Conversion: Is renewal on the way?7 October 2013
During the past year, the market for converting uranium ore concentrates (U3O8) to natural uranium hexafluoride (UF6) was stable relative to the uranium and enrichment markets despite some mixed signals. By Eileen Supko and Thomas Meade
The continued pressure from decreased demand as a result of the accident at the Fukushima site in Japan was counter-balanced by the extended shutdown of a primary converter's conversion capacity. Existing facilities are ageing, but several converters are moving forward with investments at both existing and new facilities, providing confidence that both current and future new demand can be met reliably.
The Honeywell International Metropolis Works uranium conversion facility in Metropolis, Illinois, which shut down production in mid-2012 to address facility upgrades required by the US Nuclear Regulatory Commission (NRC), was given permission to restart in July 2013 after extensive upgrades. Cameco Corporation was also granted regulatory approval to expand UO3 production capacity at its Blind River refinery as well as a new 10-year operating licence for the facility.
France's AREVA and Russian converter TVEL are both planning to replace existing uranium conversion capacity with new facilities. AREVA's Comurhex II project is scheduled to begin operation by 2015, while UF6 production from a new conversion centre at the Siberian Chemical Combine (SCC) is expected to start in December 2016, replacing outdated conversion facilities at three separate sites in Russia. Kazatomprom has also made progress in its quest to enter the ranks of conversion suppliers, following a 2012 agreement with Cameco, but for the near-term appears to be focused on building capacity to refine uranium.
In contrast to these positive developments for construction of new facilities, there now appears to be uncertainty in China regarding a nuclear power industrial park that was to house uranium conversion, enrichment and fuel fabrication facilities reported to be under development by China National Nuclear Corporation (CNNC) and China General Nuclear Power Corporation (CGNPC).
Over the past decade, there has been high volatility in the spot market indicators for conversion services, marked by rapid increases and severe declines in price. Separate market price indicators are reported for the North American and European markets. While the North American market is discussed in detail here, the European market price typically contains a modest premium when compared to the North American price. The price differential in the North American and European markets is attributed to the mismatch between conversion capacity and enrichment capacity in the North American and European markets. (Essentially European converters are able to charge higher prices for delivery of UF6 to European enrichment plants, which also need to utilize feed from North American converters that comes with additional transportation costs.)
The North American conversion services spot market price, based on monthly price indicators published by TradeTech LLC, experienced slow but steady decline following the Fukushima accident, bottoming out at $6.75 per kgU during the first half of 2012, down 44% from the February 2011 value. Following the announced closure of Honeywell's Metropolis Works to make upgrades, there was a steady increase in the spot market price indicator to $10.50 per kgU by October 2012, and it now stands at $9.25 per kgU (31 July 2013). While the decrease in primary production that resulted from the year-long closure of Metropolis Works helped absorb some secondary market supply, the recent restart of production there may result in some near-term degradation of market indicators.
The North American long-term market price has historically been much less volatile than the spot market price indicator and, in fact, TradeTech's term price indicator remained unchanged at $16.75 per kgU for nearly two years, before declining at $16.00 per kgU on 31 July 2013. The term price indicator's response to the primary drivers of the spot price during this time has been muted. The term price indicator rose just 8% in the six months following the Fukushima Daiichi accident and has not changed at all during the year-long shutdown of primary production at Metropolis Works. While the disconnect between the published spot and term market price indicators has decreased from 60% a year ago to 40% today, the large gap between spot and term indicators continues to persist.
It is not unreasonable to expect the price gap to close further, perhaps through rising spot prices as well as somewhat lower term prices. The lower quantities transacted on the spot market have allowed for sudden price changes historically, and this will remain the case in the future.
Natural (that is, unenriched) UF6 serves as feed material for the uranium enrichment process to produce enriched uranium product (EUP) - also referred to as low enriched uranium (LEU) - used to fuel light water reactors (LWRs) that power the majority of commercial nuclear power plants throughout the world.
World requirements under the ERI reference nuclear power growth forecast for UF6 conversion services are projected to increase by 52% between 2012 and 2035, from 57 million kgU in 2012 to 87 million kgU as UF6 by 2035. World requirements for uranium conversion in other forms, primarily for use in pressurized heavy water reactors (PHWRs), add another 2.3 to 3.6 million kgU but do not require conversion to UF6.
US annual requirements are projected to remain in a narrow range between 16 and 20 million kgU through 2035 for the reference forecast. Western European requirements, which were approximately 17 million kgU in 2012, are projected to decline by as much as 25% during the period 2031-2035. However, requirements for UF6 conversion services in the Commonwealth of Independent States and Eastern Europe, East Asia and other regions are expected to grow by 34 million kgU to 56 million kgU, or 155% between 2012 and 2035.
