Although the outlook for enrichment prices is weak-to-stable in the long term, the relatively high price of uranium, the consequences of USEC’s bankruptcy, the end of the US-Russian Megatons to Megawatts programme, GE’s laser enrichment technology licence in the USA and other factors keep the enrichment market fizzing.

By Steve Kidd

In common with used fuel reprocessing, uranium enrichment is a sensitive area of the nuclear fuel cycle owing to the obvious link to the risk of nuclear weapons proliferation. If a plant can enrich uranium to the levels required by today’s civil reactors (3- 5% U-235), it can equally be used to enrich to the higher assays required for a nuclear bomb (over 90% U-235). Much of the work (measured in SWUs) is required to enrich from U-235’s natural level (0.7%) to 5%, and going beyond that is not so difficult. Hence a huge amount of comment and discussion about enrichment in recent years has been around Iran’s nuclear programme and its alleged intention to use the facilities not just for civil purposes (as it claims) but also for a nuclear weapon. Resolving this issue has been agonizingly slow, with tough economic sanctions imposed, but some progress has been achieved. This has allowed some of the parties to feel rather more comfortable with the concept of Iran operating "civil only" plants.

The Unit by Alexey Kovynev
"Hey! Stop digging! Those eggheads have invented a way to transform U238 into U235!"

Beyond Iran, the proliferation concerns surrounding enrichment have led to attempts to dissuade any new nuclear countries from trying to establish enrichment plants, by setting up backstop arrangements through internationally-supervised fuel banks if normal commercial contracts for supply somehow fail. On the other hand, although it is frequently pointed out that commercially-available enrichment is in the hands of a limited number of companies, at least the market is competitive and international, and a prospective customer would find interest from every supplier.

Other fears about the limited number of enrichment suppliers have been amplified by the recent bankruptcy of USEC, one of the major suppliers. The background to USEC’s financial problems is the long- standing need to transition from the old gaseous diffusion enrichment technology to lasers or centrifuges. USEC inherited two huge diffusion plants from the US Department of Energy (DOE) that were originally built for military purposes. These plants used equally huge quantities of electricity, rendering them uneconomic compared to newer technologies. USEC initially put effort into laser enrichment during the 1990s with the AVLIS technology, but eventually concluded that a commercial-scale plant was not economically viable. It then reverted to centrifuge technology, which had been developed by the DOE in the 1980s, and started work on the American Centrifuge Program (ACP). This has faced a number of difficulties, particularly in attracting the necessary level of funding, and USEC eventually ran out of cash. It has closed both diffusion plants and, with the end of the Megatons to Megawatts deal that down-blended highly enriched uranium (HEU) from Russia, it now faces bankruptcy. It does have an arrangement with Tenex to market "fresh" Russian SWUs to its customers and some inventory it has accumulated in recent years, but no longer has its own plant.

The final resolution of the USEC situation remains unclear. The DOE has effectively taken on ACP itself, but mastering the technology and getting the funding to build a commercial plant will continue to prove very challenging. This is particularly so as the world enrichment market is heavily over-supplied, in common with the uranium market (see ‘The future of uranium — higher prices to come,’ April pp. 10-11). The Russians have always had surplus capacity and are finding new outlets in world markets (including through their contract with USEC). Urenco, the other expert of centrifuge plants, has been steadily increasing capacity at its three European plants and at its recently-established New Mexico facility in the US. The other main market participant, AREVA, has licensed the Urenco technology for its Eurodif plant in France, which is now successfully replacing gaseous diffusion with centrifuges.

The shutdown of reactors in Japan has not helped the supply-demand balance in the market, but it is clear that the producers have been over-optimistic about enrichment demand (in common with the uranium market) in the medium term. The mooted nuclear renaissance has clearly stalled and there are now substantial doubts about the level of future demand in US and western European markets. The commissioning of new reactors is unlikely to offset the number of closures (for economic or, in the case of Europe, sometimes political reasons) so this over-capacity could remain for some time. Rapidly rising Chinese demand for nuclear fuel could offer a possible market, but it is generally expected that the Chinese will increase their domestic enrichment capacity to meet demand. Although their intention to ensure security of supply is clear (as it is within the uranium sector, where they seek to buy equity stakes in overseas mines) their ability to achieve these ambitions may lag behind.

Yellowcake vs enrichment

It is important to remember that there is a close link between uranium and enrichment supply, as they are at least partial substitutes. In order to obtain supplies of enriched uranium, fuel buyers can alter the quantities of uranium and enrichment services required by varying the contractual tails assay (the U-235 content of the waste stream) at the enrichment plant. When uranium becomes more expensive, there is an incentive to supply less of it and use more enrichment, thus extracting more U-235 from each pound. When uranium prices were around US$10 per pound (as they were from the late 1980s until 2003) the optimum tails assay was about 0.35%, but with the substantial increase in uranium prices (even at today’s level of the low $30s per pound) the optimum is now about 0.22%. This has already caused a sizeable increase in enrichment demand relative to natural uranium. Buyers now supply a smaller amount of uranium to the enrichment plant for the same amount of enriched uranium at the required U-235 assay, but at the cost of more SWUs.

