I didn’t sleep much last night. Reports flowed in from Ukraine that Russian forces had assaulted Europe’s largest nuclear power plant. Word spread across social media that a fire had broken out at the facility. The futures markets plunged. And thoughts of Chernobyl accelerated across the minds of geopolitical analysts from Argentina to northern Scandinavia.
The U.S. embassy was quick to call the assault on the Zaporizhzhia nuclear plant a war crime. You don’t need to be a nuclear engineer to know about the threat of fire to a nuclear facility.
And if you know the size of this plant, the situation would have been infinitely worse than the 1980s if we faced a meltdown situation. These facilities are fortified in case of military attacks. But it doesn’t take long for markets to panic in these situations. We learned that the fire occurred at an adjacent training building.
The news has sent shares of uranium producers lower on Friday. Shares of Denison Mines (DNN) dropped more than 10% on Friday, while Cameco Corporation (CCJ) slumped as well. This story warrants a deeper discussion about the future of nuclear power.
Images of the 1986 explosion at Chernobyl quickly made rounds on media sites and Twitter last night. We also heard a lot of chatter about the meltdown at Fukushima and near-calamity at Three Mile Island. These events stand top-of-mind for anti-nuclear power advocates around the globe. The timing of this event on Thursday comes just as Europe had begun to come back around on nuclear power as a “green” fuel of the future.
Since the 2011 Fukushima incident, uranium prices had slumped dramatically. Nuclear power – despite its zero carbon output – raised concerns about incidents that could leave large swaths of the world uninhabitable in the event of a low-probability but extremely high risk radiation event.
Europe had turned to solar and wind power in recent years; It pushed to retire nuclear plants and focus on zero-carbon efforts. German shut down three of its remaining six nuclear plants in December 2021; It plans to retire the other three by the end of this year. Belgium plans to shut down seven reactors by 2025. Switzerland and the United Kingdom are engaged in similar situations.
It’s not exactly the best timing. The last year has seen a dramatic spike in energy costs across the region. Europe has relied on Russian natural gas over the years. This reliance has created a very difficult and pricey outcome. The International Energy Agency writes:
“In 2021, the European Union imported an average of over 380 million cubic metres (mcm) per day of gas by pipeline from Russia, or around 140 billion cubic metres (bcm) for the year as a whole. As well as that, around 15 bcm was delivered in the form of liquefied natural gas (LNG). The total 155 bcm imported from Russia accounted for around 45% of the EU’s gas imports in 2021 and almost 40% of its total gas consumption.”
There’s quite an issue there.
Changing Views on Nuclear Power
In early February, the European Union surprised many environmental activists by shifting its views on natural gas and nuclear power. According to the E.U., both forms of energy are now considered “Green.” The news didn’t do much for natural gas. Prices were already elevated.
But uranium prices rose, and traders began speculating on nuclear power generation. Just a month later, we’re watching Friday’s selloff. I’m not sure about the ramifications of last night’s attack just yet. But with Russia now controlling the plant and concerns about the next phase of this war, I wouldn’t be ready to speculate on uranium much more.
The challenge in this environment is to focus on where capital is flowing and what trend will emerge or remain dominant for investors. It’s clear that Europe is in a difficult position and that the trend was negative for nuclear power before this crisis started. Meanwhile, U.S. energy producers continue to ramp up export potential and focus on the liquified natural gas (LNG) shipping giants that will be replacing Russia natural gas in the future.
I think that anyone who was speculating on uranium because of European interest should turn over toward the LNG infrastructure and shipping players for the coming months. I’ve been recommending the purchase of Tellurian (TELL) on pullbacks. The company prepares to build a new export facility in Louisiana in April.
The upside on TELL is at least $5, but it will be volatile in this environment as speculators jump in and out of shipping stocks. Anyone looking for more stable players in the space should look to Chienere Energy (LNG), given its dominance and longer track record of success. I’ll circle back with more on the expected growth of LNG shipping next week.