Email of the day (1)
Comment of the Day

August 22 2011

Commentary by David Fuller

Email of the day (1)

On "Nuke versus Nat Gas":
"I hope you are well. I want to run something by you that has been on my mind regarding the "long term" nuclear investment stance. Anyone invested in this sector has been rather blindsided by this year's twin "Black Swans" - Fukushima and Germany's decision (not yet actualized) to eliminate its nuclear plants. This double whammy was all the more unfortunate as the nuclear sector had begun a long ascent from the depths visited post the uranium price collapse and the 2008-9 debt debacle. The prospects for a significant cultural shift towards the building of new plants (with the notable exceptions of China and India) has become rather sobering.

"On the other side of the equation we have natural gas. As I have mentioned to you previously, I sit atop one of the largest shale gas deposits in the world -the Marcellus formation - where estimates are as high as 500 trillion (!) cubic feet. Because of the rather large price discrepancies between Henry Hub and EU gas prices there are now plans for at least five EXPORT LNG terminals in the US. (ironically at least two of them I believe were built at considerable cost for the IMPORT of product). With such abundant supply existent and on the horizon (shale deposits are known to exist in China, Europe, the middle east, etc), I have asked myself whether or not my current stance (I'm sure replicated by many subscribers) of owning both natgas and nuke equities somewhat equally (or indeed as a hedge!) was still realistic. Could it be the case that the expected huge long term supply in natgas that is envisioned could be the FINAL nail in the coffin for a serious resurgence of the nuclear industry? Could it be that this vast energy source (I have read estimates of 100 years of global consumption) could tide the world over until a fusion solution is found, thereby bypassing any incipient fission resurgence?

"A bit speculative I guess, but it has profound implications for energy portfolio construction."

David Fuller's view I am well and I thank you for an absorbing email, certain to be of interest to many subscribers.

You are certainly right about natural gas, both conventional and from shale deposits. It was the superb analyst Ronald-Peter Stöferle of Erste Group who convinced us in March 2010 that shale gas was a game changer for the USA and many other countries. Subsequently, Eoin and I have often commented on shale gas and shale oil, as you probably recall.

The USA's reserves of shale gas are indeed massive and their horizontal drilling and fracking technology is able to release it. The USA's pioneering methodology is increasingly being imported by other countries, not least China, which has even more shale gas than the USA. (See slide 21 from my presentation: Bubbles, Supercycles and the Next Three Big Energy Stories.)

The widespread commercial extraction of both shale oil and shale gas in the next decade and well beyond will help to transform the global outlook for energy which is very tight presently. They are the main reasons why Fullermoney projects lower energy costs in real (inflation adjusted) terms in twelve to fifteen years than we see today and will see for the rest of this decade. However, they are still fossil fuels.

As an advocate of nuclear power and one who had also invested in uranium shares, my worst fear was a major leak at one of antiquated stations built in the 1960s or 1970s. I mentioned that it could set the industry back a decade, as we saw with Chernobyl. Unfortunately, Fukushima represents a massive setback for the industry and all talk of a nuclear renaissance has ceased.

The real fallout is that we are all paying considerably more for energy as a consequence. The change in attitudes towards nuclear power, which is efficient, green and responsible for fewer deaths than even wind farms or solar, also accelerated the building of vastly expensive, inefficient and noisy wind farms.

What irony for the anti-nuclear eco warriors that wind and solar are such unreliable sources of fuel that they have to be backed up by additional and fully operable coal or gas power stations. This alone should eventually revive interest in nuclear power throughout the west, but perhaps not until we see the energy security that China achieves with the many reactors it is building.

Meanwhile, I fear that investors in nuclear will have to be very patient over the next few years and many of the primarily uranium miners are likely to require additional capital.

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