Uranium industry must prepare for inevitable Chinese demand

CONFERENCE CALLER: In order to see where uranium is headed, Julian Tapp CEO of uranium play Energy and Minerals Australia said it is important to try and imagine just where Chinese demand will be in 20 years from now.

“You need to look at the amount of electricity they might be consuming and what kind of fuel they are most likely to use to generate that electricity and what that may mean for uranium demand,” he told the Australian Uranium Conference in Perth this week.

 

Looking ahead, Tapp said he considers the Chinese economy will continue to grow, just at a slower rate.

Since the beginning of this century China’s rate of growth has been around 10 per cent per annum, which Tapp anticipates to slow to between five and six per cent per annum over the next 20 years.

As much as a slow down this appears to be, it still results in trebling the size of the country’s economy.

As the Chinese population reaches a peak at around 1.45 billion people, its economy will most likely become more oriented towards domestic consumers who are slightly less energy intensive than their industry counterparts.

Tapp estimates electricity consumption per person will hit around 7,000 kilowatt hours (kWh) – in line with level of wealth.

“When you convert that into the amount of generating capacity they have to have, they need to more than double the amount of generating capacity they currently have,” Tapp said.

“Twenty years from now I see their generating capacity being above 2,500 gigawatts – it’s about 1,250 at the moment.

“That is a lot of electricity generating capacity they will have to build over the next twenty years.

“It represents, roughly, about one gigawatt every week for the next twenty years.”

Tapp supplied some startling statistics in regards to China’s current power generation, which is largely reliant on burning coal.

China consumes around 4 billion tonnes of coal per year – that is about 11 million tonnes of coal per day.

To provide some perspective on that number, Tapp said that if a train carrying 11 million tonnes of coal was lined up end to end it would stretch for 1750km, in other words from Mandurah (south of Perth) all the way to Broome.

That’s a lot of coal to move around any country in one day.

To operate an equivalent (1GW) electricity generator would require about three to four million tonnes of coal per year – approximately 200 large coal trains per year.

This compares to about 11 shipping containers per year of uranium concentrate to generate the same amount of electricity.

Burning that much coal is not good for a country that is now focused on reducing its CO2 emissions.

Tapp said he has calculated global CO2 emissions for 2014 will be around 36 billion tonnes.

China, he calculates, will top the emissions per country list with 10 billion tonnes (28% of world total), 6.2 billion (17%) tonnes of which will result from the generation of electricity.

“Burning coal in China, for electricity, is generating more carbon dioxide than the entire United States economy is at the moment,” he said.

“It’s for that reason, I say, that if they are going to double their electricity generation – they can’t double their coal-fired electricity generation.

“They are going to have to find something else to generate their electricity.”

China has signalled its intention to generate electricity from renewables, which Tapp suggests would account for around 350GW and recently signed an agreement for a new gas pipeline with Russia that would be part of a total 200GW of gas fired power.

That still leaves a substantial shortfall of some 700GW of the forecast 1250GW that it will need to produce.

All up that means there is room for at least 300GW of nuclear power, which would require an annual input of around 60,000 tonnes of uranium.

 

Source: Conference presentation

“Some people say the Chinese will be unable to scale up to that,” Tapp said.

“But when you compare that to the US nuclear program, in relative terms, this is less than what the Americans managed.

“If the Chinese get to about 320 gigawatts by 2035, they will still only be at 12 per cent of their generation capacity as nuclear.

“For the Americans it’s around 20 per cent, in almost every developed country that uses nuclear power, the figures are considerably higher than 12 per cent with most countries up above 20 per cent to around 40 per cent.

“France is at the top of the list at 75 per cent.”

Looking ahead to 2035, Tapp sees for uranium being much more in demand than what it is at present.

If his calculations for the Chinese are correct, he insists they will probably need around an additional 75,000 tonnes of uranium per annum.

They won’t be the only buyer in the market, of course with Russia, India, Saudi Arabia and UAE combining to require around additional 35,000 toones.

The American market will most probably be around the same, however Europe could fall off thanks to the German embargo but there will most likely be minimal changes to these, resulting in total global demand of approximately 190,000 tonnes of uranium.

Where will that supply come from?

The former Soviet Union states could supply around 50,000 tonnes, Canada 25,000 to 45,000 tonnes, Africa 15,000 tonnes and the rest of the world, say 10,000 tonnes.

Current Australian figures, depending on Olympic Dam, suggest we could stump up some 20,000 to 30,000 tonnes of uranium for a total global supply in 2035 of approximately 120,000 to 150,000 tonnes of uranium.

“Twenty years from now, the global market requires about 190,000 tonnes of concentrate,” Tapp said.

“When you look at the supply side, you realise they can’t reach that level.

“Go back and look at every potential mine you think is viable at US$70 per pound, put them all into production and add them up…no matter how optimistic I am, I can’t come up with a number anywhere near where the demand is going to be.”

Tapp suggested such a shortfall on the supply side of the equation can only be a good thing for the price of uranium.

“The bottom lines is – I think the price will have to go above US$70 per pound…If I was to take a stab, I would say it has to go above US$100 per pound,” he said.

“When planning projects, I would still use US$70 per pound, but I do think it is much more likely – in the very long term – the long term price of uranium, in real terms, is going to be higher than US$70 per pound – somewhere between US$100 to US$120.”