some good ones.

regards

peter

February 14, 2007 | Unregistered CommenterPeter

Peter,

Thanks for the above comments we do appreciate people taking the time to fire them in. We are aware of the three uranium stocks that you have mentioned but we don't own them at the moment, but who knows what our research will throw up next?

February 14, 2007 | Unregistered CommenterBob

Your analysis totally dismisses the cost of building and operating a Nuclear Plant so it invalidates the whole argument....as far as cost differences

I agree with the concept but it needs to take into account these factors to make it more convincing....

I am sold on Uranium anyways for other reasons....

Best regards,


F. Gonzalez.
Uranium stocks trader...

February 14, 2007 | Unregistered CommenterFrancisco

The point of the article is not to compare the overall cost of energy, but to compare the cost of fuels.

The fact is we are investing in uranium as a fuel, not nuclear power stations. Therefore, as a fuel, the actual uranium is very cheap.

It is a relatively modern thing to think of fuel as "expensive" as it was not so long ago that oil was dirt cheap.

Therefore, as a fuel, the uranium price can go a lot higher until it becomes on par with oil and other fossil fuels, because as a fuel, uranium is currently very cheap.

February 14, 2007 | Unregistered CommenterSam

cost of oil is very high, look at all the military being thrown around the world to secure it.

add in military and pollution costs and nuclear looks great.

storage is tractable. store insitu is best.

February 22, 2007 | Unregistered Commentermagwa

I read your article about Chinese nuclear utilization, and was wondering if you accounted for the fact that natural uranium only contains about 0.7% fissionable uranium fuel?

You mention the size (0.24 oz) and energy equivalence of a fuel pellet, then calculate a price using $75/lb. [0.24 oz/pellet] * [1/16 oz/lb] * [75 $/lb] = $1.125 per pellet

I believe the actual fuel pellets contain about 5% fisionable uranium. (Weapons grade is much higher, maybe 50% or more.) In any case it takes at least 7 lbs of natural ($75/lb) uranium to produce a lb of fuel pellet. Therefore I suspect that your numbers are wrong by at least a factor 7.

Furthermore, enriching uranium is anything but easy. The fissionable isotope of uranium is chemically identical to the non fissionable. The separation process involves converting the metal into a gas, then passing it through a long series of centifuges to utilize the fact that the fissionable isotope has a slight difference in weight (mass). (This enrichment is of course at the center of the Iran dispute.)

Aside from what must be substantial enrichment cost, I suspect that it is economically impossible to extract anything near 100% of the desired isotope. My wild guess is that 50% recovery might be realistic. Naturally the recovery percentage will depend on how much you are willing to spend. (I am a licensed professional engineer, but not a nuclear engineer).

Do your calculations account for enrichment in some other way that you skipped over?

Thank You,

Tom S

March 14, 2007 | Unregistered CommenterTom S

"If you compare uranium with oil in terms of energy produced, 3.5 barrels costs about $210 assuming $60 per barrel. For Uranium, it costs around $1.125 to buy 0.24 ounces of uranium at the current price of $75/lb. This is a vast difference in cost and shows how cheap uranium is at current prices."

Even if, as you say this cost were seven times larger, that still means that uranium is vastly cheaper as it would only be $7.875 compared to oil's $210 cost.
You have raised a valid point, but the argument still stands intact, as whether the cost of uranium is $1.125 or $7.875, it is still far cheaper that oil at $210.

Thanks for the comment

March 14, 2007 | Unregistered CommenterUranium Stocks

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