The front end at the cutting edge

The World Nuclear Association (WNA, formerly the Uranium Institute) has published biannual reports on uranium supply and demand since 1975. This report, 'Supply and Demand: 2001-2020', is the tenth in the series, and provides forecasts out to 2020. It includes scenarios covering a wide range of possibilities, reflecting possible outcomes for nuclear power. Forecasts beyond 2020 are outside the scope of the report, and could require different approaches, but the key issues will have continued relevance. This report only covers the front end of the fuel cycle, and excludes consideration of the back end.

Uranium supplies will be adequate to satisfy world demand up to 2020, according to the latest report on the global nuclear fuel market from the WNA. The report says the main feature of the market during this period will be continued dependence on secondary supplies, mainly from dismantled nuclear weapons in the USA and Russia. Primary uranium production, on the other hand, will fall short of annual reactor requirements.

The WNA estimates current world-wide reserves, recoverable at a market price of less than $40 per kgU, to be nearly 1.2 million tU. At a market price of less than $80/kgU, total recoverable reserves are over 3.4 million tonnes uranium (tU), and if consumption is 60,000-80,000 tonnes a year, these are sufficient for over 40 years without the need to use secondary sources. Uranium reserves in cost categories above $80/kgU are also extensive. Since the cost of uranium on the overall economics of nuclear power is minimal, total supplies would be adequate for more than 100 years at present consumption levels, which is similar to other energy sources. However, very little exploration has been undertaken in recent years, and experience with other commodities would suggest that investment in this area would identify additional reserves. Security of supply is even greater if account is taken of "less well proven reserves", which, WNA says, it is "reasonable" to assume amount to over 10 million tU. Moreover, "virtually unlimited amounts" of uranium could be recovered (at greater cost) from sea-water.

Features of the fuel market

Although it is possible to draw comparisons with the markets for other metals and minerals, uranium has always been regarded as an unusual commodity. It has been seen as a key strategic material for military reasons and for energy independence, it has experienced a large amount of government involvement in its production, trade and use. The following factors need to be considered:

• The nuclear fuel cycle itself is complex. The intermediate stages of conversion, enrichment and fuel fabrication are services provided by specialist companies. There are important possibilities for the recycling of materials.

• By comparison with the coal, gas and oil consumed in generating electricity, the fuel component of nuclear power generation costs is relatively low. This remains true, even when conversion, enrichment and fuel fabrication costs are added to that of uranium, together with an appropriate allowance for the cost of spent fuel management and final waste disposal. Total fuel costs of nuclear generation are usually under 20% of the total generation costs, compared with up to 70% for fossil fuel plants.

• The contractual arrangements normally used in the nuclear fuel cycle are a peculiarity when compared with trading in other energy commodities. Utilities contract directly with uranium mining companies for the supply of uranium concentrates. This is then processed into a useable form by fuel cycle service providers. Secondary markets for uranium, enrichment and conversion services have developed.

• There is only a relatively loose short-term relationship between the annual consumption of nuclear fuel in reactors and the utilities' annual demand on uranium producers. Most uranium continues to be traded on the basis of multiannual contracts. The uranium spot market is driven by shorter term adjustments to utility procurements and by uranium production plans rather than by annual reactor requirements.

• There are significant political pressures to use the large quantities of surplus ex-military high enriched uranium and military plutonium in civil nuclear power plants.

The scenarios

Three scenarios were prepared, referred to as the lower, reference and upper scenarios:

• The reference scenario. This assumes that slight improvements occur in the relative economics of nuclear power generation compared with alternatives such as gas and coal; concerns about the threat of global warming continue, but moves to incorporate the exter- nal costs of fossil fuel electricity generation into relative prices fail to achieve a major shift in the mix of energy sources; that there is gradual restructuring and liberalisation of electricity sectors continues in many key countries, with state and private investment in large, long-term projects difficult to achieve; and that there will continue to be public acceptance problems for new nuclear projects.

• The upper scenario. This assumes that there will be significant improvements in the relative economics of nuclear power, due to higher market prices for fossil fuels and improvements in reactor design and operation; that policies are introduced in most developed countries to encourage energy sources with zero or low greenhouse gas emissions; that electricity market restructuring does not prevent major investment projects from going ahead; and that substantial progress is made on the public acceptance of nuclear safety, waste management and decommissioning.

• The lower scenario. This assumes that investment in new nuclear projects appear uncompetitive; that sufficient doubts are cast on the global warming theory to prevent the introduction of any substantial measures to alter the fuel mix; that electricity market restruc-turing in many key countries leaves major energy investment decisions to be taken by private investors with short-term horizons; that there are public acceptance problems for nuclear power increase, affecting both existing nuclear plants and potential new nuclear programmes; and that there are moritoria on new nuclear plant construction in some countries.

