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Daily Intelligence Briefing

Monday, June 3, 2024

Identifying Change-Driven Investment Themes

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Global Nuclear Power Renaissance Runs Parallel to US-Russia Race for Geopolitical Influence

Summary: Nuclear power facilities and uranium are becoming deeply enveloped in the struggle for global influence and diplomatic might that is now being waged by the US and a key geopolitical adversary in Russia. After the initiation of a US ban on the import of Russian uranium products, Moscow is re-orienting the routes by which it will ship its nuclear fuels. The country aggressively shifted flows of fossil fuel supplies eastward after its war in Ukraine turned away western buyers and now Russia will look to create new markets for refined uranium in Central Asia, where it will assist in building the region’s first nuclear power plant. 


Russia is also consolidating its hold on what allies it still has on the periphery of the European continent, as Belarus will now assist in the construction of a Rosatom-backed nuclear power facility in Hungary. The next frontier in this growing tug-of-war will soon shift to Saudi Arabia as the Kingdom seeks a partner to help deploy a civilian nuclear program. All of this is occurring just as Japan prepares to fire up the world’s largest nuclear power plant for the first time since 2011.


Related ETFs: Sprott Uranium Miners ETF (URNM), Global X Uranium ETF (URA)

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The nuclear power renaissance that has been unfolding throughout the world for several years is now blooming a new race for influence in deploying a crop of new reactors across the world. Though a renewed interest in nuclear power stretches back beyond the initiation of Russia’s formal invasion of Ukraine in February 2022, this event sent shockwaves across global energy markets and reshaped global shipments of oil and natural gas. Not only did it serve as a stark reminder of how significant nuclear power can be in bolstering power grids in the face of geopolitical upheaval, but it has gradually frozen the flow of energy products from Russia to the west. Though it has taken longer to reach uranium than other commodities, the building East-West tensions are beginning to envelop the yellow metal as well.


Last month, President Biden signed  The Prohibiting Russian Uranium Imports Act, which will initiate the phase-in of a ban on the import of Russian Uranium to the US. Though some waivers will be available until 2028, the ban will then be in full effect until 2040. MRP first highlighted the progress of this legislation last August, before it had even been passed the House of Representatives. We The US relied on Russian supplies for about 24% of its enriched uranium demand 2022 – making it the US’s top foreign supplier for the year. Part of that is simply due to the scale of Russia’s state-owned uranium giant, Rosatom, which claims to lead the world in uranium enrichment and rank third in uranium production and fuel fabrication. The White House had previously rolled out a spate of sanctions against Rosatom subsidiaries, but this appears to have done little to halt imports of Russian uranium thus far. In 2023 alone, the US nuclear industry paid over $800 million to Rosatom, and its fuel subsidiaries. The bill also unlocked $2.7 billion in repurposed funding for domestic production of high-assay, low-enriched uranium (HALEU), which was contingent upon the US federal government instituting their new ban on Russian uranium imports. Russia is currently the sole commercial supplier of HALEU, which will be critical to operate the next generation of small modular reactors, but US firms are now having success in deploying small batches of their own supply.


Just weeks after Biden inked his signature on the import ban, Russia took the unprecedented step of signing on with Uzbekistan to assist in building Central Asia’s first operational nuclear power plant last week. Uzbekistan and its neighbor Kazakhstan have served as critical miners and exporters of the yellow metal for many years, but have not had access to their own facilities to utilize refined fuels derived from uranium – aside from a prototype in the latter nation, which was shuttered in 1999. Kazakhstan may revive nuclear power in the nation with an eventual construction of their own power plant, but such a move will be subject to a coming referendum that has not yet been given a date. Despite the country being home to massive deposits of uranium, as well as the world’s single largest producer of natural uranium in Kazatomprom, there is some lingering ambivalence among the populace toward nuclear power due to hundreds of Soviet-era nuclear weapons tests taking place in the country over a period of four decades with little regard for local populations and ecology.


