Fuel review: enrichment

The coming oversupply

3 November 2009



Several trade issues were resolved and enrichment suppliers moved to implement technology evolution and expansion plans; market prices continued their climb. By Gene Clark and Treva Klingbiel


Enrichment requirements for the world’s growing fleet of nuclear power plants are expected to expand significantly. Current enrichment capacity on a world-wide basis is just sufficient to meet requirements, but the potential pace of enrichment capacity expansion is expected to out-strip the growth in requirements. Thus, it is not likely that all this expansion potential will come to fruition. The continuation of enrichment trade restrictions in the USA and European Union (EU) will have a major bearing on which projects go forward. Perhaps the biggest uncertainties are the status of USEC’s American Centrifuge Project (ACP) and the feasibility of GE Hitachi-Global Laser Enrichment LLC’s (GLE) laser-based SILEX process.

The SWU Market

The enrichment market is comprised of two general segments: spot and long-term. The spot market refers to the market for transactions under which all deliveries are made within a year of the transaction date, where the transaction date is the date at which the buyer and seller agree to the major commercial terms (quantity, price, delivery schedule and location).

Because of trade restrictions from 1992 to the present in the USA and EU, the spot market has been bifurcated, with one prevalent (‘restricted’) price in those buyer markets and a different (‘unrestricted’) price outside those two regions.

The second general segment is the long-term market, characterized by multi-year deliveries under the transaction, usually starting beyond the one-year time frame. Long-term base prices are the equivalent base prices in new transactions in the month indicated, for which the settled price at delivery is determined by escalating this base price by one or a combination of generic inflation indexes, like the US Implicit Price Deflator.


Fig 1: TradeTech SWU price history
Fig 1: TradeTech SWU price history

As shown in Figure 1, in recent months periods of climbing spot market prices have alternated with stalls.

The reasons for this upward price trend with several stalls are multiple, and include the following. For the long-term price, most of the transactions have been in the USA, which has restrictions on imports of enriched uranium from Russia and France due to anti-dumping concerns. Because Urenco supplies are essentially sold out, the most active supplier has been USEC, Inc., which needs higher prices to justify its ACP.

For spot prices, supply has become rather tight compared to demand and exacerbated by the movement toward lower enrichment tails assays, driven by the higher delivered uranium prices to utility companies recently. The periods of moderation in spot prices over the past year may be attributed to expectations of further spot supplies from Russia (due to the finalizing of the modification to its Suspension Agreement with the USA, thus giving Russia some near-term quota for imports) and from the US Department of Energy (DOE). However, Russia has followed a policy of sales to US utilities only under long-term contracts, and DOE has not been forthcoming with further supplies to the market.

It remains to be seen what the future will hold for market prices, but the weakening of the US dollar against the European in richer countries’ currencies over the past few months has tended to drive up those enrichers’ costs in US Dollar terms, which is the pricing basis for most new long-term enrichment contracting. The financial position of USEC (see box panel) could have a major impact on future prices, as well.


Fig 2: Current and anticipated SWU demand by country.
Source: WNA

Demand Status and Outlook

Total world requirements for enrichment services in 2008 are estimated by the World Nuclear Association to have been about 51 million SWU, distributed among countries as shown in Figure 2. The USA currently accounts for about 30% of world requirements of 51 million SWU, followed by France, Japan and Russia. But the picture might look very different in 2020.

Most of the growth in annual enrichment requirements is concentrated in Asia (China, Japan, India and South Korea), Russia and the USA. These six countries account for almost 70 percent of the projected growth in annual requirements from 2008 to 2020 for the upper, or most optimistic, scenario.


Figure 3: World primary enrichment capacity
High electricity costs can render gas diffusion enrichment processes uneconomical at peak times.

