Fuel review | Supply

Demand down, for now

6 October 2011



One repercussion of the recent events at Fukushima Daiichi in Japan was an immediate drop in uranium requirements in Japan and Germany. But, over the long term, uranium requirements are expected to grow steadily. By Julian Steyn and Thomas Meade


The nuclear power station accident that resulted from an earthquake and associated tsunami at the Fukushima Daiichi site in Japan on 11 March 2011 resulted in nuclear fuel and uranium requirements being reduced immediately in Japan and Germany, and possibly in Switzerland in the 2030s. The accident introduced some requirements uncertainty into the market and it has also led to some supply side uncertainty. In the short term, financing of nuclear plants and uranium mines could face difficulties that in turn could slow project development. In the mid-to longer-term the realities of climate change could dominate since the alternative of renewable energy sources is only a partial solution to the provision of carbon-free electric power on a wide scale.

The annual requirements for uranium concentrates (U3O8) that are associated with the six Fukushima Daiichi units in Japan (four of which have been declared as permanently shut down) is about 2 million pounds (2 MMlb), or about 10% of Japan’s total annual requirements. A number of other units in Japan are likely to endure extended outages of a year or more, further reducing near-term demand. Annual requirements associated with the eight German nuclear power plants shut down in the aftermath of Fukushima are about 4 million pounds, or 40% of Germany’s total annual requirements. When all 17 of Germany’s reactors are shutdown by year-end 2022 as dictated by the current government’s decision to exit nuclear, then the total market loss will rise to about 9 million pounds per year. The total reduction for these two countries could amount to about 5% of total world uranium concentrates requirements. At present it is unknown how the market will deal with the reductions.

The developments in Japan and Germany, and to a lesser extent elsewhere, driven by the Fukushima Daiichi accident have resulted in some uranium mining development plans being slowed. However, utilities should be comforted by the positive supply outlook which is likely to continue throughout this decade and into the next.

Six countries are expected to provide about four-fifths of world mine production over the next ten years: Kazakhstan, Canada, Australia, Namibia, Russia and Niger.

Mine Production

Kazakhstan, with 20 operating ISL production centres and one conventional centre in 2010, was the world’s number one producer with a nameplate output of 44.6 million pounds. It has two more ISL mines coming on line in 2011 for a total nameplate capacity of around 53 million pounds. While some stockpiling may be occurring, the bulk of production is destined for export. Many of the mines are owned in joint venture with the Kazatomprom state agency. Others are wholly owned by Kazatomprom, but could be negotiated into joint ventures as circumstances dictate. The ongoing and planned development of in-situ leach mines in Kazakhstan could increase its annual production to more than 60 million pounds by 2013.

Canada was the world’s second largest mine producer of uranium in 2010, producing 25.4 million pounds in 2010. Canadian production is projected to rise to about 30 million pounds per year by 2015, assuming the Cigar Lake, McArthur River, and Rabbit Lake mines are in production. The Cigar Lake mine, flooded in 2006, is being remediated and is expected to begin production in either late 2013 or early in 2014. Rabbit Lake may shut down by the middle of this decade due to reserve depletion.

In terms of new projects, Denison’s 2008 discovery of the world-class Phoenix Deposit at Wheeler Lake is one of the most significant findings in recent time—exploration drill holes recording ore assays of up to 62.6% (!) over six meters. Cameco’s Millenium deposit is moving into mine development. Resources at the Dawn Lake (Cameco), Kiggavik-Sissons (Areva), and Michelin (Paladin) projects are being delineated on schedules that could see first production after 2015, as the market permits.

Australia was the world’s third largest uranium producer at 15.5 million pounds U3O8 in 2010. It has two large production centres in operation, Ranger and Olympic Dam, and a single ISL centre, Beverly.

The recent delineation of additional reserves at Ranger is expected to allow mine production through about 2020, while milling operations could continue beyond that. Olympic Dam, which is licensed to produce up to 17 million pounds per year, produced only about 6.1 million pounds in 2010 because it was recovering from a serious accident in its production shaft in October 2009. Production at the Beverly ISL mine was down to about 1.0 million pounds in 2010, about 67% of normal levels due to supply difficulties caused by monsoon flooding disrupting access roads.

Australia’s production level is expected to more than double by the end of the decade if Olympic Dam’s output is expanded as planned prior to the global recession. According to its draft environmental impact statement, released in May 2009, BHP Billiton plans to develop a very large open pit copper-uranium mine from which production could begin in 2016 and rise to 32 million pounds of uranium in the early 2020s. Together with the present underground operation this could raise Olympic Dam’s output to about 42 million pounds per year in the 2020s.

Although the project could be slowed or halted because of the $15-20 billion capital investment required (70% of this will be supported by copper production; 30% by uranium production), the recent release by BHP Billiton of the final supplementary environmental impact statement (SEIS) for the project suggests it is likely to go forward. The Olympic Dam expansion still needs final government approval as well as approval by the BHP Billiton Board.

