Fuel for the 21st century3 September 2003
The international uranium market is approaching maturity on the eve of what many in the industry believe is a nuclear power renaissance. By Julian Steyn
Expansion of the nuclear option is being increasingly regarded in many quarters around the world as fundamental to avoiding the emission of hundreds of billions of tonnes of carbon through the middle of this century and beyond. If this turns out to be the case, the demand for uranium in the mid- to long-term could be so large that there will be a need for more efficient uranium use and for advanced fuel cycles.
However, even if there is expanded nuclear power growth in the future it will not impact the uranium market until early in the next decade at best. In the meantime, it will be necessary and possible to rely on already-mined uranium inventories and production from existing and new mines. As the substantial inventories decline in this decade, primary production will have to be expanded at existing mines and by constructing new mines. As excess commercial stockpiles are depleted in the second half of this decade, supply of already mined uranium will come primarily from government stockpiles. The most significant components in the government stockpiles are weapons uranium and plutonium, particularly the former. By the middle of the next decade an expanding resource base of new uranium deposits will have to be identified through a resurgence of exploration activities begun in this decade.
The possibility of unforeseen supply interruptions was highlighted by the fire at a major Australian production centre in October 2001, the flood at a major Canadian underground mine in April of this year, and the reduced 2003 production resulting from refurbishment at Namibia's only production centre. While some uncertainty continues to hang over the industry, the outlook is that supply will continue to meet demand through the end of this decade as existing primary capacity is expanded and some existing deposits are brought to production, but capacity will have to be augmented as we enter the next decade all of which assumes that the no growth mid case market outlook prevails. However, if the nuclear industry were to embark on a high growth track then the demand for uranium could be constraining in the mid- to long-term.
With the continuing rise in nuclear plant capacity factors to record levels 90.8% in 2002 in the USA and more than half of the US reactor fleet having already opted to undergo power uprating, nuclear power electricity generation is at a high, and forward operating costs are currently at an all-time low and expected to remain low. However, the high operating level of the nation's nuclear fleet has resulted in increases in uranium demand over that forecast in previous years.
Based on current considerations, overall world uranium mid-case demand is projected to remain essentially flat during the next 20 years at about 171 million pounds U3O8 per year. This assumes that plutonium and uranium recycling will continue in certain western European countries and in Japan, and that some excess weapons plutonium will be consumed in the USA and Russia as mixed oxide (MOX) fuel in the next decade. While world and US demand is forecast to remain relatively flat through 2020, there may be a more than 40% increase in East Asian requirements and a 20% decline in western European requirements. Most of the western European decline is projected to take place in this decade as the governments of several countries continue to bow to anti-nuclear political pressures. There could also be a decline in Commonwealth of Independent States (CIS) and Eastern European (EE) collective requirements by about 20% through 2020. It must be noted, however, that if the optimistic outlook for nuclear growth comes to pass, then annual demand could rise to about 230 million pounds per year by 2020, and about 0.5 billion pounds per year by the middle of the century.
Spot market volume in 2002 was at about the same level as in the previous year, slightly less than 20 million pounds, or about 11% of world requirements. The spot market price of uranium remained at or close to $9.90 per pound U3O8 throughout 2002, rising to about $10.10 by April of this year. However, the 6 April flood and lost production at the McArthur River mine in Canada spooked the market to the point that prices rose to almost $11 in June and July. Even though the mine was brought back into production in early July, the spot market price continued rising to $11.30, and long-term contract base prices stayed close to $12 per pound.
Approximately one-half of the transaction volume during 2002 was in the form of uranium concentrates, with most of the other half being UF6. Enriched uranium product transactions involved less than 5% of the total. Off-market volume declined from about half of the total to about one-third. Approximately one-third of the transactions involved discretionary purchases, and one-half of those were nuclear power generating company purchases. US and non-US generators almost equally purchased about 60% of the total volume, with producers and traders about equally purchasing the remainder.
Long-term contract volume in 2002 continued to be robust at almost 70 million pounds, almost equal to the average of the past four years. Almost one-third of the volume consisted of procurement by US generators. While US purchasers continued to contract for delivery periods (terms) of between four and five years on average, non-US purchasers increased their contract terms to an average of almost eight years. Almost three-quarters of the transactions were off-market, partially a result of utility and supply industry consolidation, and associated changing procurement practices. Approximately two-thirds of the volume purchased by US utilities was in the form of UF6, due in part to the increase in deliveries of the Russian highly enriched uranium (HEU) UF6 feed component, whereas almost two-thirds of the non-US purchases was in the form of uranium concentrates.
The relatively strong long-term contracting volume of the past several years has resulted in non-US utilities being well covered for the next few years. This has resulted in suppliers having "fatter" portfolios than they have had in previous years. This suggests that suppliers may be likely to be less aggressive in the short-term, which could have an upward impact on prices. Although non-US term demand is well covered through the middle of the decade, US term demand is not, a fact that could also contribute to some upward price pressure in the next six to twelve months. It is of interest to note that the difference between spot and term market prices has ranged between about $0.40 to $1.50 over the past five years, with $0.92 being the average.