World requirements for UF6 conversion services under the ERI high nuclear power growth forecast climb to 126 million kgU per year by 2035 -- an increase of 120% over 2012 requirements. Under the ERI low forecast, world UF6 conversion services requirements demonstrate modest growth to 60.4 million kgU by 2020, but then decline to 53 million kgU by 2035, which is 8% below 2012 requirements.
There are four primary commercial suppliers of uranium conversion services worldwide: Converdyn (USA), Cameco (Canada, with a supporting facility in the UK), AREVA/Comurhex (France), and Rosatom/TVEL (Russia). CNNC (China) is also discussed due to the substantial role that it is expected to play in the future. Table 1, p22, gives a breakdown of each supplier's market share in 2012. The other category includes supply by small producers such as Brazil, Argentina and India, and secondary supply.
AREVA subsidiary Comurhex operates facilities at two sites that are involved in the conversion of uranium to UF6. The Comurhex Malvesi plant converts uranium into UF4 and uranium metal. The Comurhex Tricastin site in Pierrelatte, France produces UF6 from the UF4 produced at Malvesi. In addition to the production of UF6, uranyl nitrate (UNH) produced at the La Hague reprocessing plant is shipped to Tricastin's TU5 facility for chemical conversion to oxide powder. This reprocessed uranium (RepU) can be reconverted into UF6 and re-enriched into fuel. The Tricastin site also has the capability to defluorinate depleted UF6 and convert it into an oxide form for storage or further use. Comurhex uses a two-step wet conversion process (dissolution; purification; precipitation and calcining - UO3; hydrofluorination UO3-UF4; fluorination). While AREVA's annual UF6 nameplate conversion capacity is approximately 14 million kgU, it announced in 2011 that it would reduce production due to the drop in Japanese requirements. Annual production in 2012 is estimated to have been approximately 11 million kgU.
In 2007, AREVA decided to replace its existing uranium conversion capacity with new conversion facilities at Malvesi and Pierrelatte, the Comurhex II project. Construction began in 2009. AREVA reports that Comurhex I is scheduled to shut down in 2015 and Comurhex II will begin phased commissioning afterwards, with operation currently scheduled by 2015. While the current target nominal capacity of Comurhex II is 15 million kgU, the facility's capacity could be extended up to 21 million kgU per year if market conditions are favourable. Comurhex II will use the same conversion process as Comurhex I; however, AREVA has focused its research efforts on improving the performance of existing processes with an emphasis on facility reliability, cost, reduction in waste volumes, and environmental footprint.
Cameco produces both UF6 for LWRs and UO2 for CANDU reactors (PHWRs). Like AREVA, Cameco utilizes the wet solvent extraction process with some modifications that allow for recovery of hydrofluoric acid, in order to reduce the volume of residue generated in the UF6 conversion process.
Cameco operates the Blind River uranium refining facility in western Ontario, which produces UO3 from U3O8. In February 2012, the Canadian Nuclear Safety Commission granted a 10-year operating licence for the Blind River refinery and approved expansion of production capacity from 18 million kgU as UO3 to 24 million kgU. Equipment upgrades are under way to increase production capacity to the new licensed limit. The UO3 produced at Blind River is transported across Ontario to Cameco's conversion facility at Port Hope, Ontario, which is located 100 km east of Toronto.
Port Hope has a licensed capacity of 12.5 million kgU as UF6 per year and 2.8 million kgU as UO2 per year. UO3 is also transported to the 6 million kgU Springfields Fuels Ltd. (SFL) facility in the UK. Cameco has a toll conversion (UO3 to UF6) agreement with SFL, under which it ships approximately 5 million kgU as UO3 per year to SFL for production of UF6. Based on the current market for UF6 conversion, Cameco has stated that it does not anticipate an extension of the SFL toll conversion contract beyond 2016.
Another recent development is an October 2012 memorandum of agreement (MOA) that was signed between Cameco and Kazatomprom. As part of the MOA, Cameco has agreed to participate in the construction and operation of a uranium refinery in Kazakhstan with capacity to produce 6 million kgU as UO3 annually, with joint ownership between Cameco and Kazatomprom. Construction is expected to begin by 2018.
The MOA also provides Kazatomprom with alternatives associated with production of UF6, including a five-year option to licence Cameco's uranium conversion technology for construction of a UF6 conversion facility in Kazakhstan. Another alternative provided in the MOA is a provision in which Cameco would agree to negotiate with Kazatomprom for a conversion services agreement of up to 4 million kgU annually; and/or provide Kazatomprom with an opportunity to acquire a one-third interest in Cameco's Canadian conversion facility for a three-year period. No firm dates are associated with the UF6 production alternatives provided in the MOA. Feasibility studies must first be completed, and Cameco must receive government approvals associated with the potential transfer of Cameco's technology.