Production at Namibia’s Rossing center, which was scheduled to end in 2009, is now expected to continue at its current level of about 8.0 million pounds through 2020 and possibly beyond. Paladin’s Langer Heinrich mine has been expanded to 5.2 million pounds per year and could be further expanded if the market permits. Areva’s Trekkopje heap leach mine in Namibia has also been started up and is being ramped slowly to reach 8.3 million pounds per year. Extract Resources has plans to develop the huge (approximately 500 million pound) Husab resource in Namibia during the next three to five years.


Trekkopje
Credit: AREVA
Production is being slowly ramped up at the Trekkopje mine in Namibia


Russian production, currently 9.4 million pounds, is projected to be expanded by Rosatom’s subsidiary ARMZ to about 12.2 million pounds by 2015. Russia has plans to develop the large Elkon deposits in Siberia. However, the country has not yet been successful in developing substantial domestic uranium production centres other than the long-lived Priargunsky center at Krasnokamensk. Thus, it is becoming clear that there will be an increased level of world competition for long-term uranium supply, similar to that which already exists for oil and gas and other critical resources. Even as Russia seeks to develop mines at home, it is increasing imports from Kazakhstan, Uzbekistan, Mongolia and other world regions. Russia is a partner in a number of joint venture centres in Kazakhstan.

Production in Russian neighbour Ukraine could be more than doubled by 2014 in order to reduce the costs incurred by reliance on imports to meet domestic requirements. The country currently produces about 2 million pounds per year and consumes about 5 million pounds, with the difference made up by imports from Russia and possibly Kazakhstan. Uzbekistan production is expected to remain relatively constant at about 8 million pounds per year through this decade.

Production in Niger is expected to remain constant during the next few years, but could more than double from its 2010 level by 2017 when the Imouraren mine reaches full production of 13 million pounds per year and production at Azelik rises to 2 to 2.5 million pounds per year.

Elsewhere, Paladin started up its Kayelekera mine in Malawi in 2010 and is expected to be at full capacity of 3.3 million pounds by 2013. Domestic economics should limit South African production from three small producers, First Reserve, Anglo-Gold, and Shiva Uranium, to about 3 to 4 million pounds per year for the foreseeable future. Uranium One is planning to develop its recently acquired Mantra Mkuju River mine in Tanzania.

Chinese domestic uranium production activities have not been generally successful, and as a result, it has been negotiating long-term supply from other countries. Chinese customs data reportedly show the import of 45 million pounds U3O8 in 2010, more than three times the 2009 total. For the foreseeable future, China will be expanding production slowly; but is expected to be a significant importer of uranium from other countries during the next 10 to 15 years.

India has also been arranging uranium import supply from Kazakhstan, Russia and other countries. However, its efforts have been impeded by nuclear non-proliferation concerns in countries such as Australia. Public acceptance and environmental issues have also hampered India’s development of domestic uranium resources.

Supply interruptions

Unforeseen supply-interrupting market events during the past eight years exemplify possible future risks to security of supply. Such events have included fires (at Olympic Dam in Australia in 2001), mine flooding (Rabbit Lake, Cigar Lake, and McArthur River mine in Saskatchewan in the 2003-2008 period), floods caused by cyclones (Ranger open pit in Australia in 2006, 2007, and 2011), in-situ leaching supply shortages (Beverley in Australia in 2010), leaching acid supply shortages (in Kazakhstan in 2007), and electric power shortages (South Africa in 2007). The stream of negative supply events has led Energy Resources International to consider it realistic to apply a 90% production capacity factor to planned and announced nameplate mine capacities in this analysis.

Producers in the West continue to be confronted with environmental issues. For example, in Australia, pressures from indigenous people and environmental activist groups forced Rio Tinto in 2005 to put its large and rich Jabiluka uranium deposit under a long-term care and maintenance agreement, and only develop it at some future time with the support of the traditional native people of the region. In the US, plans for mine development in New Mexico and uranium mining using non-invasive in-situ recovery (ISR) methods have been opposed for many years by Native American rights groups. Again, in the US the Department of the Interior is proposing to ban the mining of uranium on the lands surrounding the Grand Canyon National Park in Arizona for 20 years. Still, some progress in the form of license awards for new small mines has taken place in the US over the past year. In Canada, the large Michelin project resource in Labrador has been banned from production until the region’s Inuit native people determine development criteria during 2011.

Inventories

The world U3O8 supply capacity to meet requirements during the next decades will be obtained from a combination of mine production and inventories of already mined uranium (AMU). AMU consists of civilian and government U3O8 (and U3O8-equivalent) inventories, nuclear weapons fissile material stockpiles, enrichment tails upgrading, and plutonium and uranium recycle.

While the excess commercial stocks of already-mined uranium (AMU) held by the operators of nuclear power plants have now been largely consumed, AMU held by governments will continue to enter the market at a significant rate during the next 15 to 20 years.

The most significant components of AMU will be Russian HEU through 2013, miscellaneous US HEU, plutonium and reprocessed uranium recycle in Europe and East Asia, and uranium enrichment tails upgraded in Russia and possibly the USA. Even though AMU will continue to provide significant supply in the future, about 20% in 2020, an expanding resource base of currently prospective uranium deposits will have to be developed for supply in the coming decades.

