Fuel review | Conversion

Supply margins erode

6 October 2011



Long-term and spot prices for conversion services remain on a rising trend. Production interruptions highlight the risk posed by thin supply margins. By Michael Schwartz and Julian Steyn


Over the last eight years, a variety of events—including equipment malfunctions, environmental issues, labour disruptions, and a dispute with a key supplier to the conversion industry—have collectively impacted customer perceptions regarding prospects for reliable operation of production facilities for the conversion of uranium concentrate (U3O8) to uranium hexafluoride (UF6) and the critical role of conversion services in the nuclear fuel supply chain.

During this period the consensus evolved that primary conversion capacity must be expanded in order to meet the industry’s gradually expanding needs for uranium conversion services because of the potential for diminishing availability of secondary supply and thin supply margins with respect to production capacity. The plant interruptions also highlighted the logistical issues associated with transport of conversion services supply, particularly between Europe and North America.

The supply disruptions referred to above resulted in a significant increase in the conversion spot price to a high of $13 per kgU by August 2010 (based on TradeTech figures published in The Nuclear Review and Nuclear Market Review); it has since drifted down to $11.00 per kgU in May 2011, where it remains as of June 30, 2011. On the other hand, the North American long-term market price has risen from $11 per kgU in May 2010 to $15.00 in November to $16.00 by June 2011.

At the present time, it appears that the spot market price for conversion services, which accounts for about 7% of the total value of natural UF6 (with the balance of its value being attributable to the uranium concentrates), is being driven by factors associated with the market price for uranium concentrates and not by activities that are more directly related to the market for conversion services.

Requirements

World requirements under the Energy Resources International Reference Nuclear Power Growth forecast for uranium in all forms—that is, as UF6, uranium tetrafluoride (UF4) and uranium trioxide (UO3) —are projected to rise gradually from 64.5 million kgU (that is, 64,500 MTU) in 2010 to 97.3 million kgU by 2030. Reference forecast world requirements for UF6 only, which serves as feed for the uranium enrichment process to produce the enriched uranium product (EUP) used to fuel light water reactors (LWRs) at the core of most commercial nuclear power plants, are projected to rise gradually from 61.6 million kgU in 2010 to 93.5 million kgU by 2030. The 2030 requirements are about 4.5 million kgU lower than those projected by ERI in 2010 (4.6%) because of the impact of the Fukushima events of March 2011 on nuclear power growth as currently estimated.

World requirements for UF6 conversion services under the reference nuclear power growth forecast are projected to increase by about 53% between 2010 and 2030. The increases during that period in the US and Western Europe are only expected to be 2.5% and 2.8%, respectively. However, the projected requirement increases in the Commonwealth of Independent States (CIS)/Eastern Europe, East Asia and the Other region from 2010 to 2030 are expected to be 35%, 165% and 570%, respectively.

Primary supply sources

The world presently has four primary commercial suppliers of uranium conversion services: Areva in France, Cameco in Canada (with support from the UK’s Springfields plant), ConverDyn in the USA and Rosatom in Russia. (Rosatom does not generally sell conversion services alone, but has for some years been exporting enriched uranium product containing equivalent conversion services to Western Europe, the U.S., and East Asia). In addition, China National Nuclear Corporation (CNNC) is expected to play a significant role in the future.

Areva’s Malvési plant produces UF4 and uranium metal. Its Pierrelatte facility produces UF6 from the UF4 produced at Malvési and from UNH produced at the La Hague reprocessing plant. While Areva’s annual UF6 nameplate conversion capacity is 14 million kgU, it has reported producing only 12.85 million kgU in 2010. There also is a 14 million kgU per year uranium enrichment tails defluorination facility at Pierrelatte for the production of stable oxides that are suited to long-term interim storage or final disposal.

A new UF6 conversion complex at Malvési and Pierrelatte, Comhurex 2, announced in 2007, would be capable of converting 15 million kgU per year beginning in 2012, ramping up to 21 million kgU per year depending on market conditions (which ERI interprets to mean both long-term commitments and acceptable long-term market prices). Site preparation was begun in mid 2007 and construction, which began in 2009, is proceeding on schedule for a 2012 startup.

France’s large domestic requirements allow Areva to maintain a significant baseload capacity. It currently holds approximately 27% of the world market. About half of its current commitments are estimated to be in Western Europe, with 32% in the US, 14% in East Asia. Areva (and Cameco and Nukem) is marketing Russian HEU-derived UF6e under the Russian Commercial Marketing Agreement.

Cameco operates a refining facility in western Ontario, five miles west of Blind River, which produces UO3 from U3O8. The UO3 produced at Blind River is transported several hundred miles east across Ontario to Cameco’s UF6 conversion facility at Port Hope, about 60 miles east of Toronto, Ontario, and to the former British Nuclear Fuels (BNFL) conversion plant at Springfields in the UK.