ConverDyn, established by affiliates of General Atomics and Honeywell in 1992, is responsible for all marketing and contracting on behalf of Honeywell's Metropolis conversion plant. While the Metropolis facility has a nameplate capacity of 15 million kgU as UF6, it has not operated consistently at that production level. Unlike the Comurhex and Cameco conversion facilities that use a wet solvent extraction process for UF6 production, Metropolis uses a dry fluoride volatility conversion process. The process steps are preparation, reduction, hydrofluorination, fluorination and distillation. Annual production levels have averaged less than 10 million kgU recently, and at times significantly lower due to plant shutdowns.
Over the past decade, the Metropolis Works facility has experienced labour problems as well as licensing issues with the NRC. In May 2012, after discovering damage to certain equipment in the Metropolis facility, Honeywell temporarily suspended production and laid off workers at the site. At the time, Metropolis was about to enter an annual maintenance outage. Honeywell was poised to restart the facility in mid-2012 after the outage, following a thorough inspection and investigation into the cause of the damage, but was unable to do so as a result of an inspection by the NRC. In July 2012, Honeywell announced that it was evaluating a series of upgrades to the Metropolis Works facility as a result of an NRC inspection that focused on preparedness for extreme natural disasters such as significant seismic events and tornados. NRC defined the scope of the upgrades in a Confirmatory Order to Honeywell in October 2012. In May 2013, Honeywell submitted a notice to NRC indicating its intent to resume operations at the Metropolis Works facility, and received NRC authorization to begin production of UF6 in July 2013. According to a recent Honeywell factsheet, the company has spent nearly $150 million since 2006 on capital investments at Metropolis Works, including the recent upgrades. Annual production from the facility is expected to return to the 12 million kgU range once the plant is back to full production levels. However, Honeywell has not announced its expected production levels in the near term. Converdyn continued to deliver UF6 to its customers from inventories in 2012 and 2013 and reportedly deferred deliveries to some customers until production could be restarted.
Rosatom subsidiary Joint Stock Company TVEL is currently responsible for production of UF4 and UF6 at three facilities. UF6 production occurs at facilities operated by the Joint Stock Company (JSC) Angarsk Electrolysis Chemical and Combine (AECC), the Siberian Chemical Combine (SCC); and JSC Chepetsk Mechanical Plant (CMP) produces UF4. AECC and SCC receive UF4 feedstock from the CMP. TVEL receives uranium concentrates from ARMZ Holding and foreign mining enterprises for conversion to UF6. While nameplate production capacity of the three facilities is 25 million kgU per year, according to TVEL officials, the current capacities of the three facilities are approximately 10 to 12 million kgU per year. Actual production over the past several years is estimated to have been about 9 million kgU. A substantial portion of the 'conversion services' delivered in the past has been comprised of the natural uranium feed equivalent from downblended HEU.
TVEL is in the process of modernizing its conversion production capability. Rosatom plans to invest approximately 12 billion rubles ($400 million) for construction of a conversion production centre at SCC. The planned investment has increased by 60% over initially-announced estimates. Public hearings were held in May 2013 and the development of design documentation is in process. The new facility is expected to improve the long-term competitiveness of the conversion component of nuclear fuel, reduce production costs, and reduce waste. All uranium conversion activities will be undertaken at the new centre and TVEL plans to decommission the conversion facilities at AECC and CMP in the future. The production of UF6 is expected to begin in December 2016. According to recent reports, the first stage of the facility will have an annual capacity of 12 million kgU per year, with the possibility of expansion up to 20 million kgU per year. The facility will utilize a new dry technology.
Rosatom does not generally sell conversion services alone, but has for some years been exporting EUP containing equivalent conversion services to Western Europe, the US, and East Asia.
China National Nuclear Corporation oversees all aspects of the Chinese government's military and civilian nuclear programmes. Its conversion plant at the Lanzhou Nuclear Fuel Complex has an annual capacity of 3 million kgU as UF6. CNNC conversion capacity is dedicated to meeting domestic requirements, which already exceed current indigenous conversion capacity. CNNC is expected to start expanding its domestic conversion capacity around the year 2015, when its domestic requirements are set to increase rapidly. CNNC annual conversion capacity is projected to reach nearly 8 million kgU by 2020 and 24 million kgU by 2035.
