Europe has a gas problem. No, not that kind of gas problem, they have a natural gas problem. From the second half of the twentieth century until around 2010, natural gas was the energy source of choice on the continent and consumption numbers grew steadily. It plateaued just over a decade ago but did so at high levels. That wasn’t a problem, though. I mean, natural gas was cheap, and Russia had a seemingly endless supply that they were happy to sell to their European neighbors, who were happy to buy it. Of course, now, neither of those things are true. Natty prices have risen over 500% from where they were a year ago and nobody wants to buy anything from a nation that invaded its neighbor and is slaughtering that neighbor’s citizens in an attempt at a blatant land grab.
Imports are the natural answer in some ways, but importing natural gas isn’t easy. The product has to be liquified by freezing to extremely low temperatures, then transported in specialized vessels. There are a limited number of both liquefaction facilities and LNG tankers in the world, so the imported gas tap cannot just be turned on overnight. In the short-term, that means that EU countries have, in many cases, had to hold their noses and continue to buy gas from Russia, but the shock of the war will no doubt cause a rethink of long-term energy policies in those countries, and beyond. Buying from unstable, undemocratic regimes doesn’t look like a sustainable policy anymore.
As a result, many are…
Europe has a gas problem. No, not that kind of gas problem, they have a natural gas problem. From the second half of the twentieth century until around 2010, natural gas was the energy source of choice on the continent and consumption numbers grew steadily. It plateaued just over a decade ago but did so at high levels. That wasn’t a problem, though. I mean, natural gas was cheap, and Russia had a seemingly endless supply that they were happy to sell to their European neighbors, who were happy to buy it. Of course, now, neither of those things are true. Natty prices have risen over 500% from where they were a year ago and nobody wants to buy anything from a nation that invaded its neighbor and is slaughtering that neighbor’s citizens in an attempt at a blatant land grab.
Imports are the natural answer in some ways, but importing natural gas isn’t easy. The product has to be liquified by freezing to extremely low temperatures, then transported in specialized vessels. There are a limited number of both liquefaction facilities and LNG tankers in the world, so the imported gas tap cannot just be turned on overnight. In the short-term, that means that EU countries have, in many cases, had to hold their noses and continue to buy gas from Russia, but the shock of the war will no doubt cause a rethink of long-term energy policies in those countries, and beyond. Buying from unstable, undemocratic regimes doesn’t look like a sustainable policy anymore.
As a result, many are looking once again at nuclear energy technology. Nuclear power was once enemy number one amongst environmentalists. Disasters such as Three Mile Island, Chernobyl, and more recently, Fukushima, did so much damage that expanding nuclear power to meet growing energy needs was seen as just not worth the risk. There are still some that feel that way, but the technology of plant construction and safety protocols has advanced to the point where those that study the subject believe another major disaster is much less likely than it once was. There is still risk, but at one in several thousand reactor years, it is the kind of risk that politicians like. If their decision turns out to be a mistake, it will probably be after they are gone. Meanwhile, they can tout the benefits of cheap, domestically controlled energy production, and claim credit for it.
So, conditions look good for expansion of nuclear energy in Europe. As always here, though, the biggest question is how traders and investors can play that.
The t problem for US investors is that most securities offering in the space available here are, obviously, focused on the U.S. Even a “global” nuclear energy ETF like VanEck’s offering, NLR, has 62% exposure to the US and Canada. It could be that the security concerns exposed by Russia’s invasion of Ukraine will prompt a move towards nuclear power in North America but, if so, that will take time and isn’t part of the investment rationale right now.
The answer, and this won’t surprise regular readers of my work as it is one I often use, is a “picks and shovels” approach. The biggest profits in gold rushes were made by investing in suppliers of picks and shovels used by all prospectors rather than by trying to guess which would be successful. On that basis, it is better tom play expected growth in any industry by investing in suppliers. They make money whoever gets contracts or manages their business well, and their markets are global in nature. For nuclear power, that means investing in Uranium miners and suppliers of power plant parts.
Fortunately, there is an ETF that does just that…
The Global X Uranium ETF (URA) describes itself as offering “…investors access to a broad range of companies involved in uranium mining and the production of nuclear components…”, so fits the “picks and shovels” theme perfectly.
For me, it has another big advantage as a way of playing an expected boom (if you’ll forgive the word!) in nuclear energy. A couple of weeks ago, it bounced off a support level at 18.60, making for a logical stop-loss level just below there that would limit potential losses to around 15%, while just a return to levels seen in April would return double that. Those April highs around $28 would be my initial target, but if we get there, the long-term nature of the paly would make me more inclined to adjust the stop upwards rather than just to cut the position.
At some point before long, European countries, indeed most countries around the world, will be rethinking energy policy, with eliminating dependence on supply of fossil fuels from unstable regimes being a priority. The gap that needs filling is just too big to be plugged by one method, so while wind, solar, and wave energy will probably be gainers, there will also be moves towards nuclear power and other sources. That will mean increased demand for uranium and reactor parts, and URA is a great way to play that.
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A big question is who would build those nuclear power stations. The western nuclear engineers suffered through prolonged pause in construction, and the most recent completions in Georgia (near Appalachians, not Causasus) and Finland (did they completed?) featured doubled construction time AND cost. China probably will not be a major exporter given their internal needs, the largest exporter, building on time and charging according to the contract, not double, is Rosatom.
Realistically, Russia would lack the means to conduct the massive construction that carbon to nuclear transition would require, and the best solution would be to combine western and Russian knowhow, and perhaps asking Rosatom to supply fuel: delivery comes with the warranty on disposal of the radioactive waste, a politically vexing problem in many countries.
Given that the western construction cycle for nuclear power stations seems to be dozen years or more, perhaps we have several years for tensions to recede and the economy and environment to take its proper place.
Realistically, Russia would lack the means to conduct the massive construction that carbon to nuclear transition would require, and the best solution would be to combine western and Russian knowhow, and perhaps asking Rosatom to supply fuel: delivery comes with the warranty on disposal of the radioactive waste, a politically vexing problem in many countries.
Given that the western construction cycle for nuclear power stations seems to be dozen years or more, perhaps we have several years for tensions to recede and the economy and environment to take its proper place.