Living with today’s uranium glut27 August 1999
The uranium market has changed out of all recognition since the 1970s, with an excess of uranium as opposed to the anticipated shortages. Coupled to liberalisation this has had the effect of shifting all the rules
As the end of the millennium approaches, it must be asked: is this also the end of an era for the uranium (U3O8) market? There are indications that it may be. For example, the current outlook is for trade constraints to fall by the wayside one by one as inventories drive the market through the coming decade and primary production is provided by a shrinking number of large mining companies. On the consumer side the market is also going through substantive changes as the United States (US) utility industry restructures. Where once there were about 50 US utility customers there will soon be less than a dozen nuclear power generating entities, albeit individually larger in terms of needs as well as buying power.
The 1990s have seen many changes in the international uranium market. These changes have ranged from the emergence of several of the republics of the former Soviet Union (FSU) as important suppliers at the beginning of the decade, to the increasing realisation that large stockpiles of already-mined uranium will provide much of the world’s supply for many years to come. Inventories in the form of excess weapons material as well as government and private sector stockpiles currently represent substantial sources of uranium supply. Except for the Far East, there is unlikely to be any perceptible increase in uranium demand for the foreseeable future, and as a consequence, there should be no significant upward pressure on uranium market prices as the nuclear industry goes into the next century. While some uncertainty will continue to hang over the industry, supply appears to be adequate through the end of the coming decade.
Projections indicate that there will be a slight decline in requirements in the US, and Western Europe between 2000 and 2010, but approximately 25% growth in the Far East. There is not likely to be any growth in the FSU and its associated Eastern European countries.
Two major events during the past year signalled the arrival in the market of substantial inventories and reinforced the utility industry’s perception of supply adequacy. The first of these was the conclusion of a commercial agreement between the Russian Ministry of Atomic Energy (MINATOM) and three Western companies, covering 360 million lb of uranium derived from nuclear weapons grade highly enriched uranium (HEU) over 15 years. The second event was the privatisation of the United States Enrichment Corporation, as USEC Inc (USEC), a new private sector company that was endowed with almost 75 million lb of uranium (U3O8) and uranium-equivalent (U3O8e) inventories.
In addition to the Russian HEU and USEC inventories, there was also evidence that other large inventories were being held around the world. For example, the US Department of Energy (DOE) is currently holding approximately 73 milion lb U3O8e. World utilities and suppliers are holding estimated inventories amounting to about 600 million lb. This includes about 166 million lb of commercial U3O8e held by Minatom for use by it and its Eastern European clients, but excludes the USEC uranium discussed above.
There are also substantial stockpiles of enrichment tails in Russia, Western Europe, and the US, that can be further stripped to generate natural uranium-equivalent material. In the US, the DOE has approximately 560,000 t of tails with assays ranging from about 0.20 weight percent (w/o) U235 to 0.36 w/o. Stripping the DOE tails above 0.30 w/o to 0.30 w/o, for example, would result in the production of about 54 million lb U3O8e. Russia, analysts believe, will be stripping a portion of its equally large tails stockpile to produce more than 100 m lb of U3O8e through the end of the next decade for use as HEU blendstock and fuel for Russian and Eastern European reactors. The West European enrichers are shipping tails to Russia for upgrading to produce natural uranium-equivalent material at a rate of between 3 and 5 million lb per year. Finally, USEC is currently augmenting its uranium supply capability at a rate of about 2 to 3 million lb per year through the process of underfeeding its gaseous diffusion plants, and is expected to continue doing so.
There will be more than 1.2 billion lb of already-mined uranium inventory material available for world civilian nuclear plant consumption through the end of the next decade. After the end of the next decade both Russia and the US could also begin to make additional quantities of HEU available to the civilian market. These two countries have nuclear weapons HEU collectively containing about 700 million pounds U3O8e, some of which may be declared excess sometime in the next decade.
The Russian HEU commercial agreement
Under the HEU purchase agreement concluded between the US and Russian governments in 1993, and detailed in 1994, the US agreed to buy both the enrichment and uranium feed components of 500 t HEU, beginning in 1995. The US assigned USEC the role of executive agent for the purchase. However, following disagreements between USEC and MINATOM over pricing and market absorption capabilities, and the US mining industry’s demands for import constraints, the agreement was restructured. The restructuring was driven in part by the USEC Privatisation Act of 1996.
Among other things, the Act imposed a US end-use quota on the uranium feed component of the HEU that rises gradually from 2 million lb in 1998 to 20 million lb by 2009, where it remains until 2013.
In the fall of 1996, the US and Russia revised the HEU agreement to commit the US government to purchase only the enrichment separative work units (SWU) component of the HEU. The revised agreement called for MINATOM to deliver low enriched uranium (LEU) to USEC and receive UF6 feed in return. The revisions meant that MINATOM would have to make its own arrangements to market the uranium feed and conversion services components. It took MINATOM more than two years of generally difficult negotiations with Western supply companies to conclude an agreement for marketing the HEU feed.