Supply Status and Outlook

The current status of the world’s enrichment production capacity is shown in Figure 3 for the major commercial suppliers. Eurodif in France and USEC in the USA currently rely on the gaseous diffusion, an older technology that requires significant amounts of electricity for production. In fact, electric power is typically 60-75 percent of the operating cost of a diffusion plant.

Because of the high cost of electricity during peak periods, gaseous diffusion plants are not typically run at full capacity for the whole year; thus, a portion of the plant’s nameplate capacity is rendered uneconomical.

Rosatom in Russia; CNNC in China; and Urenco in the United Kingdom, Germany, and the Netherlands all employ the gas centrifuge technology, the more modern technology that requires only 3-5 percent of the electricity consumption per SWU of the diffusion technology. Russia installed its first centrifuge cascades in 1962, and Urenco has been installing its own variation of the centrifuge technology since the early 1980s. The CNNC plant in China uses Russian-supplied centrifuges.

The potential outlook for primary production, shown in Figure 4, points toward a large increase in capacity. Russia’s Rosatom plans to increase capacity, between expansion at its existing four facilities and the International Uranium Enrichment Center, by almost 50 percent – up to an eventual level of about 38 million SWU per year. CNNC in China is increasing its capacity of Russian-supplied centrifuges by 50 percent.

AREVA (the majority owner and operator of the Eurodif diffusion plant) is planning an initial-capacity gas centrifuge plant, based on the Urenco technology, of 7.5 million SWU per year, with potential expansion at the same site up to 11 million SWU per year. At the appropriate stage of centrifuge startup, AREVA will phase out its gaseous diffusion plant.

USEC in the USA is planning to phase out the use of gas diffusion by building the American Centrifuge Plant, based on modified technology originally developed by the DOE.

Japan Nuclear Fuel Limited (JNFL) has constructed a centrifuge plant based on a domestic design, but is in the process of final shutdown and evaluation, as the centrifuge machines have not performed reliably. Thus, JNFL is redesigning the machines, with a target of installing about 1.5 million SWU of annual capacity for the Japanese nuclear power program’s needs.

Finally, the Global Laser Enrichment consortium is currently in the demonstration stages of its laser-based system known historically as SILEX.

The capacity of all these potential centrifuge and laser projects totals almost 90 million SWU per year, sufficient to meet the needs of WNA’s Upper Scenario for the year 2024, and well in excess of requirements before that year and for the other two scenarios. Accordingly, it is not likely that all these projects will be developed on the schedules espoused by their owners.


Fig. 4: World future enrichment capacity
Fig. 4: World future enrichment capacity

Service or product?

Trade restrictions and other government market intervention have been hallmarks of the nuclear fuel market almost since its inception. Such activities are as prevalent and pervasive as ever today. This market intervention takes two major forms: import restrictions and disposition of excess military enriched uranium stocks.

The US Supreme Court ruled unanimously on January 26, 2009, that imports of low-enriched uranium (LEU) under enrichment services (or SWU) contracts are subject to US antidumping law.

In 2001, the US Department of Commerce (DOC) determined that Eurodif of France had dumped LEU into the USA, and in 2002, the Department issued an order imposing duties on French imports to offset the dumping. In March 2005, the US Court of Appeals for the Federal Circuit ruled that LEU sold under SWU contracts constituted the sale of a service, not a product, and therefore was not covered by US antidumping laws.

Both the US government and USEC, the sole current US uranium enricher, sought reversal of the Federal Circuit decision. The Solicitor General’s appeal to the Supreme Court was supported by DOC, as well as the US Departments of Energy, State, and Defence.

The Supreme Court opinion reverses the Federal Circuit’s ruling and gives DOC the ability to enforce its dumping finding against all LEU regardless of the type of contract involved. As such, and given the Supreme Court’s status as the highest court in the USA, this issue of service vs. product seems to be now resolved, unless an aggrieved party can establish that such a finding violates some international treaty to which the USA is a party.

