INDIA NUKE ON LINE--SO WHAT!

The India Times reports that its completely indigenously made nuclear power plant went on line yesterday. This is an accomplishment. It was just five years ago when the first pour was made. The plant is on-line 7 months ahead of schedule. India has 8 more plants under-construction and there are a total of 24 plants under-construction world wide.

There are also good reasons for the words so what in the title. This plant will save about 8 million barrels of oil in its first year of operation. The world consumes 83 million barrels of oil every day. This plant will save just a drop in the bucket.

In the US, we have 103 nuclear plants on-line. There are 441 operating world wide. Most of these are twice as big as the new India plant but many are near the end of their useful lives. The US produces 20% of its power by nuclear facilities and France produces nearly 80%. The French plants were designed to produce until 2010.

At the current price of oil, gas and coal, nuclear is the way to go. The high capital cost is the chief deterrent to nuclear. When one factors in heath and environmental concerns, nuclear wins by a country mile. People talk about the health risk of radiation but 500 times as much naturally occurring radiation bombards us daily versus what has ever been leaked from nuclear plants.

Pollution is a serious problem. To abate pollution quickly, we need to help poor nations to stop burning wood for fuel! Second we need to replace as much fossil fuel burning with nuclear energy. One uranium pellet which is about the size of a stack of 5 dimes, is the equivalent of 1,800 lbs. of coal!

China, a very large country, produces 1.8% of its electricity with nuclear fuel. China has four more nuclear plants under construction. By 2010, China will be producing 4% of electricity with nuclear fuel. Again, you can see that any one plant is only a drop in the world wide demand bucket. If we want to make a dent in the price of oil, we need to get started drilling, digging and constructing and we need to continue to improve our usage efficiency.

On Kudlow and Company tonight the gains we have made in the efficient usage were reported. We have made significant improvements; a 55% improvement in the past 20 years. One guest talked about how today's refrigerators consume 1/3 the energy. It is interesting that folks take about savings without mentioning the substitution effect.

The law of substitution is simply to powerful to ignore. The energy required for my Mom to pop popcorn was many times the energy required in a microwave oven. The walls in my parents den contained many board feet of wood. They were nice but really not nearly as good in a number of ways as my walls today. My walls save me hundreds of dollars a year in heating costs and yet they contain a relatively small amount of wood.

The bottom line is that a free country with free markets will continue to innovate to reduce consumption. We must also support the construction of new supply. If you really think coal is the way to go then support it. If you think drilling in Alaska or off the continental shelf makes sense then support it. If you think we should do nothing but conserve, then count on some cold expensive winters in the years ahead.

In my opinion an attitude shift is needed and is in the works. Nation after nation is calling for specific measures to be made. The Middle East still has a lot of oil but democracy is taking hold. Some of these 300 million poor folks are going to gain wealth and become consumers of oil. US Senate leaders have promised a permit to build a Nuclear plant in America within 5 years. Again, only a drop in the bucket. We need to follow India's lead and get 10 plants under-construction at a time.

As investors we should consider purchasing big manufacturing and construction companies such as GE, ABB or FLR. If you are going to have to buy $3.00 gas, you better make some money.