If Pakistan Needs 32 New Reactors, What’s That Say?

Only about 30 countries currently utilize nuclear power.

The following news item caught my attention. We all know that China, Russia, India and Brazil are deploying a large number of new reactors. England and a few middle eastern countries like Saudi Arabia and the UAE also have BIG plans. But, if a country like Pakistan, has demand for 32 reactors, that says a lot!

Not only is the world’s population growing from 7 billion to 9 billion + by 2050, the percentage of the population using significantly more electricity, i.e. middle-class citizens of the world– is growing as well. The world’s middle-class could rise from 4-5 billion today to 7-8 billion. On top of that, there’s the possibility (some would say likelihood) that the MIX of base load power generation (coal, gas, nuclear, hydro, etc.) will shift towards nuclear. Taken together, these two trends could easily result in a doubling in nuclear power generation, especially if we see a widespread adoption of Small Modular Reactors.

Only about 30 countries currently utilize nuclear power. That’s less than 20% of the world’s nation states. No matter how one slices it, there’s going to be a huge increase in the amount of uranium required. Cameco just revised it’s 10-yr forecast to a CAGR of 3.5% from 3.0%. Where will an additional 70 million pounds of annual supply it come from? That’s a GOOD question. There are many problems on the supply side, ranging from terrorist activity and resource nationalism in select African countries, to severe water scarcity concerns, to depleting reserves in key countries, most notably Kazakhstan. While we may not be looking at, “Peak Uranium,” I can assure you that the low hanging fruit has been harvested in many parts of the world, especially the lower-cost supply.

That’s why I believe uranium prices are headed higher, perhaps a lot higher. I’m not talking about the long-term price getting back to $65-$70/lb like most pundits and sell-side analysts predict. That seems a sure thing, it’s still at $50/lb despite a painful 3-yr decline in the spot price to $35.5/lb. While it might take 2-3 years, I believe the long-term uranium price could settle in the $80′s-$90′s/lb. WHY? Look back at 2007 when the spot price spiked to $135/lb. Clearly that price was unsustainable, but less noticed was that the long-term price remained fairly steady in 2007 and into 2008, averaging about $90/lb for well over a year. That’s very important to understand. A long-term price of $90/lb (arguably above $100/lb in 2014 dollars) was tolerated because the cost of uranium in the overall nuclear power generation equation is quite low.

Of course, the long-term uranium price fell in 2008-9 due to the global financial crisis, but in 2010- early 2011 it climbed steady, reaching the low $70′s/lb (both spot & long-term). This low $70′s/lb figure is the very bottom end of the range I envision going forward. There are 2 simple reasons why the new long-term uranium price might settle above that of early 2011 (pre-Fukushima). First is the supply challenges I mentioned earlier. Draughts, terrorism, resource nationalism, reserve depletion– none of these problems are going away or even diminishing. In fact, if anything these problems are only getting worse. Overcoming these challenges, if even possible, will take capital investments in exploration, security, community relations, infrastructure, etc., which leads to my second reason– mining cost inflation.

Over the past decade, mining cost inflation has ranged from 5%-15% PER YEAR depending on location and commodity. Assuming just a 5% annual increase, (from 2011 when the long-term uranium price was in the low $70′s/lb), by 2016-17 the marginal cost could be $10/lb higher! Therefore, the new long-term price could easily be in the $80′s/lb for the latter half of this decade. In fact, an even higher long-term price is quite possible. Since the risk and upfront capital costs of mining is growing, the operating margin demanded by producers to bring supply to market could grow.


If Pakistan ultimately requires 32 new reactors in coming decades, the 150 + countries that currently get zero electricity from nuclear power will likely generate substantial demand, perhaps far more than is reflected in current projections. It’s essential to recognize that even though projections stretching out decades appear quite robust and detailed, these projections only count countries already using nuclear power or with a plan to start. Dozens of countries could (and probably will) join the club over the next 3-4 decades.

Here’s the blurb on Pakistan’s plans…

ISLAMABAD: Pakistan is in the process of selecting eight sites for the installation of 32 nuclear power plants, which will generate a total of 40,000 MW electricity, said Pakistan Atomic Energy Commission (PAEC) chairman Dr Ansar Parvez. He did not specify a time frame.

In an exclusive interview with The News, Parvez spoke of the need to change the energy mix and overcome the issue of circular debt. “Our future plans are to have nuclear power plants supply one-fourth of our total required capacity. On the directives of the prime minister, we are selecting eight sites for installing more nuclear power plants. Each site will feature a total of four plants – having a capacity of producing 1,100 MW each – which will be built in two phases,” explained Parvez.

According to the PAEC chairman, China has agreed to finance 82% of the total cost for two Karachi Nuclear Power Plants (KANUPP-2 and KANUPP-3) and will be providing a loan of $6.5 billion for the same. The deal is going through despite objections from the Nuclear Supplier Group – the international body that regulates nuclear power trade. China has rebuffed call from the body saying that its nuclear exchange with Pakistan predates the group’s charter and is thus exempt from it.

The remaining 18% of cost will be borne by Islamabad. “Since the government will be providing its share in rupees, it won’t need to arrange foreign exchange for the K-2 and K-3 plants,” he added. According to Parvez, the government has also selected a site at Muzaffargarh for installing a 1,100 MW plant.

Article written by Peter Epstein, Guest Contributor to MiningFeeds.com


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