China's Buying Uranium; Is the U.S.?

China has serious nuclear energy ambitions. The nation plans to build three times as many nuclear power plants in the next decade as the rest of the world combined, according to a report from late last year. As a result, the Chinese have a hearty appetite for uranium. Their need is confirmed by news today that they are buying an unprecedented amount of uranium -- 5,000 metric tons this year alone. In February, the Obama administration announced a new effort in the U.S. for nuclear energy. So is the U.S. doing the same?

First, here's some analysis on China, via Bloomberg:

"China's demand is insatiable," said Dave Dai, an analyst at the Daiwa Institute of Research in Hong Kong. "They will have to take almost whatever is available."

Uranium will climb to an average $55 a pound next year as demand erodes supplies, according to Adam Schatzker, a metals analyst at RBC in Toronto. Max Layton, at Macquarie Bank Ltd. in London, forecasts it will climb to $56.25 next year and $60 in five years.

Currently, it's around $42 per pound, pretty cheap by comparison. For those who don't like to do their own math, at this price, China will likely spend at least $420 million on Uranium this year.

Where does this leave the U.S.? The Obama administration championed nuclear power earlier this year, announcing a new initiative to build additional nuclear power plants. The effort includes government loan guarantees for reactor projects. That should mean that U.S. utilities are stocking up on uranium as well, in preparation for these new reactors going online.

In fact, uranium purchases are ramping up in the U.S., according to Suzanne Phelps, a fuel specialist with the Nuclear Energy Institute. NEI has heard from several facilities that they have begun purchasing uranium for their initial cores, she said. But she described these purchases as not terribly far above normal, which implies that they certainly aren't as aggressive as those by China.

Are U.S. firms worried about China putting stress on the uranium supply and driving up prices? Phelps said:

It's something we're taking a careful look at and monitoring, but right now it hasn't (happened) ... The U.S. is unique in the fact that, because of the way our utility system is set up, we're buying as private enterprises. Individual utilities or groups of utilities may join tougher but are buying as private enterprises -- versus the Chinese, and the Indians, and the Koreans, and the Russians are largely state controlled operations. So they've got a lot more bulk involved.

So how is the new Obama administration nuclear initiative going several months out? It's still a little too early to tell. One of the big winners is nuclear energy provider Southern Company. It has two new units under construction at its plant Vogtle in Georgia which intend to benefit from government assistance. The new reactors would be the first to utilize Westinghouse's new AP1000 technology.

The plans are currently undergoing their final review with the Nuclear Regulatory Commission (NRC), according to a Southern spokesperson. She said that Westinghouse is reporting that the process is proceeding as expected at this time.

Southern will be granted $8.33 billion in loan guarantees for the project after various conditions are met, including receiving an operating license from the NRC, said Energy Department Spokesperson Jennifer Lee. She also noted that another conditional guarantee commitment of $2 billion was offered to AREVA for a nuclear uranium enrichment facility in Idaho in May.

While it isn't likely that additional U.S. demand will come anywhere close to that exhibited by China, if nuclear power is to have a new renaissance, uranium prices matter. If the Chinese do drive them up significantly, utilities considering taking on the risky endeavor of a new reactor might be less willing to do so. But so far, China's ramped up purchases haven't been an issue.