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| Total Chairman Thierry Desmarest said "We are interested, if there are opportunities, in having a bigger position in nuclear." - Getty/AFP |
Using atomic power to fuel cars is an idea that would not be out of place on TV's Thunderbirds. But a City report suggests that it could be the route forward, writes Tom Stevenson
Driving a nuclear-powered car may sound a bit like something out of Thunderbirds, but it could soon be a reality if the oil industry's nuclear overtures come to anything. That's one prediction in Trading Climate Change, JP Morgan's latest contribution to the City's voluminous output on the impact of global warming.
Chris Rogers, the utilities analyst at JP Morgan, believes nuclear-fuelled hydrogen could be "the ethanol of 2017" as the industry enjoys a new lease of life. The resurgence of nuclear, he believes, is a key element in the global drive to reduce carbon emissions from power generation and create the zero-emissions hydrogen transport of the future.
The JP Morgan report is the latest indication that nuclear, for long the "renewable that dared not speak its name", is back in vogue. The renaissance, driven by growth in the energy-hungry markets of the US and China, is fuelling an explosion in the cost of uranium and attracting the interest of hedge funds in search of the next big thing.
The British Government has expressed its support for nuclear and its enthusiasm should be made clearer when its Energy White Paper finally sees the light of day, probably in May. Now, despite the danger of stepping into a PR minefield, even Big Oil is having a look, with French oil giant Total declaring recently that it "will certainly one day have to be part of the nuclear adventure". Total chairman Thierry Desmarest told Bloomberg last week: "We are interested, if there are opportunities, in having a bigger position in nuclear."
According to Rogers, the discussion on hydrogen as a viable alternative to hydrocarbons for transport has focused on the thorny "well-to-tank" issue of getting hydrogen from where it is sourced to where it is needed, the filling station. Doing that in a cost effective way remains an unsolved challenge.
"More importantly though, from an environmental perspective, is sourcing the hydrogen in a CO2-free manner as well," Rogers says. "Main methods of production require significant sources of electricity and heat. Most renewables are either too erratic or small scale. Step forward nuclear power."
It is easy to see why the oil companies should be interested. They are increasingly looking to replace existing hydrocarbon sources with cleaner fuel - so far the focus has been on biofuels, but there are growing question marks over ethanol and biodiesel. They are hungry for land, which would otherwise be used to grow food, and they can encourage deforestation, adding to the CO2 problem they are supposed to address.
Nuclear-fuelled hydrogen increasingly makes sense on cost grounds, according to the US Department of Energy. It calculates a cost per gallon of petrol equivalent of around $2.50 compared with a traditional gasoline production cost of $1.50-$2.00.
Finally, while nuclear generation has high up-front costs, oil companies are nothing if not cash generative. Their challenge is finding a sensible home for their profits. "For oil companies, it's really about the sustainability of their business model," Rogers adds.
It is not just in transport fuel that nuclear power's potential is being seriously explored. Atomic Energy Canada, the Canadian state-owned nuclear group, is understood to be working with Energy Alberta Corporation on a power plant to generate the huge amounts of energy required to extract oil from that country's oil sands.
Despite growing interest, the nuclear renaissance is fraught with unanswered questions, however. JP Morgan's Rogers sees three main sticking points to development. The main stumbling block is environmental: "Memories of the few significant nuclear accidents are long lived, and rightly so," he says, although he believes that newer nuclear power plants are significantly safer. He says the extension of nuclear power into unstable regimes, as well as decommissioning issues, have also not been fully addressed.
A second hurdle is economic. While nuclear power makes sense at current energy prices, the high fixed-cost nature of the industry means greater security of income is a requirement for most investors. Any government that wanted to encourage more nuclear development would have to consider guaranteeing a minimum electricity tariff for nuclear power. Then there are planning issues, with new sites likely to run into significant local objections.
But none of these are unassailable and British Energy has already held talks with Europe's biggest power companies about building a new generation of nuclear reactors in the UK. The company's eight sites are thought most likely to host new power plants but such is the likely demand that assessments have been made of older reactors owned by the Nuclear Decommissioning Authority.
Britain barely registers on the global nuclear radar, which will be dominated by developments in countries like China, the US and Russia, all of which are champions of nuclear power. For the first two of these, the environmental imperative is overshadowed by the need for energy security, shielded from the swings of global commodity prices and the caprice of suppliers that may turn out to be less friendly in future.
China, Russia and the US will account for about 38pc of global nuclear output in 2010 but this will have risen to over 45pc within 20 years. China's contribution alone will rise from 3pc to 9pc.
That rapid growth has not passed unnoticed by hedge funds, who are competing with suppliers and utilities for rights to the so-called yellowcake powder which is the most commonly traded form of processed uranium. That is fuelling the biggest supply crunch in years and it has driven the price of uranium, stuck at around $10 a pound for the 15 years to 2003, to $85 recently.
The world's current 440 nuclear plants require about 180m pounds of uranium a year but current mines produce only about 100m pounds. The rest comes from strategic national stockpiles and the decommissioning of nuclear weapons. Both sources are forecast to tail off.
In the long run, the world's energy needs will be met by a combination of sources. Some of these, such as wind power, require relatively short lead times. Nuclear, where a power plant can take 10 years from inception to operation, is a longer call. For JP Morgan's Rogers "this suggests decisions on nuclear power need to be made in the next few years by the oil companies. We see the potential for nuclear to be as important for auto fuel sources in 2017 as ethanol is today".
Thunderbirds are Go.