The world nuclear industry, including fuel suppliers and nuclear power plant operators, currently holds commercial inventories in the amount of approximately 750 million pounds, which is equivalent to about 4.1 years of world forward requirements. Utilities are estimated to hold about 60% of this inventory, while suppliers hold the remaining 40%. Utilities in France and Japan hold particularly large inventories. However, following the Fukushima accident some of the Japanese inventories may be shed through entry into the market or be drawn down in other Japanese reactors. German utility plant inventories are likely to impact the market as needs diminish. In general, US nuclear power plant operators are presently holding about 20 months of requirements as inventory, up from about ten months of requirements in 2003.

In addition, the US and Russian governments are holding significant uranium inventories, primarily in the form of HEU but also in the form of depleted uranium. Releases of government inventories into the commercial market are expected to decline following the 2013 conclusion of the US-Russia HEU Agreement of 1993. The DOE holds US and Russian-origin natural uranium amounting to 42 million pounds, which will most likely enter the market over the coming decade through barter arrangements.

The US government had an inventory of excess uranium in various forms that was equivalent to approximately 153 million pounds U3O8 in December 2008, according to the US Department of Energy (DOE). A total of around 1.7 million pounds was sold in five quarterly auctions between December 2009 and March 2011. On 26 May 2011, Traxys North America announced that it had entered into an agreement to purchase all of the UF6 that Fluor-B&W expects to receive from the DOE in payment for clean-up services at the Paducah enrichment plant through 2013. Industry analysts, such as RBC Capital Markets, indicate that between 11 and 12.5 million pounds in total would be acquired from DOE over three years and entered into the market through term contracts.

Also in May 2011, US Representative Whitfield and Senators McConnell and Paul, of Kentucky, introduced the Energy and Revenue Enrichment Act of 2011 in the US Congress. The legislation proposes a pilot programme to re-enrich depleted uranium tails owned by the DOE to fund environmental cleanup operations at the Portsmouth and Paducah enrichment facilities, and proposes keeping the Paducah plant operating past its 2012 planned closure date. However, the prospects of this legislation being enacted are not high.

Forecast


Supply fig
Fig. 1: World projected uranium supply and demand, through 2030 (1 lb=0.4536 kg)


The world long-term requirements outlook for uranium has only increased slightly during the past year.

ERI forecasts world nuclear power plant uranium requirements as rising from the 2010 level of about 180 million pounds U3O8 per year to 268 and 344 million pounds per year, in reference and high cases respectively, in 2030 (see Table 2). These projections take into account the reductions in the nuclear power programmes of Japan and Germany.

Table 2 also summarizes the projected mine and AMU supply capacity through 2030. Supply and requirements are also compared in the figure, where supply from major mining countries is broken down. The AMU projection assumes that there will be plutonium and uranium recycle in some Western European countries, and possibly in Japan at some future time, and that some excess weapons plutonium will be consumed in the US and Russia as mixed oxide (MOX) fuel during the next decade. Projected mine production capacity in the table is taken as 100% and 95% of actual nameplate capacity in 2010 and 2011, and 90% in 2012 and thereafter (see discussion above).

It is clear from the data in the table that current mine capacity and capacity under development, plus total AMU, are projected to be adequate to meet reference requirements through the early 2020s. If needed, projected supply can be augmented by prospective mine capacity, of which there is a significant amount.

However, data in Table 2 show that the ERI high case requirements may exceed supply capacity shortly before 2020. The high case requirements could become reality if the Chinese nuclear programme expands at the high case growth rate that was projected by ERI, that is, 81 GWe by 2020 and 179 GWe by 2030.

This article was originally published in the September 2011 issue of Nuclear Engineering International (p22-26)


Author Info:

Julian Steyn and Thomas Meade, Energy Resources International, Inc., 1015 18th Street N.W., Suite 650, Washington, D.C. 20036, USA

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Spot price slumps; long-term price remains steady

During the period from 7 March through 11 March 2011, the average TradeTech daily uranium spot price indicator was $66.90 per pound (lb) U3O8. It was $67.75 the day of the earthquake. In the week following the Fukushima accident the spot price dropped to $50.00, a decline of $17.75 or 26.2%. The price recovered over the following week to $60.00.

While the initial large drop in spot market price appeared to be an overreaction to the Fukushima accident, the spot indicator has slowly declined over the subsequent months and was $51.75 on 1 July 2011, according to TradeTech. The impact of Fukushima on the long-term price indicator has been more muted, with the long-term price holding at $68 as of 1 July 2011. Uranium market prices are expected to remain fairly flat in the coming years of this decade, as supply appears to be more than adequate to meet demand in the post-Fukushima uranium market. Despite the perhaps inevitable pause in nuclear expansion following Fukushima, requirements are expected to grow steadily over the long term, and upward price pressure can be expected in the 2020s.



Tables

Table 2: World projected uranium supply capacity and requirements (in million pounds U3O8)
Table 1: Top ten uranium production mines in 2010

Supply fig Supply fig
Kraznokamensk Kraznokamensk
Trekkopje Trekkopje


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