• Energy conflict between global recovery and climate change
  • Recent advances make the industry safer and more efficient
  • Policy makers are turning to nuclear as the only viable solution
  • LEU and URA provide ways to play this multi-year trend

Energy conflict between global recovery and climate change

As the world comes out of the COVID lockdown energy needs are expected to soar while at the same time global concerns about climate change are putting a lid on exploration of new hydrocarbon sources. This is one reason why crude prices have soared to above $70/bbl providing a resounding yes to the question we posed in February – Is Dirty Oil the Cleanest Trade in the Market?

Now, many analysts believe that the only way to reconcile the immediate  energy needs of an ever growing global population and curb carbon emissions at the same time is to turn to nuclear power. Nuclear power is of course a very controversial choice with many people still scared by memories of Chernobyl and Fukushima – but recent advances in both the safety and size of nuclear power plants have made the choice much more palatable and more importantly much more urgent given the conflicting global economic needs

Recent advances make the industry safer and more efficient

Here is a video that explains the benefits of SMR (small modular reactors) which provide a less expensive and safer way to produce carbon free power.

As the world converts to electric vehicles, nuclear power becomes the perfect compliment to a carbon free future as it serves as the only sustainable source of non-polluting electric power. Greener alternatives such as solar and wind  have made tremendous progress in expanding energy supply but they suffer from the inherent problem of intermittent power generation and are still far less “energy dense” than either nuclear or hydrocarbon sources. 

Policy makers are turning to nuclear as the only viable solution

Although nuclear has long been the bane of progressive politicians, center-left views on the subject are changing rapidly. The Biden administration has shifted markedly in its support of nuclear power as a key component of the US energy mix. US Secretary of Energy Jennifer Granholm recently noted,  “Let me say it loud and clear: carbon-free nuclear power is an absolutely critical part of our decarbonization equation.” Indeed US Nuclear regulators recently approved the production of high-assay, low-enriched uranium, or HALEU which enriches uranium at near 20% level versus the current 5% rate and therefore provides  greater power density, improved reactor performance, fewer refueling outages, improved proliferation resistance, and smaller volumes of waste. The primary beneficiary of this move is Centrus Energy corporation (LEU).

However a broader bet on this trend centers on investment in Uranium which has been in a bear market for more than a decade. Larry Macdonald of the Bear Traps report call it one of the best risk reward trades of our lifetime as the whole market value of the commodity stands at a mere $20 Billion – a pittance relative the current half a trillion dollar valuation for Bitcoin which ironically enough is a major user of energy and therefore has come under massive criticism for its hydrocarbon consumption.

In a recent MacroVoices podcast the founder of Bear Traps report notes that purchasing managers at nuclear power plants as well as some hedge fund players are already beginning to accumulate inventory in anticipation of much greater demand for the fuel.

LEU and URA provide ways to play this multi-year trend

The URA ETF which is the purest bet on nuclear has already appreciated 50% since the start of the year in a clear signal that market players are beginning to see potential for demand, but if the bulls are right and nuclear becomes the expedient choice for “clean power” over the next decade the potential of price appreciation in uranium is just beginning.