On 24 March 1999, MINATOM concluded a commercial agreement with two Western mining companies, Cameco Corporation and Cogema Resources, and a Western nuclear fuel trading company, Nukem, Inc. The negotiations were reportedly problematic because MINATOM could not initially confirm to the Western companies that it had the Russian government’s full approval to make the proposed sales. In addition, MINATOM’s demands for advanced funding were apparently not acceptable to the Western companies.
The agreement, which covers the sale of 360 million lb of uranium over the next 15 years, allows the Western companies to act as trading companies for the sale of approximately 72% of the total amount. Cameco and Cogema were each allocated options to purchase and market approximately 31% of the total quantity, and Nukem was allocated about 11%. MINATOM may either sell the remaining 28% in the West or take part or all of it back to Russia.
MINATOM sales outside the US are likely to be made by its trading company, Techsnabexport (Tenex), and in the US by Tenex’s subsidiary, Globe Nuclear Services and Supply (GNSS). The three Western companies and Tenex can sell their feed shares in the US, in accord with the Privatisation Act quotas and Department of Commerce (DOC) procedures. It is noted that GNSS has already made sales that account for all of the 1998 US end-use quota and most of the 1999 quota, as well as some of the 2000 and 2001 quotas. The European Union (EU) may consider exempting the Russian HEU feed from its guidelines pertaining to FSU uranium imports though it will be later this year before the EU confirms this.
The commercial agreement is understood to bind the four parties to many sales criteria, including a floor price that is reported to be approximately $29 / kg of uranium as uranium hexafluoride (UF6). At current conversion services prices of about $4 / kg UF6, this puts the equivalent uranium floor price at approximately $9.60 / lb U3O8. Allocated uranium that cannot be sold in the Western world markets can either be placed in a working inventory account or returned to MINATOM to be placed in a US government monitored stockpile in Russia for ten years. Uranium cannot be removed from MINATOM’s monitored stockpile until 24 March 2009, or until its size exceeds 58 million lb, except for use as HEU blendstock (through enrichment tails swaps), and at a rate that is equal or less than 6.7 m lb / year. Uranium feed withdrawn from this stockpile when it exceeds 58 million lb may only be sold into MINATOM contracts in effect on 24 March 1999.
During USEC’s privatisation many within the industry realised for the first time that the new company had twice as much uranium in inventory as previously thought, though the facts were never hidden, just misunderstood. Russia maintained that the HEU purchase agreement would be jeopardised if USEC sales were not restrained in some fashion, and the small but politically strong US mining industry maintained that the government had provided USEC with too much market power. As a consequence, and in association with the 1999 commercial agreement, the Congress authorised funding of $325 million for the DOE to purchase approximately 28 million lb of uranium as UF6 from MINATOM, the uranium feed component of 1997 and 1998 Russian HEU-derived LEU. The DOE agreed to hold this uranium and some of its other inventories, approximately 58 million lb, off the market for ten years, in return for the Russians building up the similar size stockpile already discussed above.
The commercial agreement is structured to comply with the HEU agreement between the US and Russia, with various implementing agreements, as well as US and Russian legal requirements. These bilateral agreements and legal requirements, among other things, provide for the creation of the 58 million lb stockpiles in the US and Russia, and establish the rules governing their disposition. They also provide for the legal return by the US of feed material to Russia. Implementation of the commercial agreement will undoubtedly reveal many issues that will require revision; the parties recognise that the agreement is still a “work in progress”. Simplicity is not one of the agreement’s features.
The agreement is faced with a major issue in 2001, when the US executive agent, USEC, must negotiate the firm up of future SWU purchases. Because USEC is currently paying the Russians considerably more than its marginal enrichment production cost, it may be expected to seek a subsidy from the US government to cover a significant portion of the difference. If such a subsidy is not forthcoming the agreement could be put in some jeopardy, something that would cause considerable concern in the nuclear non-proliferation community as well as in the US Congress and other quarters.
Mine production and already-mined uranium are expected to meet approximately two-thirds and one-third of requirements in the next decade, respectively. Almost 90% of world production will come from mines in the West, and more than 90% of that production will be provided by five countries: Canada, Australia, Namibia, Niger, and the US.
Canada is the world’s largest uranium producer, a position it is expected to maintain through the coming decades. In Saskatchewan, a major new centre (McClean Lake) entered into production in July 1999, and a second centre (McArthur River) is due to start-up by the end of this year. Two centres (Cigar Lake and Midwest Lake) are expected to get their development approval soon, though only one (Cigar Lake) is likely to be brought into production before 2002.