In 2000, world production increased by about 12% to 34,734tU after falling in 1998 and 1999. This is about 55% of total requirements. WNA has identified two major trends: a growing concentration of production at a few large mines in several countries (particularly Canada and Australia), and a growing concentration of mine ownership. Three possible scenarios for uranium production are examined, assuming different capacity utilisation rates. If new mines are put into operation as currently planned, all three scenarios (lower, reference and upper) show increases in world uranium production by 2005, followed by a levelling off.

Secondary supply sources accounted for approximately 45% of reactor requirements in 2000, and WNA expects them to continue to provide a considerable part of requirements up to 2020. These include natural uranium inventories, recycled fissile materials, and depleted uranium, including supplies from Russian inventories. Generally primary supplies are being squeezed by secondary supplies, says WNA's Steve Kidd, one of the authors of the report. These could continue to affect the market for 15-20 years.

Natural uranium inventories from cumulative world uranium production since 1945 are estimated at about 2 million tU. Approximately three fifths of this is from Western mines and the rest from former Soviet states, eastern Europe and China. Slightly over half of total world production has been used in civil power reactors while the rest has either gone into military programmes or remains in inventories. Military use is estimated at just over 720,000tU, and the present world inventory stands at about 140,000 tU. WNA estimates Western inventory usage in 2000 to supplement primary production and other secondary sources at around 14,000tU, or 25% of total Western consumption.

Historically, the market impact of recycled fissile materials from recycling of spent fuel has been limited to a few thousand tonnes of uranium equivalent a year. However, military material, in the form of low enriched uranium (LEU) made from blending down high-enriched uranium (HEU), is now available under the US-Russia disarmament agreements, and is expected to play an important part in the market over the coming two decades. Former military plutonium, however, will have only a limited impact. WNA has developed two scenarios (upper and lower) for the possible market impact of Russian HEU. (US military material declared excess and due to become available is more limited - the natural uranium equivalent is estimated at 1000tU a year).

As for depleted uranium, accumulated world inventories are estimated at over 1.3 billion tonnes. The economics of re-enrichment depends on the U-235 content and the cost relationship between natural uranium and enrichment. Russia has surplus enrichment capacity, and has been re-enriching depleted uranium for many years. WNA says its current capacity to supply markets is "certainly considerable". However, assuming that the material with the highest tails assay (remaining U-235) has been used first, Russia's ability to supply at high levels in the longer term may be limited.

As well as the LEU supplied to the US under the HEU deal, Russia supplies LEU under long-term enrichment contracts with various Western utilities and intermediaries. For many years, no large amount of natural uranium has been physically shipped from Russia to the West. Therefore, Russia must also be exporting most, if not all, of the uranium feed in the LEU it supplies. The uranium feed in this LEU is estimated at about 8000tU a year. Steve Kidd points out that there are considerable differences between countries within the aggregate figures. For instance, he sees reason to be optimistic about the USA where load factors are up and there have been no recent closures. And although some of the 104 reactors in the USA are scheduled to close in the coming years, there is now some prospect that new units may be built. The reference case for the UK also includes two new units, but Kidd points out that the regulatory system is a deterrent to new build because it is slow and complex. In Germany, on the other hand, the nuclear phase-out is set to go ahead in both lower and reference scenarios, with a change of policy a possibility only in the higher scenario.

Putting all the factors together, the WNA concludes that the uranium market will continue to be dominated by secondary supplies, most of which will be from stockpiles associated in one way or another with demilitarised materials in Russia and the US. "Thus, the period of primary uranium production falling substantially short of annual reactor requirements is likely to continue", says the report. "It will remain difficult for primary producers to compete with the secondary supplies, the production costs of which are largely sunk. Much consolidation has already taken place within the uranium production industry, and some new uranium projects may have difficulty in getting into production."

Nevertheless, WNA says there is clearly a need for some new primary production facilities in the near future, to compensate for the exhaustion of some existing mines. "There may also be opportunities for additional new primary production facilities, perhaps to provide supply diversification, or if the various secondary sources enter the market at the lower end of expectations."

The nuclear fuel market is likely to remain largely divided into two main parts in the period to 2020: East (the former Soviet Union and a few other countries) and West. Russia's large stockpiles mean that it is expected to remain solely an exporter of uranium, and that it will continue to be the exclusive supplier to most Russian-designed reactors.

The WNA warns that relying too heavily on supplies from a single secondary source to provide its uranium requirements could pose significant risks for the nuclear power industry, especially when the supplies concerned are not certain. "Should supplies from that source be curtailed for whatever reason, supply disruptions could develop as a consequence. Holders of commercial inventories might be reluctant to trade them in times of apparent supply shortage.

Disruption could be particularly acute if primary production had been limited for an extended period. Mines cannot be simply turned off and then back on again at short notice, and it takes many years to plan and license a new mine before it can be brought into production."
Tables

Production in tU/yr
Use of Russion HEU
Estimated world uranium production and consumption, 1945-2000
Global reactor requirements (tU)