Commodities | Sep 06 2016
The world's biggest oil producer is looking to go nuclear with an extensive reactor building plan.
By Greg Peel
There is a tincture of irony in the news the world’s biggest producer of crude oil, Saudi Arabia, is planning an ambitious foray into nuclear power. The kingdom intends to construct sixteen commercial nuclear reactors over the next twenty years at a cost of US$100bn, with the first expected to come on line in 2022.
Saudi Arabia has suffered in recent years from the oil price plunge, impacting heavily on the government’s budget. Electricity in the country is almost entirely produced from oil and gas, feeding the country’s greatest consumer of electricity, the oil and gas industry. But in a yet another ironic twist, the country has become the fastest consumer of electricity in the Middle East and as such, is at risk of falling short of production capacity.
Enter nuclear power. Unsurprisingly, Russia is keen to be involved in the construction of the planned reactors and China does not want to miss out either.
At least the price of uranium is just as cheap at present as that of oil, in relative terms. There would thus be some balance of uranium imports against oil exports were Saudi Arabia to start stockpiling the fuel needed to start up reactors sooner rather than later.
There was certainly no joy for uranium producers in August. The spot price continued to slide as 28 transactions totalling 3.8mlbs U3O8 equivalent changed hands over the course of the month. Industry consultant TradeTech’s spot price indicator ended the month at US$25.25/lb, down from US$25.90 at end-July.
Last week in particular, 600,000lbs U3O8 equivalent were traded at successively lower prices. On a weekly basis, TradeTech’s spot price of US$25.25 represents a US50c drop.
The good news is activity in uranium term markets is expected to pick up in September and beyond as several utilities consider medium and long term delivery contracts. Mind you, if uranium producers earned a dollar every time the market expected term demand to pick up, but was disappointed, they’d all be back in profit.
Indeed, as TradeTech continues to point out, demand remains “highly discretionary”. And on the other side of the fence, sellers are competing aggressively.
TradeTech has lowered its medium term price indicator by US70c to US$26.70/lb. The consultant’s long term price indicator remains unchanged at US$38.00/lb.
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