Japan's Disaster Kills Nuclear Ambitions, Boost for Nat-Gas (BHP, RIO, CCJ, DNN, UEC, USU, URRE, URG, URZ, URA, GE, SHAW, XOM, CVX, RDS-A)

Following the disaster in Japan, and particularly the explosions in one one of the country’s 53 nuclear power generating reactors, the reactions of other nations with nuclear power plants either built or in planning has been varied. Some, like China, have said that they will continue with their plans for nuclear development. Others, like India and Germany, are likely to pause.

While it’s still too early to draw any firm conclusion, uranium miners are getting hit by fears that demand for uranium will fall. Coal miners and crude oil and natural gas producers could see a jump in demand, especially in the short term as Japan deals with restoring electricity without relying on the 33% it generates from nuclear sources.

Uranium miners like BHP Billiton plc (NYSE: BHP), Rio Tinto plc (NYSE: RIO) and its majority-owned company Energy Resources of Australia, Cameco Corp. (NYSE: CCJ), and Denison Mines Corp. (NYSE: DNN) are taking the brunt of the market’s punishment so far today.

US miners with the word ‘uranium’ in their name are also getting a beating. Uranium Energy Corp. (AMEX: UEC), USEC Inc. (NYSE: USU), Uranium Resources Inc. (NASDAQ: URRE), UR-Energy Inc. (AMEX: URG), Uranerz Energy Corp. (AMEX: URZ), and the Global X Uranium ETF (NYSE: URA) are all down more than -15% in early trading.

Nuclear plant builders like General Electric Co. (NYSE: GE) and Shaw Group Inc. (NYSE: SHAW) are also feeling the squeeze.

Energy companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), and Royal Dutch Shell plc (NYSE: RDS-A) with substantial operations in Middle Eastern and Australian liquefied natural gas (LNG) projects are expected to see a rise in prices for natural gas as Japan imports more LNG to use for generating electricity.

Coal miners like BHP and Peabody Energy Co. (NYSE: BTU), again operating out of Australia, are expected to see increases in demand for thermal coal. Demand for metallurgical coal, used in steel-making, is also expected to increase once the extent of the damage in Japan is known and the country starts to rebuild.

Demand for crude in Japan could also rise if the country replaces some of its power generation capacity with oil. Crude prices have been falling slightly, probably due to the closing of several of Japan’s refineries. This is a temporary situation that should be resolved in a few weeks, after which crude prices could rise depending on the extent of extra demand from Japan.

Japanese demand for substitute fuels will be slow to start with, and then pick up as the country recovers. Prices for crude oil and natural gas will rise as this happens, but ordinarily the rise would be short-lived. How quickly, if ever, Japan restores its damaged nuclear plants is more a political matter than anything else.

That’s also the case in other countries that have nuclear programs in the works or in the planning stages. The uncertainty about the future of these programs will depress uranium stocks, particularly those companies, like Cameco and some of the smaller US uranium miners, that rely heavily on uranium for revenue.

Calls for a halt to nuclear power development will intensify over the next weeks and months, but they are unlikely to be heeded. More likely is that safety procedures will be reviewed and strengthened, and new projects will be more closely monitored while older ones might be more strictly reviewed when license renewals are being considered. But nuclear power generation is not going to disappear, and it would be a safe bet to say that over the longer term, nuclear generation will increase.

Paul Ausick