Conversion - Optimism despite tough times8 October 2015
Uranium converters are facing a depressed market with surplus uranium and low spot prices. Times are tough for a business that has never been the most profitable part of the nuclear fuel cycle but optimism remains. By Steve Kidd
Conversion is the first step in turning mined uranium into fuel. The technology at conversion plants is relatively straightforward, as it involves only a chemical transformation of the uranium. The cost of new facilities is much lower than enrichment plants, but complex licensing procedures are a barrier to new investment.
There is an important distinction between reactors that require conversion to UF6 and those that require it to UO2.
Light water reactors comprise the majority of reactors worldwide today (approximately 90% of the total) and also nearly all of those currently under construction (for example, all but one of the 24 Chinese units). For these, natural uranium concentrate (U3O8) is first converted to uranium hexafluoride (UF6), which is the feed for the enrichment step. Enrichment requires uranium to be in a gaseous form, which can be achieved with mild heating of UF6. Russian VVERs and RBMKs, and Britain's AGR gas-cooled reactors also need conversion to UF6 prior to enrichment.
Most pressurised heavy water reactors (PHWRs), primarily of the Candu design, do not require enriched uranium and as a result, uranium concentrates are converted directly to UO2 for fuel fabrication. Countries operating Candus or other PHWRs with requirements for UO2 conversion are Argentina, Canada, China, India, Korea, Pakistan and Romania.
UF6 conversion plants act as an important buffer where uranium can be stockpiled and accounted for. Major buyers and sellers of uranium all have accounts at the major plants. Most processing contracts are set up with the buyer's delivery of U3O8 at a conversion facility and delivery taken of UF6 at an enrichment facility. The converter pays the transportation charge from its facility to the enrichment plant - mainly because it has generally been a buyers' market.
Demand for UO2 conversion can currently be met by primary production available to the market through Cameco's facilities in Canada, and domestic suppliers in Argentina, China, India, Pakistan, and Romania. The requirements of growing in PHWR capacity, primarily in India, will probably be met by expanding local domestic supply.
Existing facilities around the world should cover any other increases that may reach the international market. Meanwhile, the expected closure of six reactors at Canada's Pickering plant by the early 2020s will lead to a notable fall in worldwide demand.
In the UF6 conversion market, there has been some volatility in the quoted spot market prices over the past ten years, marked by some rapid increases and severe decreases in price.
There are usually separate market price indicators reported for the North American and European markets. The European market price typically contains a modest premium (recently $0.50/kgU) on the North American price. This can be attributed to the mismatch between conversion and enrichment capacity in the North American and European markets. There is too much conversion capacity in North America (and too little enrichment), so European converters are able to charge higher prices for delivery of UF6 to European enrichment plants, as they have lower transport costs. In an ideal world, conversion and enrichment plants would be on the same site, but history has determined that they are not.
Conversion prices experienced slow but steady decline following the Fukushima accident, bottoming out at around $7.00/kgU during the first half of 2012 - almost 50% below that before the accident in March 2011. Following the closure of Honeywell's Metropolis Works for upgrading there was a steady increase in the spot market price indicator, reaching $11.00/kgU by the end of 2012, but the price during 2013 and the first half of 2014 moved steadily downwards to around $8.00/kgU.
Quoted long-term market prices have historically been much less volatile than the spot market price and also significantly higher. The long-term price in mid-2015 stands at double the spot price and is currently quoted at around $16.00/kgU. This reflects the excess material currently available on the spot market and the need for suppliers to achieve a much higher price to ensure a reasonable financial return, when they offer buyers the long-term security of a term contract.
The conversion element accounts for only 6% of the total front-end fuel cost. At currently quoted long-term prices for uranium, conversion, enrichment and fuel fabrication, a kilogramme of enriched uranium will cost approximately $2000. It will require roughly 7.5kg of conversion to produce a typical kg of enriched uranium and at $16/kgU, this will cost $120.