As part of a subsequent settlement of the dumping complaint filed by USEC against French exports to the USA, USEC announced in May 2009 that it had agreed to sell commercial SWU to EURODIF in 2009 and 2010.

In February 2008, Rosatom Director General Sergey Kiriyenko and US Department of Commerce Secretary Carlos Gutierrez signed the latest amendment to the 15-year-old agreement suspending the dumping investigation initiated by DOC in November 1991. This amendment acknowledges that after 2013 Russia will no longer have its indirect market share for LEU in the USA, because of fulfillment of the terms of the Megatons-to-Megawatts programme (discussed below) and that Russia has had no direct retail sales (other than deliveries under enrichment contracts ‘grandfathered’ under the original suspension agreement) since the dumping investigation was initiated.

In essence, the new amendment allows Russia to sell LEU (uranium and enrichment) directly to US utilities an amount equal to about 20 percent of US utility requirements starting in 2014 – a level equivalent to about half the level currently enjoyed by Russia under the Megatons-to-Megawatts program – with some very small quantities allowed in 2011-2013.

On July 21, 2009, TENEX (the Russian LEU export firm) announced it had signed its sixth long-term contract to supply LEU to a US utility – this one with Constellation Energy Nuclear Group. The contract covers a portion of Constellation’s needs over the 2015-2025 time frame. This contract follows earlier long-term contracts TENEX signed with Exelon and the Fuelco group (AmerenUE, Pacific Gas & Electric and Luminant) in May and June 2009, respectively.

Megatons-to-megawatts

This very successful program, of dismantling Russian nuclear warheads and downblending the extracted highly-enriched uranium (HEU) to make commercial nuclear fuel, currently supplies about half the US utility industry’s fuel consumption, the equivalent of 10 percent of all US electricity consumption. The program, initiated by a government-to-government agreement in 1993 and followed by several commercial agreements, is set to expire after 2013, at which time 500 tonnes of HEU will have been extracted and turned to commercial nuclear fuel.

One of the ongoing issues has been the pricing level for the SWU component (sold on a wholesale basis to USEC). In February 2009, USEC and TENEX (the Executive Agents for the US and Russian governments, respectively) signed an amendment to their commercial contract, setting up a new price mechanism to be used for SWU deliveries in 2010-2013 (last four years of the contract).

As a follow-on enticement to the Russian side of this program, the US Senate passed in late September 2008, a House measure that includes an amendment by retiring Senator Pete Domenici to create new incentives for Russia to keep blending excess military stocks of weapons-usable HEU down to civil LEU fuel after 2013. President Bush signed the bill into law on September 30, 2008.

The amendment would allow Russia an extra five percentage points of US market share for LEU under the recent Suspension Agreement amendment, provided the extra LEU is derived from dismantled Russian nuclear warheads. It remains to be seen whether the Russian side will modify its previous stance as it has stated it would not be willing to extend the downblending program.


Author Info:

Gene Clark, Chief Executive Officer, TradeTech, 1289 N. Fordham Blvd, Chapel Hill, NC 27514 USA; Treva Klingbiel, President, TradeTech, Dominion Towers, Suite 720 South, 600 Seventeenth Street, Denver, CO 80202 USA