The world uranium supply capability to meet future requirements in this and the next decade will be obtained from civilian and government uranium (and uranium equivalent) inventories, nuclear weapons fissile material stockpiles, that is, already-mined uranium, and uranium mine production. The civilian owned and some government uranium material constitute commercial inventories. However, government owned uranium also includes weapons uranium and other government programme materials. While it is projected that civilian inventories will be depleted in the second half of this decade, HEU blended down from nuclear weapons is expected to meet about 14% of the world's annual requirements until the middle of the next decade and possibly until about 2020. Mine production's share of meeting world requirements is projected to increase from its current level of about 60% to about 80% by 2010. The remainder will be met from miscellaneous government inventories and enrichment tails upgrading.
Assuring the sustainability of uranium resources for the 21st century, even through the first half until alternate fuel cycles are developed and commercially viable on a worldwide basis, will be no mean feat. As the Uranium Information Center in Australia noted (in Briefing Paper 75): "Whatever minerals are on Earth, they cannot be considered useable resources unless they are known." There will have to be substantial investments of time, funding, and effort to find and develop uranium resources well in advance of need resources that will be increasingly expensive to exploit. At this time, the most comprehensive source of uranium resource data is the Nuclear Energy Agency (NEA) Red Book for 2001 (see NEI January 2003, p30). The Red Book identifies a world known resource base of 3.1 million tonnes U recoverable at a forward cost of up to $80 per kg U ($30 per pound U3O8), which is almost three time today's uranium market price. This resource base would sustain current nuclear power capacity levels of about 66 million kgU per year for about 48 years. If nuclear power world capacity grows from its current level of 367GWe to 1000GWe as some analysts have recently projected, for example, in the Future of Nuclear Power study just published by the Massachusetts Institute of Technology, then the Red Book known resources would only sustain this growth of nuclear power for about 27 years. This does not allow for the lifetime requirements of the reactors operating at the end of that time. In addition, experience suggests that about one-third of the Red Book reported resources may not actually be recoverable when needed because of geopolitical, regulatory, and public acceptance constraints, as for example, is the case for the Jabiluka resources in Australia.
Several mining interruption events have occurred during the past two years that have resulted in raising security of supply concerns for nuclear power generating companies. The restart of the Rabbit Lake Eagle Point mine in Saskatchewan was delayed by unforeseen poor ground conditions. A fire and copper smelter problem at the large Australian Olympic Dam copper-uranium mine reduced production significantly during 2002 and 2003. An unexpected flood at the McArthur River mine, the world's largest producer in April 2003 resulted in that mine being shut down for approximately three months. The replacement of the ageing coarse ore conveyor at Namibia's large Rossing mine will reduce its 2003 output by at least 25%. These events introduce the reality that over the long-term uranium mines may only be able to reliably produce about 90% of their nameplate/planned capacity.
The western world's nuclear industry currently holds commercial inventories equivalent to about 2.8 years of world demand. France and Japan hold particularly large inventories, although the latter country has been drawing down inventories in the past several years. In general, US nuclear power generators only hold fuel cycle process pipeline uranium-equivalent material equal to about one year's requirements.
The 1993 HEU purchase agreement concluded between Russia and the USA has already resulted in the delivery to the USA of 5519 tonnes of low enriched uranium (LEU) derived from 187t of HEU. USEC purchases the enrichment component of this LEU and transfers the uranium feed component to Russia's uranium marketing agents, Cameco, Cogema, Nukem, and Tenex, and returns the remainder to Russia. The HEU deal has so far resulted in approximately 149 million pounds of equivalent uranium (U3O8e) being made available to the world market and will result in another 249 million pounds being made available between now and 2013, at the rate of 24 million pounds per year. While the USA is also reducing HEU to nuclear fuel materials and services, the quantities are not yet very significant compared to the Russian HEU programme.
At the time of USEC's privatisation in July 1998, the US Department of Energy (DoE) transferred an inventory of about 75 million pounds of uranium in various forms to the new company. Since privatisation, USEC has delivered approximately 40% of that amount to customers. Of the remaining 45 million pounds, almost 25 million pounds was found to be contaminated with technetium and 13 million pounds is reportedly reserved for working inventory. Under a complex June 2002 agreement between USEC and the DoE, USEC has been using the "front-end" of the shut-down Portsmouth gaseous diffusion enrichment plant to remove the technetium from about one-third of the contaminated uranium by October 2003. The outlook for the "clean-up" and/or the replacement of the remaining material is uncertain because it is subject to Congressional approvals and hostage to the outcome of the Senate-House negotiations of the recently "passed" energy bill.