World requirements for conversion to UF6 naturally follow the demand for uranium concentrate, but deleting of the reactors that use UO2. Under the reference cases of most forecasting bodies, demand is projected to increase by roughly 50% between 2015 and 2035, from 57,000tU to about 85,000tU per annum. World requirements for uranium conversion to UO2 will add another 2500-3500t. As for uranium itself, the market in North America and Europe is forecast to remain stable, with nearly all the growth in Asia, notably in China and South Korea. Requirements forecasts under higher nuclear power growth scenarios exceed 100,000t of conversion to UF6 by the early 2030s.
UF6 supply is from commercial conversion facilities and secondary supplies. Secondary supplies of UF6 are generally the UF6 equivalent of the same sources familiar to discussions of the world natural uranium market. Four primary suppliers meet the majority of global demand for UF6 conversion.
Cameco Corporation owns and operates uranium refinery and conversion facilities at Blind River and Port Hope, respectively, in Ontario, Canada. Blind River refines natural uranium concentrates (U3O8) into uranium trioxide (UO3) and was commissioned in 1983. The UO3 is shipped to Port Hope where further processing produces natural UF6. Port Hope was commissioned in 1984 and the facility has an annual capacity of 12,500tU.
From 2006-2014, Cameco also transported UO3 feed from its Blind River refinery to the Springfields conversion facility in the UK. A ten-year toll conversion agreement between Cameco and British Nuclear Fuels plc (BNFL) signed in March 2015, stipulated production of 5000tU/yr UF6 from Springfields, ending in 2016. However Cameco terminated the agreement in 2014 in the face of depressed market conditions. Springfields was previously expected to cease production in 2006 following the closure of the co-located UF4 conversion facility. The plant officially closed on 31 August 2014 and has been placed into care and maintenance.
Areva subsidiary Comurhex conducts conversion as a two-stage process at Malvési and Tricastin, France. U3O8 is converted to uranium tetrafluoride (UF4) at Malvési and then transported to Tricastin for conversion into UF6. In 2007, Areva announced the launch of the Comerhex II project to build replacements for the old (early 1960s) plants.
A plan to increase the capacity to 21,000tU, from its nominal capacity of 15,000tU per year, has been shelved due to market conditions. In early 2015, Areva recorded a €599 million ($680 million) impairment for the new plants. In the months after the Fukushima accident, Areva cut back production at Comurhex due to decreased demand from Japanese customers but it did not stop the capital outlay for Comurhex II. As a new facility, it was obviously thought that it would be able to compete.
ConverDyn was established in the USA in 1992 as a joint venture between Honeywell International and General Atomics to market UF6 conversion services to utility end users and manage related services from the Honeywell Metropolis Works Facility in Illinois. The facility maintains an annual nameplate capacity of 15,000tU, while actual production rates adjust to accommodate demand. Honeywell has invested heavily in new equipment and process upgrades to improve efficiency and reduce plant downtime, including meeting post-Fukushima seismic and natural disaster preparedness requirements from the US Nuclear Regulatory Commission.
Under the leadership of Rosatom, with marketing agency activities conducted by TENEX, TVEL operates three conversion facilities in Russia: JSC Angarsk Electrolysis and Chemical Complex in Angarsk; JSC Siberian Group of Chemical Enterprises in Seversk; and JSC Chepetsky Mechanical Plant in Glazov. These facilities can produce UF6 from UF4, which is produced at Chepetsky Mechanical Plant, as well as carry out direct conversion of U3O8. Nameplate capacity is about 25,000tU/yr, but production in recent years has been only about half of this. Rosatom supplies of all nuclear fuel cycle products and services, so most of the conversion is exported as part of bundled products. Fabricated fuel is sold by TVEL and enriched uranium product by TENEX (or in some cases, TENEX sells conversion services and supplies UF6). TVEL is now planning to close three old facilities and replace each with a new plant at the Siberian Chemical Combine, which is expected to achieve initial production by the end of 2016.
In addition to the four primary suppliers, China has facilities intended currently only to meet domestic demand. China is expected to expand its conversion capacities as domestic needs continue to grow. Current capacity is rated at about 4000tU/yr.
Secondary sources of UF6-equivalent material are available but stocks have fallen now that the deal to down-blend Russian ex-military highly enriched uranium (HEU) for Western markets has been completed.
