Uranium: more production needed post 2013?

16 August 2006

There is a common misconception that uranium is rather like diamonds, gold and other precious metals, which are only found in a few locations around the world. These are often in remote areas and the mineral deposits difficult to exploit – hence, with the scarcity, prices are high. Connecting uranium with these commodities is perhaps understandable, given the attention it receives in the media, emphasising its special properties. But it’s fundamentally different, as in a geological sense it’s quite abundant, with low concentrations observable throughout the Earth’s land mass and in seawater too.

Students are surprised to be told that if they dig down underneath their lecture hall, they would likely find uranium in very low concentrations. The other important point is, of course, that, despite its abundance, it’s only commercially viable to mine uranium in a small number of locations, where grades are particularly high or there are other advantages. Hence uranium production today is now concentrated in a small number of large operations in a limited number of countries. Talk of uranium scarcity by those opposed to nuclear power is really nonsensical – it’s all around us but just needs a commercial incentive to exploit it. This has been lacking in the period when secondary supplies, from ex-military materials and inventories, have been an important part of the market but times have now changed, with prices up by a factor of four in just three years.

This is highlighted by the latest edition of the Red Book, the biennial publication on uranium resources, production and demand, produced jointly by the International Atomic Energy Agency and the OECD’s Nuclear Energy Agency. This reviews the overall world picture in each of these areas but then contains extensive country reports on all the countries that have investigated their own uranium resources. It is certainly the ‘bible’ for the industry on uranium resources and highlights that exploration has already reacted sharply to the increased prices. It is too early to expect major new discoveries but re-evaluations of deposits already well known from past exploration efforts have pushed up the low cost reserves total, (exploitable at less than $80/kgU). This now stands at 2.64 million tonnes, which at the current rate of use (about 65,000tU/year to fuel the 440 reactors around the world) would last for 40 years. This assumes all demand is met by primary production, but secondary supplies will remain an important part of the market for many years to come. Indeed, with the anticipated move back towards reprocessing used fuel and the prospect of Generation IV reactors, maybe in the late 2020s, secondary supplies may once again increase in importance. But, in any case, the low cost reserves are only the tip of a huge iceberg – the full resources which could conceivably become economic in the next 20 years are nearer 20 million tonnes, or ten times higher.

Any sensible concern about uranium’s availability to fuel current and future reactors should therefore only surround the issue of actually getting the stuff out of the ground and to the market. As discussed in the May issue (see link below, More uranium: when and from where?), the rapid price escalation has so far led to little in the way of production increases. Existing mines have been working flat out in recent years, while it simply takes time to develop the new facilities. New production may now be highly economic, but it can’t be turned on and off like a tap.

In fact, it’s important to recognise that uranium production facilities and their customers, the power reactors around the world, operate on very similar timeframes. It takes a long time to get new reactors up and running, but once they’re in operation, they should run for 40-60 years. The licence extensions received for many existing reactors illustrate this point – nuclear economics supports keeping low-cost facilities open rather than decommissioning them. Uranium production is a similarly long-term business – mine lives may often be less than 40 years, but it takes many years to get new facilities in operation. Hence there should be no mismatch between the buyers and sellers of uranium – the reactor operators should be happy to grant the mine owners the long-term contracts they require to borrow money and develop their facilities. Prices in recent years were too low to allow this to happen, but now there seems to be a return to more sensible long-term contracting. It’s possible that prices will eventually fall back, but hopefully not to levels which prevent the required new production from coming on stream.

Most projections show the world uranium market remaining tight for the next few years, until various production increases, from both existing and new mines, can reach the market. Reactors will certainly get their fuel, but the operators may have to pay much more for it than they expected a few years ago. This will have a very limited impact on the economics of nuclear reactors, but has been a blow to the professional pride of the fuel buyers. They would now no doubt concede that they were somewhat complacent and short-sighted about the market a few years ago, but the years of cheap and available supplies were so prolonged that it was perhaps understandable to believe they would last forever.

Beyond the shorter term (at least in nuclear terms), the period beyond 2013 is interesting for two reasons. Firstly, the Russians have announced that there will be no ‘HEU-II’ deal. In other words, the existing arrangement whereby downblended highly enriched uranium (HEU) from Russia reaches the world nuclear fuel market, will not be extended beyond 2013. Secondly, the upsurge in reactor orders, which is now expected in China, India and in some western countries such as the USA and UK, should begin to have a substantial impact on the nuclear fuel market by then.

Although there still should be substantial quantities of HEU surplus to weapons programmes after 2013, it now seems that this will reach the commercial market more slowly than previously expected. The Russians feel that the HEU deal was seriously disadvantageous to them in commercial terms, effectively releasing a strategic asset on the world market far too quickly and cheaply. At the time of signing, they needed hard currency, but with strong oil and gas export revenues, this is no longer the case. The impact of the current HEU deal on the uranium market is up to 9000tU/y – equivalent to one very large mine. There will therefore be a potential gap in the market created when it ends, but given that the Russians will probably carry on downblending some HEU for their own purposes after 2013, it may be somewhat less than the full annual 9000t.

Although some of the ‘uranium bulls’ trying to hype the share prices of junior uranium companies have talked up the demand side, it will take time for any rebirth of nuclear power to be reflected in new uranium demand. The earliest that new reactors could commence operation in the USA and UK is likely to be around 2015-2018. Given the lags in the fuel cycle, uranium for first cores of new reactors is needed about two years before commencing operation, so the impact may occur at just the same time as the existing HEU deal ends. Although it is possible that fuel buyers will sign contracts as soon as the reactors are ordered, especially if they feel that supplies may be tighter if they wait, the underlying market position would seem to suggest that a further sharp increase in primary uranium production will be required by about 2013.

Perhaps coincidentally, this is just when the major expansion planned for the Olympic Dam mine in South Australia may come on stream. This could represent a tripling of the output from the current 4000tU/y, so would in itself replace the supply lost by the ending of the HEU deal. Yet the picture is obviously much more complex than this. In Australia itself, the 5000tU/y Ranger mine will likely be out of reserves by then and it may not be possible to exploit the superb nearby Jabiluka deposit. Assuming that prices remain at current levels for the whole of the period from now until then, the uranium supply picture by 2013 will no doubt look very different from today. Many new producers could then be in operation while Kazakhstan has firm plans to become the world’s leading producer, overtaking Canada and Australia, as early as 2010.

We can therefore see the likely expansion of uranium production over the next 15 years as a two-stage process. The first increase, which should occur in the period 2007-2010, will largely be a correction from under-production in the late 1990s and early years of this century. Underlying demand has been rising steadily but only slowly, by about 2% per year, so it can be seen as largely a change in the composition of supply. The signal that increased production would soon be necessary was continuously delayed, as the market didn’t work as well as it really should have done. Now the incentive to produce more is clearly there, so the response will surely come. In the period after 2013, however, the production upsurge will also have a supply cause (the ending of the HEU deal) but will also occur because demand is beginning to rise more quickly: existing reactors are set to run on and there should also be an increasing number of new ones. But this is all dependent on getting those new reactor orders, and preferably soon too.

Author Info:

Steve Kidd is Head of Strategy & Research at the World Nuclear Association, where he has worked since 1995 (when it was the Uranium Institute). Any views expressed are not necessarily those of the World Nuclear Association and/or its members

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