In Australia the two existing centres (Ranger and Olympic Dam) are expanding, and a small new centre (Beverly) has just received approval to go onto production next year. The world class Jabiluka deposit will go into limited production in 2001, but may not reach full production until 2006, when the Ranger 3 deposit is depleted.
In South Africa, economic difficulties and lower gold prices are reducing production to relatively low levels for the foreseeable future. While China is expected gradually to increase its rate of production early in the next decade, its own national nuclear power programme, which has been revised downward in the past year, could result in exports being virtually eliminated in the future. Production in Namibia and Niger should remain constant into the next decade. Production in Gabon ended in mid-1996 as a result of reserve depletion. Production in France is also expected to end next year when economic reserves are depleted.
While production in Russia, Kazakhstan, Ukraine and Uzbekistan will continue in the coming years, there is unlikely to be any substantial increase in the output of these countries. This is a result of aging facilities, the increasing financial pressures of mining as these countries move slowly toward being market economies, the switch from conventional mining techniques to lower cost but rate-of-production limited in-situ leach (ISL) technology, and of course, limited access to Western markets.
Between 1990 and 1998 the FSU collectively exported more than 300 million lb U3O8 to the West; this includes HEU feed exports since 1995. While Exports peaked in 1996 at almost 60 million lb, the 1998 figure was only about 50 million lb.
A major cause for industry concern is the market restructuring of the past few years. The supply side has seen a decrease in the number of major suppliers and the shutdown of some of the remaining small mining operations in the US.
In mid-1998, Cameco Corporation of Canada increased its uranium assets by about 50% by acquiring Uranerz Exploration & Mining Limited. In May 1999, Cogema Resources purchased new and increased ownerships in selected Cameco uranium assets as a means of optimising its supply portfolio.
Supplier side restructuring was further heightened by the March 1999 HEU agreement between MINATOM and the three Western suppliers. As matters now stand, three entities – Cameco, Cogema, and Tenex – are projected to be able to meet approximately half of the Western world’s needs through the end of the next decade. The addition of four other entities — Energy Resources of Australia (Ranger production centre), Olympic Dam, USEC, and Rossing — are projected to bring the supply capability up to about 75%. Canada and Australia taken together should meet almost half of the Western world’s requirements.
In the US, industry restructuring is resulting in the traditional utilities being replaced by generation, transmission, and distribution companies. Where there once was about 50 nuclear plant licensees, there may be only 8 – 12 by the middle of the next decade.
AmerGen Energy Company, the joint venture between British Energy and US-based PECO Energy, has acquired the TMI 1 nuclear plant, is in the process of acquiring the Clinton reactor and is in negotiation for part or all of the ownership of the two Nine Mile Point reactors. In addition, it is reportedly interested in the Vermont Yankee plant, and possibly Seabrook and the two Millstone units. If AmerGen ends up with these eight units, with PECO’s own four units, it would have considerable fuel buying power and be a highly sought after uranium buyer.
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 of uranium by the FSU. The DOC found that harm was being done to mines and the enrichment enterprise; this resulted in import tariffs being proposed and then suspended through agreements with six of the FSU republics.
Today, only two republics, Uzbekistan and Russia, are currently limited in their uranium trade with the US as a result of these agreements. The other republics have terminated their suspension agreements because they were either no longer advantageous or relevant. Though the Kazakhstan suspension agreement is no longer in force, an attempt by the miners and USEC to reopen the dumping investigation was rejected by the International Trade Commission when it unanimously decided in July 1999 that allowing the import of Kazakh uranium would not harm or threaten harm to the US uranium industry.
The industry is currently questioning how, and if, the remaining two agreements will come to an end. These questions have been underlined by the Uruguay Round Agreements Act (URAA) of 1995, which requires that anti dumping and countervailing duty orders be revoked and suspended investigations be terminated after five years, unless revocation would likely lead to a continuation or recurrence of dumping and injury. The DOC is now required to perform ‘sunset’ reviews of the FSU suspension agreements between August 1999 and the end of 1999, in accord with the URAA. The July 1999 ITC ruling on Kazakh imports could influence the outcome of the reviews, particularly for Uzbekistan.
In the early 1990s, the EU had a policy that allowed EU utility users to adhere to reasonable quantity limits in acquiring FSU uranium, and encouraged market-related prices. In 1993, reasonable limits were taken to be 20% of gross requirements. During the following four years the Euratom Supply Agency (ESA), “continued to apply a flexible and pragmatic supply policy, which aims, in general, at ensuring security of supply for EU users through diversification of sources and the avoidance of over-dependence on any single one”. This policy statement is missing from the ESA’s 1998 Annual Report, possibly because FSU imports by end-users averaged approximately 35% in the 1993-1998 period and were 43% in 1996. In short, the ESA seems to be relaxing its import constraint policy.