October 7, 2013
A briefing on uranium (Part 1)
There are five major feedstocks employed in the generation of electric power — water (hydroelectric), coal, uranium, oil and natural gas.
Solar, wind and geothermal are other possibilities, except they’re generally expensive relative to the income they can earn from customers. At this stage of their development, government subsidies are still required to make them economically viable.
“Wind” also suffers from the NIMBY (not-in-my-backyard) factor. Rural communities and farmers don’t like what they consider to be unsightly windmills too close at hand, plus there are often complaints about vibration and noise that may cause health problems.
Geothermal works best if the power plant is sitting on a volcano, which is why Iceland is home to some of the most successful applications of this technology.
Building future power plants based on coal has been largely discredited on account of the degree to which carbon dioxide is let loose into the atmosphere. Scrubbers help but they’re still unable to achieve the level of “clean coal” that consumers, government and the industry itself would like to achieve.
So let’s concentrate on the long-term outlook for the other four major types of power generation set out in the opening sentence, maintaining a score card on their pluses and minuses based on expense and environmental impact.
Oil is automatically discounted due to its high cost and CO2-emitting propensity. Its best use is in the production of gasoline, diesel and jet fuel to propel cars, trucks, buses, trains and planes.
Natural gas has several advantages, including a pollution-quotient that falls a great deal lower than oil.
Furthermore, in North America, natural gas is currently extraordinarily cheap. That’s because the U.S. has embraced hydraulic fracturing (i.e., “fracking”) of shale rock with virtually unrestrained enthusiasm.
The vast increase in American gas reserves has lowered the price to around $3.00 U.S. per mmcf (million cubic feet). At that level, power generation based on low-GHG-emitting natural gas is a no-brainer. (GHG is the acronym for “greenhouse gas”.)
But we’re lucky in this part of the world. In emerging nations, the price of gas has historically been based on energy equivalency rather than supply and demand.
Burning six million cubic feet of natural gas generates the same number of BTUs (British thermal units) as one barrel of oil. Therefore, when Brent crude (i.e., the world standard) sits above $100 U.S. per barrel, natural gas should be somewhere north of $16 per mmcf.
Developed and emerging nations in Asia are paying from $16 up to $20 per mmcf for natural gas which, of course, is why there is such a push underway in northern British Columbia, Australia, Qatar and the southern U.S. to build liquefied natural gas (LNG) exporting facilities.
In a strange twist of fate, the country with the world’s third largest economy, Japan, is currently pleased to be paying a premium for gas.
Japan’s central bank is buying bonds to provide monetary stimulus, lower the value of the yen and help out export-based manufacturers.
In the aftermath of the March 2011 tsunami-caused damage at Japan’s Fukushima power plant, all of the nation’s nuclear units have been shut down for repairs and structural strengthening. The country is susceptible to natural disasters, including earthquakes.
Japan is now totally reliant on imports of natural gas to generate power.
The drop in value of the yen, combined with the higher cost that nations in Asia are paying for gas, has driven up the inflation rate in Japan to its highest level in years. But that’s exactly what Tokyo wants.
For too long, Japan has been struggling with deflation. But this is not really the best source for a gain in the year-over-year price level. A somewhat positive rate of inflation (+2.0% is the usual target) is optimal when it comes from domestic sources, including higher consumer demand and wage gains.
Japan has one of the largest public sector debts in the world. A sales tax increase is planned to help ease the nation’s financial problems.
The combination of higher natural gas prices and a sales tax increase will work against growth.
Most likely, there will be a re-opening of nuclear plants and construction of new facilities that will be built to higher safety standards.
Next-generation nuclear plants will rely on gravity as opposed to pumps to effectively employ water as a cooling agent when fuel rods overheat.
Plans are underway in Asia to move to a market-driven system for the pricing of natural gas. Singapore is one location among several where there is a proposal to set up an LNG trading terminal and regional hub.
In some ways, hydroelectric power is best. There may be huge up-front capital costs, but emission readings drop to zero.
On the opposite side of the ledger, there are often native land claim issues to be sorted out. Also, there can be significant loss of land topography to large water reservoirs. Accompanying earth-moving efforts often meet with disapproval.
Hydroelectric power plants require river systems that can be dammed. There are still potential sites in Canada, mostly in Manitoba and B.C., but the U.S. is generally viewed as having already reached its maximum.
To be continued in Economy at a Glance Part 2.