Russian President Putin said Moscow would dedicate $400 million into a joint investment fund of $500 million to finance projects in Uzbekistan. This program follows the initiation of Russian gas flows from state-owned Gazprom to sites in Uzbekistan last year and the promise of a further expansion from an annual flow of 3.8 billion cubic meters (m3to 11.0 billion m3 by as early as next year. More refined Russian nuclear fuel will likely be flowing to Uzbekistan alongside the deluge of natural gas. Nuclear power plants are highly specialized and complex facilities that not many companies have experience building. Smaller nations with little or no experience in this field rely on firms from larger markets that have effectively employed nuclear power and the ongoing spread of these facilities will carry with it a diplomatic edge.


As Russia’s war in Ukraine has turned away buyers of its energy supplies in the west, the country’s oil and gas enterprises have shifted the flow of these products to the east, specifically to China, India, and Southeast Asia. That reorientation is now expanding to Central Asia. One area of Europe where Russia has been able to maintain diplomatic leverage is on the periphery, with nations like long-time ally Belarus and Hungary – a landlocked country that cannot rely on sea-borne shipments of liquefied natural gas (LNG) and has remained more tethered to Russian pipeline gas than other regions of Europe. These two nations just signed onto their own nuclear power-related agreement that will allow Belarus to assist in the construction of Hungary’s second nuclear power plant, which had been under construction by Rosatom since 2014. Belarus’s experience with similar nuclear power tech is meant to assist Hungarian efforts with personnel training and insights on the handling of radioactive waste.


The next frontier of this ongoing struggle for influence is forming in the heart of the Middle East, where Saudi Arabia has been mulling over several different bids to help it debut a civilian nuclear program in the country. That would include the construction of a nuclear power plant and, potentially, the possibility of uranium enrichment on Saudi soil. Though the US has been Saudi Arabia’ preferred partner, the Kingdom’s relations with the US have frayed as a result of Riyadh’s continued friendliness toward Moscow in spite of the latter’s aggressiveness in Europe. US assistance to Saudi Arabia’s burgeoning nuclear program has been a fundamental component of a potential normalization of Saudi-Israeli relations for the first time ever. However, this has become a much trickier stumbling block since last autumn when Hamas’s terror attack against Israel sparked the ongoing war in the Gaza strip. The Kingdom is not totally reliant on the US being its sole partner in its nuclear program, as the Saudis have fielded offers from China, France, and Russia to take part in building the prospective nuclear power station they have been planning.


One key nuclear power development that falls somewhat outside the east-west struggle for influence, but provides a new landmark for the rebounding fortunes of nuclear power, is Japan’s looming restart of its Kashiwazaki Kariwa Nuclear Power Plant (KKNPP) – the largest in the world. Tokyo Electric Power Company Holdings Inc. started loading nuclear fuel into one of the plant’s seven reactors in April and the upcoming resurrection of KKNPP would mark the first restart any of its nuclear reactors that were halted after a massive earthquake and tsunami in March 2011 triggered the Fukushima Daiichi nuclear disaster. Though only one death can be directly attributed to the meltdown at the Japanese power plant after it was hit by a Tsunami, the event turned much of the world off to nuclear fission more than a decade ago.


That era of anti-nuclear sentiment appears to have only recently met a symbolic end, with the release of treated irradiated water from the destroyed Fukushima plant last August. In April 2022, MRP noted that 53% of Japanese respondents to a survey from Nikkei said nuclear reactors should restart, if safety can be ensured. That marked the first time since the Fukushima disaster in 2011 that an increasing role for nuclear had been favored in the semi-regular surveys conducted by the newspaper. Along with the passage of time, rising power costs have spurred the Japanese back toward a demand for nuclear power. Just 12 of the nation’s 33 operable reactors are back online after the Fukushima crisis, but a resurgence in reactor operations in Japan would provide a material increase in demand for uranium supplies. Investors can gain exposure to uranium miners, and the production of nuclear components via the Sprott Uranium Miners ETF (URNM) and Global X Uranium ETF (URA).


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