Part I

"Before we work on artificial intelligence why don't we do something about natural stupidity?" - Steve Polyak

According to Cambridge Energy Research Associates high energy prices are here to stay until 2008; we think if nothing is done to address the root cause of the problem that high-energy prices could plague Americans for at least another 9 years if not longer. Let's look at some alternative energy sources.

Wind Power = still not economical and needs huge subsidies.

Coal = While cleaner technologies are being developed to process coal they are still not clean enough; it's also very labour intensive.

Oil and Gas= these are non-renewable sources and no major discovery has been made for a long time.

Fuel Cells = while very promising it will still be years before anything truly promising has a chance to emerge from this field.

Hydroelectric power = the potential for more power from this source is limited as there are huge environmental concerns of creating new dams. In addition during times of drought power generation can drop to precipitous levels.

This leaves us unfortunately with only one option and that is nuclear energy; the problem is that everyone is now recognizing this at the same time. Nuclear reactors are powered only by uranium and there is only a finite amount of uranium available; to put it mildly at current production there is not going to be enough uranium to power all the new plants that are going to come online in the next few years. In fact we could hit a brick wall as early as 2007.

Russia understands this problem and has already cut back on the amount of Uranium it exports. Japan for their part has decided to stockpile up to five years worth of Uranium supplies and China 's known uranium reserves stand at 77,000 tons. China has enough Uranium to power existing reactors for approximately 46 years however they are building so many new reactors that they will need substantially larger amount of uranium soon. It is interesting to note that they always seem to plan for the future and this can be seen by the amount of uranium they have put aside to power their current nuclear plants. If India, Russia and other nuclear nations decide to adapt the same strategy things could really get ugly as several dozen new plants are set to come online over the course of the next decade; for all we know they might have already started to hoard supplies. What happens when every country in the world that has nuclear energy decides its time to hoard five years or more worth of uranium? In 2005 alone it is estimated that demand will outstrip supply by over 99 million pounds (the figures change from source to source, however the key thing to remember is that we are already experiencing a shortage without the additional 30-45 new plants that are set to be built all over the world in the next 10 years).

Shortages of uranium could get so bad that it could precipitate a war between rivalling nations and then prices could hit unheard of levels. We are entering a new paradigm and the only real solution to avoid unimaginable prices in uranium and possible wars is for someone to come up with a new clean and cheap energy source or for nations to spend billions of dollars in exploration and for the development of new mines. Even if they start today there is still going to be about a lag period of over two years; currently no nation has embarked on such a program yet.

Conclusion

Make sure you have some exposure to the Uranium sector and make sure you are holding the right stocks. It's not just fundamentals that count; one has to make sure the psychological and technical outlooks are fine also. In fact the technical and psychological picture of a stock is in many cases far more important than the fundamental outlook. The reason is very simple; anyone can read and digest fundamental data and usually the conclusion is always the same. The same does not hold true when it comes to psychological and technical analysis. In part 2 we will look at uranium situation in a bit more detail.

"Ignorance is the night of the mind, but a night without moon or star." - Confucius BC 551-479, Chinese Ethical Teacher, Philosopher