Secondary sources include natural uranium, HEU and high assays tails from the US DOE; the uranium resulting from underfeeding by enrichers; plutonium and uranium recycling; and the upgrade of tails in Russia using its surplus enrichment capacity. These secondary supplies amount to approximately 15,000tU and are expected to remain at this level beyond 2020. There is, however, some uncertainty in the forecasts of secondary suppliers, particularly in the level of enrichment underfeeding and tails upgrading. These secondary sources do not include the strategic uranium that is being held by plants operators and the fuel cycle suppliers. Release of commercial inventories of conversion services is not generally expected, although concern remains that Japanese utilities may decide to release surplus material in the future.
Within the four major global suppliers of uranium conversion services, Areva's significant investment in Comurhex II has stood apart.
Cameco has cut production at Port Hope and terminated its toll conversion agreement with Springfields, while ConverDyn has been producing at well under nameplate capacity (analysts suspect annual production of at most 10,000tU). It is not clear how well either facility is positioned for continued decades of operation. Only TVEL comes close to approaching Areva's investment, with the decision to go ahead with a new plant.
China remains the big unknown in the conversion market (as it is in enrichment). Some analysts believe China National Nuclear Corporation (CNNC) is likely to build new conversion capacity of at least 14,000tU by the early 2020s. This may be an opportunity for another supplier to cooperate on technology transfer and plant operations. Beijing's pledge to meet its own fuel cycle requirements domestically strips away a lot of the long-term demand but there have been discussions with Areva (and no doubt also with Cameco and Rosatom).
In May 2013, there were press reports that CNNC and CGNPC were planning to build a $6 billion nuclear power industrial park that would include uranium conversion, enrichment and fuel fabrication. It would be operated by CGNPC subsidiary China Nuclear Fuel Element Company at Heshan in Guangdong, with a projected operation date of 2025 and a nameplate capacity of 14,000tU.This has been put on hold.
Supply and demand forecast
With nameplate capacity of the four major suppliers plus China at 71,500tU/yr per annum and secondary supplies at 15,000t, there is clearly abundant supply well into the future, even if Springfields remains closed. Most analysts say total supply will be able to meet forecast requirements through to the mid-2020s at least.
Some analyses show a small deficit of supply relative to world requirements arising from 2025 onwards, but this depends heavily on the level of demand and the ability of China to expand. If there are signs of a shortage, the Russians can no doubt build a larger new plant or the potential 6000tU expansion of Comurhex II could happen.
Potential additional supply
At least two other possibilities exist for production increases: continued operations at Springfields or a new conversion plant in Kazakhstan.
Springfields is operated by Westinghouse under licence and despite shutting in August 2014, it could continue to operate. Springfields is a modern plant, it has a safety case that goes out well into the future, it is seismically qualified and meets all the European legislative requirements. Westinghouse says it is continuing to pursue opportunities to restart the plant in the coming years.
Whatever the future holds for Springfields, it is almost certainly connected to Cameco. One possibility is a link with the long-mooted conversion facility in Kazakhstan. As easily the world's biggest uranium producer (23,000tU in 2014), the Kazakhs are very keen on adding value to their product. Cameco has been conducting a feasibility study with Kazakh state-owned uranium producer Kazatomprom into a new UO3 plant in Ust-Kamenogorsk, with a similar capacity to Springfields. But even if a facility is established in Kazakhstan, Springfields is no guaranteed the business of processing the UO3, which would be much easier to transport to, for example, China than the UK.
There are, however, other options on the table for Kazakhstan. Since Soviet times it has operated UO2 powder and pellet manufacturing plants and recently began leasing enrichment capacity in Russia. Various attempts over the past decade to reach an agreement with Areva and Cameco have failed to bear fruit on conversion, and the Kazakhs are now investigating cooperating with Rosatom. Kazakhstan would clearly like to have the entire fuel cycle, on the basis that it is missing out on profit and value. Given current politics, Kazakhstan seems keener to partner with Russia and uranium company Uranium One (with big interests in Kazakhstan) is now owned by Rosatom. The obvious problem is that the Russians are fully aware that by setting up conversion production in Kazakhstan, they would be creating a competitor for their own new plant.