In 2011, the unthinkable happened in Japan — a double disaster of an earthquake and tsunami that quickly intensified thanks to a meltdown at the Fukushima nuclear power plant.
That event — the worst atomic disaster since Chernobyl — become synonymous with renewed anxiety about the safety and ethics of atomic energy. As such, Japan began a program to begin phasing out the fuel source, and in May 2012, the nation shut down its last nuclear reactor.
Needless to say, the nuclear energy industry took Japan’s decision to phase out the power source pretty hard on the chin — understandable, as Japan was one of the industry’s biggest drivers.
But now, good news nuclear proponents and investors is on the horizon — Japan can’t do without atomic power and is restarting its reactors.
Japan – A Major Nuclear Powerhouse
Unlike many of its Asian neighbors, Japan has no known fossil-fuel reserves of its own, and is forced to import roughly 84% of its energy needs. So during the 1970s, thanks to various oil shocks, Japan began to get serious about nuclear energy. Those efforts accelerated during the early 2000s when the nation signed the Kyoto Protocol on reducing greenhouse emissions.
Everything was going swimmingly, and Japan was able to get about 30% of its needs from nuclear power — until Fukushima changed everything.
Japan quickly shut down its successful nuclear program and began ramping up LNG imports, aggressively promoting energy efficiency and expanding production from renewable sources such as solar.
Unfortunately for Japan, these efforts aren’t proving to be enough. Despite solar and efficiency gains, a 30% deficit is a pretty substantial hole to dig yourself out of. And the prospect of a hot, humid Japanese summer without air conditioning has the country’s policymakers scrambling to do something once believed was off the table: restarting the reactors.
After going through a lengthy approval process that began amid the sweltering heat of last summer, nuclear regulators are about to let Kyushu Electric Power restart two reactors in Sendai. The plant’s two reactors generate about 890 megawatts worth of nuclear power each — roughly 5% of Japan’s previous total nuclear capacity.
It might not sound impressive, but it could mark the start of a return to Japan’s nuclear renaissance.
Five other plants have already applied to begin the safety check process, and there’s a pretty good chance that they will get approved — if for no other reason than Japan might not be able to afford the bill for importing coal and LNG for much longer.
In January, Japan announced its latest trade imbalance, and it was a doozy. For 2013, the gap between imports and exports was $111 billion — substantially larger than both 2011’s and 2012’s deficits combined. The culprit was the high cost of importing coal, LNG and oil for use in power plants. Many utilities sought government help and bailouts to cover losses on importing fuel, while consumers in Japan saw their electric bills jump by 20% after the earthquake and nuclear shutdowns.
That deficit is a huge problem for Prime Minister Shinzo Abe and his “Abenomics” plan to restart Japan’s economy. Having a weak yen and export-driven economy is meaningless if you spend too much on energy imports. By bringing nuclear energy back into Japan’s energy mix, the nation’s trade imbalance would shrink by about $4 billion a year.
No wonder Abe wants to fast-track nuclear restarts.
A Nuclear Chance for Investors
The nuclear restart wouldn’t be good for just Japan, but investors as well.
Uranium prices have plunged about 60% since the 2011 disaster at Fukushima. This year alone, prices have decreased by more than 15% and recently closed at $28.50 — near uranium’s all-time lows.
So, any restart would have a meaningful effect on uranium prices given Japan’s former status as a premier nuclear destination.
Here’s where your deep-value opportunity comes in.
Not surprisingly, the Global X Uranium ETF (URA) has lost about 70% of its value since its inception at the end of 2010. URA tracks 23 different miners of fuel — including sector leader Cameco (CCJ), as well as junior miners Denison Mines (DNN) and UR-Energy (URG).
Most of these companies have been obliterated from a share-price standpoint, yet many of the underlying catalysts in the global nuclear power market haven’t changed. In fact, they only have gotten better — emerging Asia continues to add new capacity, Russia has finally ended the megatons to megawatts program and now Japan is reentering the nuclear world. All of this should help push up the miners’ prices.
URA is the best broad-based way to play the theme. Other ETFs tracking the sector — like the iShares Global Nuclear Energy (NUCL) and Market Vectors Nuclear Energy ETF (NLR) — include a hefty dose of equipment and engineering firms in their mix. You won’t get the same bang for your buck, plus while URA’s volume is thin, NLR and NUCL’s volumes are barely existent.
Bottom line: Japan is ready to restart its nuclear reactors — investors should be ready to pounce on URA and other uranium plays as it does.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.