The US and Russian governments entered into "umbrella" agreements that were associated with the Russian HEU uranium feed-component and a commercial marketing agreement between Minatom and the three western companies noted earlier. Under one of the umbrella agreements, Russia and the USA each agreed to build up and maintain 58 million pound "collateral" stockpiles of uranium until March 2009. Uranium in the these stockpiles is not to be sold until after March 2009.
Mines and already-mined uranium are expected to meet approximately two-thirds and one-third, respectively, of world cumulative requirements between now and 2010, and approximately 80% and 20% in the next decade. Four countries will provide about 90% of western world mine production in this decade: Canada, Australia, Namibia, and Niger. These four countries along with Russia, Kazakhstan, and Uzbekistan are projected to provide about 87% of overall world mine production through 2010.
Canada was the world's largest mine producer of uranium in 2002, producing 30 million pounds U3O8, and is expected to maintain its dominant position through the coming decades. However, because of flooding at the McArthur River mine Canadian production will only be about 24 million pounds in 2003. Production is projected to rise to between 42 and 46 million pounds per year later in this decade. In the province of Saskatchewan, two existing centres (Key Lake and Cluff Lake) came to the end of their resource life last year. However, two new major production centres (McClean Lake and McArthur River) recently moved into full production. In addition, two more centres (Cigar Lake and Midwest Lake) are expected to go into production sometime in the middle of this decade.
Australia is currently the world's second largest uranium producing country at about 20 million pounds U3O8 in 2003. It has two large production centres (Ranger and Olympic Dam) in operation and a single small solution-mining centre (Beverly). A fire in 2001 in Olympic Dam's solvent extraction mill section and problems in the copper smelter furnace lining prevents the centre from operating at full production level until later this year. The two existing centres are likely to be expanded to their licence-approved capacity by about the middle of the decade, in accord with market conditions, bringing the country's production level up to about 34 million pounds per year. There are indications that the large Olympic Dam centre could even double its output during this decade. Another small solution-mining operation (Honeymoon) is hoping to go into production in the near future. The Rio Tinto Jabiluka mine development is being back-filled with mined ore following an agreement that the mine will not be developed in the foreseeable future, and never without the explicit permission of the native people of the region.
Economic difficulties could keep South African production at the current low level of about 2 million pounds per year for the foreseeable future. Production at the Rossing mine in Namibia and the Arlit and Akouta mines in Niger is expected to remain relatively constant during this decade at about 6 and 8 million pounds per year, respectively. Rossing's production in the first quarter of 2003 was about 0.04 million pounds because of the need to replace an ageing coarse ore conveyor. Poor market conditions are expected to result in China limiting production to meeting the needs of its own gradually increasing national nuclear power programme. Production in France has ended due to economic reserves being depleted.
Production in Russia is projected to remain relatively constant at about 7.5 million pounds per year, as conventional production declines and in situ leaching production is expanded. Minatom has published statements indicating an expansion of the country's output level, but this has not yet been borne out by fact. Kazakhstan's production is expected to increase from its current level of about 7.5 million pounds per year to at least 10 million pounds per year by the end of the decade. That country's government has indicated even greater output levels by 2010. Uzbekistan is projected to continue production through this decade and the next at between 5 and 6 million pounds per year. Ukrainian production is expected to remain at about 2 million pounds per year through the middle of the decade and then be phased out by the end of the decade because of economics.
In November 1991, the DoE uranium enrichment enterprise's labour union and a group of US uranium mining companies petitioned the US Department of Commerce (DoC) to undertake an investigation of alleged dumping by the former Soviet Union. A finding in 1992 that harm was being done to the nation's uranium miners and the US enrichment enterprise resulted in import tariffs being proposed and then suspended as the result of a suspension agreement because Russia was then a non-market economy. However, the Russian suspension agreement expires at the end of March 2004, and Russia has the option of terminating it on that date if it gives notice by the end of October 2003. If it terminates the suspension agreement, it is subject to the 1992-proposed tariff imposed when it was a non-market economy. The DoC is posed with a dilemma in regard to a country that did not even exist when the alleged dumping occurred in 1991. The DoC does not seem to know what the outcome should be because the USA declared Russia to be a market economy in June of 2002.
In addition, as noted in the article on page14, on 25 March 2003, the US Court of International Trade (CIT), found that the DoC had failed to adequately show that the European enrichers, Urenco and Eurodif, were importing goods rather than services into the USA and remanded a DoC antidumping and countervailing duties ruling that had resulted in tariffs being imposed early in 2002. The DoC subsequently reasserted its position that "enrichers are the producers of LEU," rather than service providers. If the CIT position is upheld, the Russians may have the opportunity to enrich uranium from countries other than Russia, Canada, Australia and the USA, for US end-use. This means that a US utility may, at least theoretically, be able to contract for South African or Kazakh uranium, for example, to be enriched in Russia. While this subject bears watching, it is far from certain.