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Uranium to Fuel Chinese Economic Advance

Sam Kirtley.
February 14, 2007

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.

chart 1

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.

chart 2

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. For advice on which uranium stocks to invest in, subscribe to the uranium stocks newsletter at completely free of charge. Uranium to Fuel Chinese Economic Advance.

Sam Kirtley
February 14, 2007

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