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Supplier movements

Supplier movements
Much progress has been made during the past year on capacity expansion/replacement efforts, primarily using three different variations of centrifuge technology.
Urenco
In November 2008, Urenco’s subsidiary Louisiana Energy Services, announced plans to pursue expansion of the National Enrichment Facility (NEF) in New Mexico from its current planned size of 3 million SWU to 5.9 million SWU.
The company’s total investment in NEF will be over $3 billion, and it will be able to provide approximately 50 percent of US enrichment demand.
Although Urenco reported budgetary pressures on its NEF project, due to increases in commodity prices and scope and design changes, the project is reported by Urenco to be ready to operate by year-end 2009. The first shipment of natural uranium hexafluoride, feed for the enrichment process, was received on-site in February 2009. NEF is the first nuclear project to reach operation under the US Nuclear Regulatory Commission’s (NRC) ‘combined construction and operating license’ structure.
AREVA
AREVA Enrichment Services, a unit of France’s AREVA, applied to the NRC in December 2008 for permission to build the $2 billion Eagle Rock Enrichment Facility near Idaho Falls, Idaho.
The plant is slated for operation in 2014. AREVA’s Idaho plant will have a reported annual capacity of 3 million SWU.
The US DOE plans to issue $2 billion in loan guarantees for uranium enrichment, and both AREVA and USEC have applied for the full amount of the loan guarantees. AREVA will also receive about $400 million in tax incentives from the state of Idaho.
In April 2009, AREVA reported that it is asking US regulators for permission to increase production capacity when its Eagle Rock uranium enrichment plant begins operating. While the company’s December 2008 license application outlined capacity of 3.3 million SWU, the amended application filed with the NRC on April 23, 2009, seeks permission to build a plant capable of producing 6.6 million SWU annually.
In addition, AREVA reportedly decided to bring forward by three years a plan to build a second €3 billion enrichment facility at its Tricastin site in France. The operator, Societe d’Enrichissement du Tricastin (SET), sold a 5% stake to GDF Suez in June 2008, a 2.5% holding to Japan’s Kansai Electric Power Co. and Sojitz Corp., in March, and a 2.5% holding to Korea Hydro & Nuclear Power Co. in June 2009.
USEC
In July 2008, USEC Inc. submitted an application for a loan guarantee from DOE to fund construction of its American Centrifuge Plant in Piketon, Ohio. The application, based on an estimated project budget of $3.5 billion, includes project spending to date but does not include financing costs or financial assurance, which, if approved, would be covered under a loan guarantee to be funded through the Federal Financing Bank, which is part of the US Department of the Treasury.
The NRC issued USEC a license to build and operate the ACP in April 2007 and construction began shortly thereafter. Following commercial start-up in 2010, USEC had expected to reach 1 million SWU capacity in the first quarter of 2011 and the full 3.8 million SWU capacity at the end of 2012.
In May 2009, USEC had reported that an initial cascade of AC100 machines was expected to be operational early in the third quarter of this year at the ACP, which would be a closed-loop configuration, but would otherwise operate under commercial plant conditions.
On 28 July 2009, the DOE advised that it would not proceed with the company’s application for a loan guarantee to complete construction of the ACP. On July 29, USEC withdrew its application, announcing it would resubmit it in six months. The DOE now plans to defer review of the application for 12 to 18 months until a series of technology and financial milestones have been met.
It is not clear what steps USEC can take to restart the ACP project in which it has invested $1.5 billion without significant financial assistance from outside sources. Its cash flow for internal funding is minimal at this stage.
Global Laser Enrichment
Following a license amendment to operate a test loop and Cameco joining the project as a 24 percent partner in 2008, GLE partners GE and Hitachi submitted an environmental report that the NRC accepted for formal review. The report is one part of an application for a 40-year license to build and operate a laser-based uranium enrichment facility at the existing General Electric/Global Nuclear Fuels-America site near Wilmington, North Carolina. In June 2009, GLE announced the completion of its license application to the NRC. The NRC’s estimated 30-month application review officially began in August. In late July 2009, GLE announced the startup of a test loop to evaluate its enrichment technology for commercial feasibility analysis. It plans to build a 3.5-6 million SWU factory. Data is expected to be in by the end of 2009.



Fig 1: TradeTech SWU price history Fig 1: TradeTech SWU price history
Fig 2: Current and anticipated SWU demand by country. Fig 2: Current and anticipated SWU demand by country.
Figure 3: World primary enrichment capacity Figure 3: World primary enrichment capacity
Fig. 4: World future enrichment capacity Fig. 4: World future enrichment capacity
USEC's American Centrifuge Plant USEC's American Centrifuge Plant


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