Energy Shots #106:

Nuclear’s Achilles’ Heel

As tech giants and “AI fever” fuel a nuclear renaissance in 2024, talking heads are turning to the frontiers of nuclear technology — Gen IV designs, small modular reactors — and betting on the timeline from lab to grid.

This exuberance plays an important role in reviving nuclear’s overlooked potential. However, its pass-through into aggressive timelines for capacity expansion ignores one critical bottleneck:

• The U.S. nuclear fleet lacks an established domestic fuel supply chain and relies on adversarial nations for approximately 40% of enriched fuel imports.

This vulnerability poses knock-on effects to traditional energies that remain underappreciated.

The Cost of Underinvestment and Cold War Deals

While the U.S. boasts ~103 GW of operational nuclear generating capacity, only 3.7 GW of this capacity connected to the grid after 2000 — Watts Barr (2016), Vogtle Unit 3 (2023), and Vogtle Unit 4 (2024)

At an average age of 43 years, the U.S. nuclear fleet reflects the consequences of misallocated safety fears and its effects on investment appetite.

The US nuclear fuel supply chain shares in these consequences with the added impacts of post-Cold War dealmaking between the U.S. and Russia — i.e., the “Megatons to Megawatts” effect.

• The Megatons to Megawatts program (1993) aimed to convert Russian nuclear warheads into cheap fuel for U.S. nuclear reactors. The program accomplished this primary goal but decimated the U.S. domestic uranium industry as a secondary cost.

In the mid-1970s, domestic producers supplied 100% of the equivalent uranium concentrate loaded into US reactors.

By 1993, following a massive buildout of over 54 GW of capacity between 1980-1990, domestic producers clung onto a 23% market share.

In the two decades following Megatons to Megawatts, domestic uranium concentrate production sank to just 0.11% of US civilian reactor consumption.

The enrichment capacity required to turn uranium concentrate into usable LEU fuel followed suit.

US Nuclear Fuel Supplies in 2024

According to the Department of Energy, US civilian nuclear reactors sourced 99.89% of uranium concentrate feedstock from foreign suppliers in 2023 — down from 99.95% in 2021.

Imported feedstocks from Russian and Kazakh suppliers pose a moderate energy security risk.

However, this vulnerability expands when one considers the enrichment capacity required to turn uranium concentrate into usable nuclear fuel.

Outsourcing Enrichment

According to the latest government and industry figures, the US maintains enrichment capacity of approximately 4.9 million separative work units (SWU) per year — less than one third of the enrichment capacity required to fuel the US’ existing operable nuclear fleet for a single year.

• Russia’s Rosatom dominates global enrichment capacity with 46% market share and supplied approximately 35% of the US’ imports of enriched nuclear fuel (DoE) in 2023.

• China’s CNNC maintains 10% market share and plans to nearly triple its capacity from 6.3 million SWU/yr to 17 million SWU/yr by 2030.

While the Department of Energy withholds data on imports of enriched fuel from China, the consequences are evident.

Importing nearly 40% of enriched nuclear fuel from nations with adversarial relations to the US poses a material security hurdle for existing nuclear capacity. Expanding fission-based nuclear capacity only elevates this security risk.

Security Risks, Uncertainty, and Near-Term Demand Growth

Legislative efforts to revive the domestic nuclear fuel supply chain and remove security risks are underway.

• The Biden Administration sanctioned Russian enriched uranium (LEU) in May 2024, with the Prohibiting Russian Uranium Imports Act taking effect in August.

• Updated Section 301 tariffs on Chinese imports increased tariffs on uranium concentrate/ore to 25% but excluded changes to enriched uranium imports, holding the tariff rate at 7.5%.

Uncertainty about the efficacy of these policies has limited investment appetite in domestic uranium production and enrichment capacity, extending the timeline to establish a domestic nuclear fuel supply chain.

• This delay likely compounds the effects of the US’ burdensome regulatory environment, adding knock-on headwinds to aggressive nuclear capacity expansion timelines targeting early-2030s installations.

As a result, new nuclear capacity is unlikely to meet near-term demand growth from emerging technologies (AI) and incremental electrification requiring reliable, steady-state base load power.

Meeting Pre-Nuclear Demand Growth

Natural gas remains the only generation resource that satisfies steady-state/reliability requirements, maintains a secure fuel supply chain, and is positioned to meet pre-2040 load growth.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.