Energy Investor Monthly – December 2024

INSIGHTS OF THE MONTH

Small Nuclear Reactors: Will They Be Our Energy “Back to the Future?”

As the U.S. searches for new ways to meet the energy needs of a growing economy, there’s recently been more attention paid to expanding the use of nuclear energy – as both a way to supply the electrical power necessary to meet demand from artificial intelligence (AI), data centers, and the reshoring of manufacturing, while still helping the U.S. achieve its goal of zero net carbon emissions by 2050.

Despite its controversial history, the fact remains that nuclear energy, particularly the use of the latest nuclear technologies like Small Modular Reactors or SMRs, is one of many options that the U.S. can use to help meet its growing energy needs. According to the 2024 Report on U.S. Data Center Energy Use published by the U.S. Department of Energy (DOE), power demand for U.S. data centers has tripled over the past decade – and is projected to double or triple again by 2028. The report also found that in 2023, data centers consumed approximately 4.4% of total U.S. electricity output. Perhaps more concerning, by 2028, this demand is expected to increase to between 6.7% to 12% of total U.S. output.

The same DOE report highlighted that the demand from U.S. data centers increased from 58 Terrawatt hours (TWh) in 2014 to 176 TWh in 2023. Given that one TWh could power the entire state of California for about 1.5 weeks, based on the rapid adoption of AI and other related technologies, the strain on our domestic power grid is expected to increase to between 325 and 580 TWh by 2028. Clearly, if the U.S. hopes to maintain its global leadership in artificial intelligence and other breakthrough technologies, it will need to develop another clean, reliable, and sustainable source of power, which is why more attention has been given to SMRs.

As the name implies, SMRs are advanced small nuclear reactors that generate up to 300 megawatts of electric capacity (MWe). They are considered “small” because they are about one-third the size of a traditional 700+ (MWe) nuclear power plant. They are also modular because they can be designed using factory fabrication techniques, which shortens construction times and reduces the high initial cost of large-scale nuclear plants. In the diagram below, an even smaller version of SMR called a microreactor that generates up to 10 MWe, is also under development.

Another advantage of SMRs is that because of their size, they can be located closer to areas where they are needed, like cities, factories, data centers, and many more locations that would either be safe or suitable for traditional nuclear power plants. In addition, because of their standardized “modular” design, the permitting process for SMRs should be faster, greatly reducing the time from their initial planning stage to full operation. This should increase their reliability and reduce their overall cost per megawatt hour. Using a modular design also allows SMRs to add capacity without requiring the costly and time-consuming redesign process that is typically necessary for larger nuclear plants.

While we have discussed several advantages of SMRs, there are a number of drawbacks that may prevent their immediate impact. First, while the technology is well-founded, it still remains in the experimental stage. In fact, there are no SMRs yet in commercial operation in the U.S. today – although there are several in the later planning stages. Second, while many companies have begun the planning and design work, only TerraPower, an alternative energy company founded by Bill Gates, has applied to the U.S. Nuclear Regulatory Commission to build and operate a domestic SMR. A third issue is fuel. Most of the latest reactor designs, including SMRs, require high assay low enriched uranium-235 (HALEU) – which ranges in purity from 5 to 20 percent. This concentration is well beyond the 5 percent used by most nuclear plants in operation today. In addition to the obvious security concerns around enriched uranium, only the US and Russia can currently produce HALEU in commercial quantities. In fact, this shortage is so acute that the U.S. nuclear industry is warning that some SMR designs could be delayed for many years due to fuel shortages.

Another important issue is disposal, or how to store, dispose of, or re-process spent nuclear fuel. In this regard, SMRs have the same issues as traditional nuclear power plants, and more research will be necessary to find a viable and sustainable solution. One final drawback, perhaps the most significant, is safety. Despite being smaller than traditional nuclear facilities, SMRs still require the same safety and security measures, thus adding to the overall cost of these projects. The need for emergency cooling systems could also limit the ability to site SMRs in “off the grid” locations, as backup power will need to come from somewhere in the event of a core malfunction.

As the U.S. continues to maintain its global leadership in advanced technologies and leverage its energy resources to meet rising electricity demand, the challenge remains on how this can be achieved while maintaining a reliable, affordable, and secure national power grid. At the end of the day, we believe that meeting this demand will inevitably come from a variety of sources – or an “all the above” solution. However, this will require expanding the use of traditional energy resources, along with continuing to invest in clean and renewable natural gas and its critical pipeline infrastructure, as a near and long-term solution for the U.S. and its global partners to meet their growing energy needs.

Sources:

Sources:

1. https://liftoff.energy.gov/next-generation-geothermal-power/
2. https://www.energy.gov/articles/doe-releases-new-report-evaluating-increase-electricity-demand-data centers
3. https://thesustainablechoice.com/making-sense-of-energy-units/
4. https://www.iaea.org/newscenter/news/what-are-small-modular-reactors-smrs
5. https://www.iaea.org/bulletin/fuelling-the-future-building-fuel-supply-chains-for-smrs-and-advanced-reactors
6. https://www.energy.gov/ne/advanced-small-modular-reactors-smrs
7. https://blog.ucsusa.org/edwin-lyman/five-things-the-nuclear-bros-dont-want-you-to-know-about-small-modular-reactors/
8. https://www.nuscalepower.com/

ENERGY MARKETS BY THE NUMBERS

U.S. Total Crude Oil Production and U.S. Crude Rotary Rig Count (as of December 13, 2024):

1. West Texas Intermediary (WTI) oil price was $71.29 per barrel (+6.5% m/m)
2. U.S. oil production was 13.6mm bbl/d (+3.1% m/m)
3. U.S. oil rig count was 482 (+0.84% m/m)

The U.S. Commercial Crude Oil Inventories (excluding those in the Strategic Petroleum Reserve) and Inventory Changes (As of December 13, 2024):

• Inventory decreased by 9.3 million barrels month over month to 421.0 million barrels (6.7% below the 5- year average).
• Total crude stockpiles, including the Strategic Petroleum Reserve (“SPR”), decreased by 5.4 million barrels month over month to 814.1 million barrels.

U.S. Imports and Exports (as of December 13, 2024):

1. U.S. crude oil 4-week average imports were 6.5 mm bbl/d, down 1.5% month over month.
2. U.S. crude oil 4-week average exports were 4.2 mm bbl/d, up 13.2% month over month.

U.S. Refinery Inputs and Utilization Rates (as of December 13, 2024)

1. U.S. crude oil refinery inputs averaged 16.6 mm bbl/d for the week of December 13, 2024. Four-week inputs averaged 16.6 million bbl/d, 2.6% higher than the same time a year ago.
2. Refinery Utilization Rate was 91.8%, up from 90.2% for the previous month. This is lower than the same period last year, which was a 92.4% utilization rate.