STANDARD & POOR’S The Outlook October 29, 2008

Even though the drop in oil prices over the past month has quieted some of the buzz over energy issues, the surge in gasoline prices to more than $4 a gallon this summer means that energy costs are still a major “pocketbook” issue for voters.

Amid growing worries over the volatility of oil and natural gas prices and the environmental effects of burning coal, many electric utilities are turning to nuclear power for its history of stable fuel costs and lack of carbon dioxide emissions. A massive expansion of the global nuclear power industry is now taking shape, with plans being laid or construction already underway for more than 200 new reactors around the world — about a 50% increase from today’s total. But a possible shortage of nuclear fuel has some companies building or planning to build uranium enrichment plants.

Underlying this shift is the belief that fuel for nuclear power plants — most plants use the uranium 235 isotope enriched to a concentration of between 3% and 5% — will be readily available at stable prices.

According to the World Nuclear Association, “uranium’s worldwide availability at economically viable cost is a key factor that would allow a sharp expansion in nuclear power.”

Whether, in fact, a shortage will be the case a few years down the road is a matter of growing unease for utility executives and industry regulators, due to an expected shortage not of uranium itself — which is found in relative abundance around the world — but of the capacity to enrich “natural” uranium to the concentrations needed by the world’s current and future fleet of commercial reactors. A shortage could materialize as soon as 2010, according to the Euratom Supply Agency — the body tasked by the European Commission with ensuring “the regular and equitable supply of nuclear fuels.”

“The period from 2010 to 2013 could be very sensitive regarding the balance between enrichment services demand and offer,” the Agency said in an April 2008 communique, adding it is also “concerned about the situation from 2013 onwards,” and countries receiving enriched uranium from a single supplier “may face serious problems.”

Source: STANDARD & POOR’S THE OUTLOOK OCTOBER 29, 2008