As global economies become more engrossed with the eurozone debt crisis as well as more fearful of another slump from US’ huge deficits, demands for energies is not expected to be affected much over next few years based on high demands generated in Asia.
Till now, China has been in desperate need for energy while its internal demand for energy was ‘exploding’. With billions of domestic utility customers, China needs to ensure the availability of energy at reasonable price.
Though China was securing all the cheap fossil fuel it could find such as coal, the government knew that it could not depend on fossil fuel alone to keep up with the future demand. Despite the recent Fukushima nuclear crisis in Japan in the aftermath of March 11 tsunami, China was still pushing for the nuclear energy and went ahead with its plan to build more nuclear reactors.
Currently, China has at least 14 nuclear power plants in operation, more than 25 under construction, and it is estimated that China will have more than 100 nuclear reactors by 2020. The demand for its fuel, uranium, is therefore estimated to be ten-fold higher than current level.
Uranium prices rallied from US$10 to US$130 per kg during 2003 to 2007. However, the global recession in 2008 did not spare uranium from the plunge and brought it down to as low as US$40 per kg. In early 2011, uranium gain traction and rallied above US$70 per kg before it retreated.
Uranium prices currently consolidated around US$50 to US$55 per kg, which is a reasonable price to buy considering the support level at US$40 per kg with target level aimed at US$90 to US$100 per kg. It may take a while for people to shed their fear on nuclear energy, but uranium is definitely sitting on the way to go higher levels.
With China building reactors at such a pace, there will be no reason for uranium prices to go lower. Retail traders who wish to get exposure to uranium play may consider buying uranium mining stocks, nuclear reactor companies, or uranium related ETF.
Meanwhile, the most vital oil-rich regions might have some problems. We started off 2011 with revolutionary wave throughout Arab world. The riots overthrew long standing leaders of Tunisia, Egypt and Libya. The protests and civil unrests in different Arab countries pushed leaders to implement governmental changes, political reforms and economical concessions.
What is more important is that there is also a huge unseen tension between the Sunni Kingdom of Saudi Arabia and the Shiite Republic of Iran, who both strive for regional supremacy and Islamic leadership. Furthermore, the international attention is growing as Iran’s nuclear ambition is currently being scrutinized further by other countries.
In summary, energies are becoming ambiguous instruments in global political affairs as well as ‘economical weapons’ to contain the rapid expansion of growth.
Though the euro debt-crisis becomes worrisome and might even drag down the universal performance next year, the temporary retracement depth in all energy prices that could happen remain as unknown when compared to other financial instruments.
Nevertheless, the ever-growing demands from large emerging markets will definitely support the strong rise in energy prices over the decade.
Wahyu P.Y. is currently a PhD candidate in Nanyang Technological University. The expressions are solely his own. He can be reached at [email protected].