Lehman Brothers: Nuclear power?

Bloomberg broke the story this week that Lehman Brothers Holdings Inc. is sitting on a nuclear bomb's worth of yellowcake uranium. Apparently, the bank physically acquired the uranium after a futures contract matured. It now sits in a secure storage facility in Canada. Which begs the question:

How the hell did Lehman allow this to happen?

Actively traded futures contracts are typically closed out before the contract expires. This absolves the trader/firm from having to take physical delivery of the underlying commodity. It is remarkable that Lehman failed to close such a massive contract. DealBook wonders if the contract simply slipped through the cracks amidst all the chaos of the Lehman bankruptcy.

However it happened, the bankrupt bank is reportedly sitting on the uranium until prices rise; uranium has fallen for five straight months as traders expect delays to nuclear power projects in China and India, and under the expectation that Lehman could dump its stock on the market. Essentially, by holding tight Lehman depresses the very market it needs to recover.

I highlight this story because it underlines just how disastrous, and far-reaching, the Lehman bankruptcy has been. Lehman was an active commodities trader in the broker-dealer and exchange markets, and it got caught on the wrong side of a massive trade that continues to depress an illiquid market. The ripple effects of Lehman's failure haunt us in the most improbable of areas.

(photo source)

Trash talk

The United States may finally be stuck with all of the discarded paper, scrap metal, and old computer parts that had previously been shipped to China for recycling. The New York Times recently reported that the once fruitful recycling industry in China that had been soaking up numerous waste products from around the world has become largely unprofitable after the fall of commodity prices, a trend we have been following closely here on zzzeitgeist. Among these commodities, paper prices have fallen by as much as 80%, meaning an end to the old practice of smuggling medical waste in crates marked for recycled paper. As environmental concerns shape into policy, the throw away culture of the past will hopefully reform in both the United States and China, leading not only to greener disposal practices but less waste as a whole. Finding viable solutions for managing the waste we've already created will open the door to cleaner practices in the future. In this era, the already fine lines between waste management (nuclear included), renewable energy, and culture will likely fade away.

(Photo thanks to Patrick)

Loose nukes

In a time when every politician seems to be calling for a nuclear renaissance to solve climate change and the danger of "baby nukes", shouldn't non-proliferation be of the utmost concern to the US government? The recent disparities between various foreign negotiations certainly don't suggest the uniform strong policy that an issue of such concern would require. 

Iran announced today it will not scale back its nuclear activities to the ire of the West. I'm certainly not a proponent of any type of Iranian nuclear capability but I think we should enforce our stipulations evenly. We certainly haven't. In fact we've gone out our way to ensure India can continue to advance its nuclear capabilities by supporting a government that wants to be excused from the non-proliferation treaty. It makes more sense for India to be allowed nuclear weapons rather than North Korea or Iran. And to pretend India should not exercise its nuclear capabilities while hostile neighbor Pakistan does so would threaten the little remaining stability of the region.

There's no simple answer to a multi-faceted problem such as this and no such thing as a unilateral, one size fits all nuclear containment policy for the world. No matter the complexity of the situation, nuclear allowances cannot be dangled for economic gain and political promises. Nuclear proliferation has far too many implications to be bait in strategic US negotiations; it has worldwide effects and requires international cooperation and a singular compromised voice as such.

Back to the future on uranium

There's a lot of hot air in the news these days about how America is going to solve its energy crisis. Literally. T. Boone Pickens, lifelong oilman, is on TV exhorting his fellow Americans to support massive investments in... wait for it.... wind power. Ba dum bum - I'm here all week, folks.

Anyways, I had a look at the plan and you've got to admire the guy for being proactive, which is all the more impressive seeing that he's an octogenarian billionaire. Wind is a great start to diversifying energy sources, but it's clearly not going to be sufficient alone. Which brings me to another possible solution - more nuclear power.

I know that nuclear power conjures up some bad images, but it has its benefits. First, it's relatively inexpensive once you make the initial investment to construct a plant. According to the Economist, it costs about 6.5 cents to generate a kilowatt hour of electricity with nuclear power, which is almost as cheap as coal (5 cents per kWh). It will almost certainly be cheaper if carbon emissions are taxed in the future, which is likely. Second, modern nuclear plants are generally quite safe, and each plant generates a lot of energy. Third, it is carbon-friendly.

This fact has not gone unnoticed by countries around the world, and recent high energy prices have spurred a lot of talk and some action on building more nuclear plants. This is particularly true in some of the major emerging markets, such as China, India, and Russia, but also Canada and Japan.

The price of uranium has reflected this new attitude toward  nuclear power in recent years. It spiked to record highs of $138/lb in June 2007, before falling drastically off what most investors felt was an unsustainable peak. Still, some recent rumblings suggest that uranium is about to take off again after languishing for at least the first half of 2008.

Finally, as an aside, it's worth noting that the history of uranium production and trade is both fascinating and complicated, and I would be happy to write about it if anyone wants me to. Suffice to say: 60 years ago it was mainly used to produce weapons of imponderable destructive capacity, and today it's more likely to be used to heat our homes.