On March 16, 2005, Cameco announced that it had entered into a ten-year UO3 to UF6 toll conversion agreement that has extended the life of the Westinghouse owned Springfields Fuels, Ltd. facility. Since March 2006, up to 5 million kgU as UO3 has been shipped annually to Springfields from Blind River; sustained capacity is indicated to be about 5 million kgU. While it is not known if the existing toll agreement will be extended beyond 2016, Cameco indicated a few years ago that it might be.

Cameco has submitted a license application to increase the annual production at the Blind River Refinery from its present level of 18 million kgU as UO3 up to 24 million kgU of UO3. Once the application has been approved, Cameco plans to begin construction to support the expansion. Not all of the additional UO3 will go toward production of UF6; some of it will go into the production of UO2. Cameco is the only commercial supplier of natural UO2 for the CANDU reactors operated in the Western world.

The Port Hope conversion facility includes separate operations for UF6 and UO2 production. Modifications to the location of fluorine cells that were made by Cameco during the past few years have optimized overall production efficiency in the main UF6 plant.

Cameco’s overall nameplate capacity since 2006, including the Springfields addition, has been 18.5 million kgU as UF6. The Port Hope conversion facility is licensed for 12.5 million kgU as UF6 per year, and has an annual sustained capacity of between 8 and 10 million kgU. The Canadian and UK facilities together have an annual sustained capacity of about 15.5 million kgU as UF6. In 2010, the Blind River refinery produced 12.4 million kgU of UO3. The UO2 plant is licensed for 2.8 million kgU and can produce about 2.5 million kgU per year.

Cameco’s present share of the world conversion services business is estimated to be about 27%. Approximately 39% of Cameco’s conversion business is estimated to be in the US, 32% in Europe, and 22% in East Asia.

ConverDyn is a partnership of affiliates of General Atomics and Honeywell International Inc. that was established following the permanent shutdown in November 1992 of the conversion plant in Gore, Oklahoma operated by the Sequoyah Fuels subsidiary of General Atomics. ConverDyn was formed to fulfil Sequoyah’s existing portfolio of conversion services contract commitments, administer and service then existing Allied-Signal (now Honeywell) contracts, and undertake all new contracting on behalf of Honeywell’s Metropolis, Illinois conversion plant.

In 2007, ConverDyn said that the factory’s nameplate capacity was 15 million kgU. However, in October 2010, ConverDyn stated that annual production levels ‘over the past four years’ had averaged about 10 million kgU, and that Metropolis’s annual production is presently limited to no more than 12 million kgU as a result of equipment problems in part of the plant. It is presently unknown whether Metropolis production will increase above this level in the foreseeable future. Also in late 2010, it was reported that ConverDyn notified its customers that losses of more than $100 million had been experienced over the past 10 years. As a result, it stated that it would not be offering conversion services under new contracts at a price of less than $15.00 per kgU as UF6.

Since 28 June 2010, about 230 United Steelworkers Union (USW) members have been on a company-declared work stoppage; however, the facility continues to operate. Honeywell maintains that a new collective bargaining agreement is necessary to help restore the plant to profitability and put it in a position of long-term sustainability. The union maintains that the plant is currently being operated by unskilled workers and as a result is operating inefficiently. Honeywell believes that data on safety and plant production demonstrate otherwise. Having ratified a three-year collective bargaining agreement on August 2, union employees of Honeywell's uranium conversion facility are expected to begin returning to work in late August.

ConverDyn’s present share of the world market is estimated to be about 15%; its share of the US market is estimated to be about 20%. ConverDyn also appears to have about 20% of the market in East Asia, and 10% of the market in Western Europe.

Rosatom produces UF6 at conversion plants operated by the Joint Stock Company (JSC) Angarsk Electrolysis Chemical and Combine (AECC) and the Siberian Chemical Combine (SCC) enrichment companies. These two entities receive uranium tetrafluoride UF4 feedstock from the JSC Chepetsk Mechanical Plant and concentrates from domestic and foreign uranium mining enterprises. SCC also receives uranyl nitrate from uranium metal produced by Chepetsk that is processed at JSC Novosibirsk. The Chepetsk plant converts domestic, foreign, and inventory uranium concentrates (from state reserves) into UF4 and uranium metal. SCC also converts reprocessed uranium (RepU) under contract with Areva. The AECC plans to construct refining capacity at Angarsk in order to exclude both the Chepetsk plant in Russia and the JSC Ulba Metallurgical Plant in Kazakhstan from the supply chain in order to take concentrates directly to UF6.

The military and civilian nuclear fuel cycles in Russia were highly integrated during the era of the Soviet Union. Because of this the extent of information about its facilities is somewhat uncertain. In addition, the existing conversion facilities are co-located at, and integral to, two of the Rosatom enrichment plants, according to the Moscow-based consulting company, International Business Relations Corporation (IBR). The Production Association Electrochemical Plant (ECP) has low capacity and is only used for HEU-to-LEU conversion.