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 facilities. The industrial park would be operated by CGNPC subsidiary China Nuclear Fuel Element Company at Heshan in Guangdong province, with a projected operation date of 2025 and a nameplate capacity of 14,000 MTU. However, according to recent reports, local officials in Guangdong province have stated that they will not seek approval of the industrial park after protests by local citizens during a public comment period associated with siting the planned facilities. However, there have not been any official statements issued by either CNNC or CGNPC regarding the status of the project. Despite the recent uncertainty over location, there is little doubt that new conversion capacity will be constructed in China in order to meet the growing demand for conversion services in the country.
Secondary sources of supply
Substantial secondary sources of UF6-equivalent material are currently available in the world. Secondary sources include the natural uranium feed and conversion services equivalent of the Russian HEU; US Department of Energy (DOE) natural uranium, HEU and high assays tails; the uranium resulting from underfeeding by the enrichers; plutonium recycle and uranium recycle; and upgrade of tails in Russia using its surplus enrichment capacity. These secondary supplies amounted to approximately 23 million kgU per year during 2012, and are expected to remain at this level in 2013. Following the conclusion of the US-Russia HEU Agreement in 2013, these supplies are expected to fall to an average of 15 million kgU per year during the period 2014 through 2022; and then further decrease to an average of 10.5 million kgU per year through 2035. The future contribution from secondary supplies is seen to be equivalent to that of a single, major conversion facility. However, it should be recognized that there is significant 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 owners and operators of nuclear power plants and the commercial suppliers of nuclear fuel materials and services. Release of commercial inventories of conversion services is not expected, although concern remains that Japanese utilities may decide to release material in the future.
Supply arising from tails via underfeeding at both Western and Russian enrichment plants, as well as upgrading of Russian stockpiles of tails, comprises a significant portion of conversion secondary supply after 2013 (see Figure 1). Additional quantities of relatively high-assay DOE enrichment tails in the form of UF6 could become a source of equivalent conversion services in the longer term. Quantities and timing are subject to economic and policy considerations, but equivalent conversion services arising from the re-enrichment of DOE tails material is included in the DOE secondary supply shown in Figure 1. DOE's recent request for offers covering high-assay tails provides further insight into its schedule for released of DUF6 into the commercial market in 2019 and beyond, and is consistent with DOE secondary supply projections used in this article.
Primary production met approximately 67% of 2012 requirements, and secondary supply, which includes the feed component of Russian HEU, enrichment tails upgrading, and government stockpile draw-down was more than adequate to meet the remainder of requirements. In fact total supply, both primary and secondary, exceeded 2012 requirements by 7%. This represents a reduction in the supply-to-requirements situation compared to 2011 when primary and secondary supply exceeded requirements by 20%. The reduction in the ratio of supply to requirements is a result of lower production at the Metropolis plant due to its year-long shutdown. Primary and secondary supply is expected to exceed requirements by 14% in 2013, with the restart of production at the Metropolis plant in mid-2013. It is projected that total primary and secondary supply will be able to meet reference forecast requirements through approximately 2024. However, starting in 2025 a small deficit of supply relative to world requirements arises. The deficit averages 1.0 million kgU per year between 2025 and 2030, which is about 1% of average annual requirements during that time. The deficit grows to an average of 4.5 million kgU per year between 2031 and 2035, or about 5% of average requirements.
Figure 2 provides a graphical illustration of the relationship between projected supply and requirements through 2035 for ERI's reference nuclear power growth forecast. The world's sustainable primary production capacity is expected to rise from 38 million kgU as UF6 in 2012 to 57 million kgU in 2015, and then increase gradually to 76 million kgU by 2035. The increase in primary production capacity is largely due to the assumed increase in UF6 production by CNNC to meet a substantial portion of its internal requirements, consistent with its policy of being largely self-sufficient. As previously discussed, secondary supply, in all forms, together with recycle, is collectively expected to decline between 2014 and 2025 and then stabilize at about 50% of current levels. The requirements for UF6 conversion services are forecast to steadily increase to 87 million kgU by 2035.
Note that the supply shown in Figure 2 does not include the potential 6 million kgU expansion of AREVA's new Comurhex II plant, nor potential UF6 conversion capacity from Kazatomprom. It also does not include operation of the Springfields conversion plant past 2016. Comurhex II could be expanded when required by market conditions, which appears to occur in the 2022-2025 time period. A decision to extend operation at Springfields past 2016 appears to be more difficult, as supply looks to be adequate in the years immediately following its currently expected shut down. If requirements are higher than ERI's reference forecast, then the introduction of the new AREVA (and Kazatomprom) conversion capacity would need to be accelerated, but the market signals needed to extend Springfields operations may not arrive in time.