Compared to conventionally powered ships, nuclear-powered ships can travel more rapidly to distant theaters of operation for a contingency and remain operational in the theater of operation for longer periods of time.
Above and beyond the operational benefits, the principal rationale for building additional nuclear-powered ships rather than conventionally powered ships is that it could save money on fuel in the future .
The catch is that the savings in fuel costs would be offset by higher up-front costs of nuclear-powered ships. A significant share of those up-front costs would involve developing new reactor designs for surface-combat ships.
In a study released earlier this month evaluating the economic benefits likely to result from expanding the Navy’s nuclear fleet, the U.S. Congressional Budget Office (CB)) “assumed that the Navy would design a new reactor” to equip surface surface-combatant vessel with nuclear-powered systems.
Including the cost of developing the new nuclear reactor, the CBO estimated that “a nuclear-powered fleet comprising three classes of [surface-combat] ships . . . would cost the Navy [about $14 billion] more than a conventionally powered fleet under CBO’s projected trajectory for oil prices.”
Ergo: by expanding the U.S. Navy’s nuclear-powered fleet, the federal government would provide a long-term platform for developing and refining advanced nuclear-energy systems and technologies.
But the economics only work if oil prices are high – very high.
As indicated in the chart featured below, the CBO’s baseline projections assumed that the prices paid by U.S. refiners for oil will rise from $86 per barrel in 2011 to $95 per barrel in 2021 and then continue to rise at a real annual rate of 1% in the years that followed.
Under these projections, nuclear power is – at least economically – a losing proposition for the U.S. Navy. How high would oil prices need to rise before nuclear would become cost effective?
If oil prices increased by 3 to 5% annually (over general inflation rates) from 2012 to 2084, nuclear would be an economic winner. This would put the price of oil needed to make nuclear-powered naval ships cost effective somewhere between $223 and $323 per barrel in 2040. That is a steep price.