While Rosatom’s installed capacity has been routinely reported to be on the order of 25 million kgU per year, current information suggests that for purposes of estimating world conversion capacity, and until Rosatom decides to make a major capital investment to upgrade and return its older equipment to operational status, a sustained capacity of 11 million kgU is a more reasonable estimate. Actual production for 2008, 2009 and 2010 is estimated to have been about 8.5 million kgU. A substantial portion of the conversion services that Rosatom delivers is comprised of the natural uranium feed equivalent from downblended HEU.

At present, it is estimated that about 50% of Rosatom’s business is within Eastern Europe and the CIS, and that the balance of its portfolio is distributed fairly uniformly in the US, Western Europe and East Asia. Its present share of the world market is estimated to be about 28%.

There is very limited information available regarding Chinese conversion capacity. According to the World Nuclear Association, a conversion plant at Lanzhou of about 1 million kgU per year capacity started operation in 1980 but may now be closed. Another conversion plant at Diwopu, Jiuquan, near Yumen in northwest Gansu province, has a capacity of about 500,000 kgU per year, though Areva quotes 2 million kgU per year for both plants in 2006. However, given China’s desire for self-sufficiency, ERI expects that it will install capacity to meet a respectable portion of its own requirements going forward.

Secondary supply sources

At present there are substantial secondary sources of UF6-equivalent (UF6e) material currently available in the world. These secondary supplies could amount to approximately 20 million kgU per year between 2011 and 2013, dip to 13 million kgU following the conclusion of the US-Russia highly enriched uranium (HEU) Agreement in 2013, and increase to about 16 million kgU by 2018, as underfeeding increases among the enrichers. However, it should be recognized that there are significant uncertainties in these forecasts, since each requires that controllers of these secondary supplies continue to take actions to make this material available to the commercial markets. In addition the impact of the Fukushima events leading to reactor shutdowns could result in market disposition of excess nuclear fuel.

Secondary sources include the natural uranium feed and conversion services equivalent of the Russian HEU; U.S. Department of Energy (DOE) HEU and natural uranium; the uranium resulting from underfeeding by the enrichers; plutonium recycle and uranium recycle; and European and Russian tails that could be upgraded in Russia using Russia’s surplus enrichment capacity. However, they do not include the strategic uranium that is being held by owners and operators of nuclear power plants and the commercial suppliers of nuclear fuel materials and services. For instance, the quantities included in this analysis do not include USEC’s working inventory.

Although some materials such as uranyl nitrate (UNH) will not need to be converted to UF6, they will displace requirements for UF6. The Russian HEU feed also includes blending of Russian HEU with reprocessed uranium (RepU) through about 2025 for use in some European nuclear power plants.

Substantial quantities of relatively high assay DOE enrichment tails in the form of UF6 could become a source of equivalent conversion services in the future, if economically worth upgrading. There are also believed to be substantial inventories of RepU at the UK and French reprocessing plants, some of which belong to customers of those plants, primarily Japanese electric utility companies. The DOE tails and the European RepU are not included in the data in the table, except for the RepU blended with the Russian HEU for several Western European customers. Also, the sale or equivalent disposition of DOE material may be limited to about 5 million pounds (2.27 million kg) U3O8e for some years to come, and accordingly, limited to about 1.9 million kgU as UF6 on an annual basis.

Market outlook

An analysis of the current and future relationship between supply and requirements in the market for conversion services has been performed consistent with the information provided above.


Figure 1
Fig. 1: Projected conversion supply versus reference and high growth requirements


As shown in Figure 1, between 2013 and 2030 there is only a very small margin of supply relative to requirements (that is, average is 3.2% of requirements) under the Reference Nuclear Power Growth Forecast, with a small deficit in several years, which could become a problem if any of the presently operating facilities was unable to operate at its presently expected conversion capacity. Under the High Nuclear Power Growth Forecast a supply deficit appears as early as 2013. In order to meet such deficits in supply, a combination of the use of lower enrichment tails assays, the drawdown of some portion of the existing strategic inventories being held by nuclear power plant operating companies, and further expansion of existing conversion facilities and construction of new conversion facilities may be necessary. Again, it should be noted that the lead time for a new plant is expected to be 3 to 5 years.

While present market prices may be adequate to support ongoing plant expansion activities for some of the primary suppliers, they are not sufficient for others. Present market prices are not thought to be adequate to support construction of new conversion plants. It is expected that facility capital costs, financing, and an adequate return on investment will eventually require long-term prices approaching $20.00 per kgU.

This article was orginally published in the September 2011 issue of Nuclear Engineering International (p28-31)


Author Info:

Michael Schwartz and Julian Steyn, Energy Resources International, Inc. (ERI), 1015 18th St NW, Suite 650, Washington, DC 20036 USA

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