Stretching this point further, one possible outlet for today’s surplus enrichment capacity is in enriching depleted uranium (or tails). There are substantial stockpiles of tails around the world (approaching 2 million tonnes) and if the economics are right, they can be sent through the enrichment plants again to produce uranium at the 3-5% U-235 assay required for commercial reactor fuel. This is particularly attractive where the stored tails have a high assay and indeed the US DOE has some stockpiles where tails are above 0.50% U-235 (but most inventories are more likely to be in the range 0.30-0.35% U-235). But assuming there is surplus enrichment capacity (and relatively low marginal production costs), so-called "re-enrichment" can be economically feasible and can effectively add to world uranium supply. This is another challenge for the uranium miners – changing to a cheaper enrichment technology is providing them with a fiercer competitor.

Whither laser enrichment?

One wild card that remains is the possibility of commissioning a commercial-scale laser enrichment plant. The SILEX technology was developed in Australia but has now been licensed to GE in the US. GE has also won approval from the US Nuclear Regulatory Commission (NRC) to build a plant at its Wilmington, South Carolina facility (where technical development work has been taking place) but it is not yet clear whether this will go ahead.

Because of proliferation concerns, the details of the SILEX project are highly classified and the economics of the process is not publicly well known. Another option is to build a plant at the DOE’s Paducah facility, where there is a substantial stockpile of relatively high-assay tails material that could be utilised (it is believed that the SILEX technology is very efficient at separating isotopes, even when the feedstock is below the natural 0.71% U-235).

It remains to be seen if a SILEX plant will ever be built. There is not much room for additional capacity in the market at present and this may not change much in the future. These considerations have already caused AREVA to suspend its plans for a possible US plant in Idaho. One important advantage of the centrifuge technology is that it is modular, so even if demand is rapidly rising it should be possible to expand capacity at existing facilities. This obviously depends on achieving the necessary licensing and financing, but also importantly on the capacity of the factories that produce the centrifuge machines.

"HEU is likely to become an important secondary supply for Russian reactors (at home and for export) in the future."

Another point to note is that despite its unwillingness to sign up to a follow-on to the previous Megatons to Megawatts agreement, through which 500 tonnes of HEU was down-blended, Russia still undoubtedly has substantial stocks of surplus HEU. With uranium production in Russia apparently stuck at 3000 tonnes per annum (despite many plans to increase it) HEU is likely to become an important secondary supply for Russian reactors (at home and for export) in the future. Given Russia’s huge enrichment capacity, re-enriching tails material could also supply nuclear fuel. Not much is known about the assay levels of the tails material in Russia, but it is certainly possible that much of it is already at low levels (below 0.2% U-235), owing to previous feeding into enrichment plants.

"French and Russian enrichment both continue to be subject to US trade restrictions"

Another issue is the persistence of some trade restrictions in the enrichment market. Although the Russians can now contract directly with US utility buyers (in addition to supplying via USEC), supply from Russia is currently officially limited to only 20% of the US market. This level will, however, rise over time, particularly if USEC gets closer to the Russians by extending its supply contracts.
AREVA also faces a tariff restriction in the US market that has cramped its competitive position (hence its desire to have a US plant). In Europe, the Euratom Supply Agency (ESA) continues to monitor the contracts of all the EU nuclear utilities in order to prevent over-reliance on any one supplier. There is therefore effectively a cap on Russia’s share, but with fierce competition from Urenco and AREVA, it is less likely that the ESA will ever feel the need to step in and intervene.

Finally, one important issue in the US in the context of the future of USEC and the SILEX project is whether it is advisable for the country not to have a domestically-owned enrichment plant. A return to a nuclear arms race may seem unlikely, but the recent tensions over Ukraine give ammunition to those in Washington who claim that the US must retain a domestically-owned facility.

The trend in recent years has been to reduce the number of nuclear weapons through arms-limitation agreements with Russia, but some argue that this may one day be reversed. One option in that eventuality would surely be to nationalise the New Mexico plant owned by Urenco and turn it over to the military, but this is still deemed to provide the US with too little security by some lobbyists. There would therefore be some pressure for the US to establish a new enrichment facility owned either by the US government or a private US company. This could be either a SILEX or ACP plant (or conceivably some other technology if the US could license the Urenco or Russian technology). Any such plant would, however, be a politically-inspired creation and (if subsidised by the US government) arguably harmful to the interests of the commercial enrichment suppliers.

There are therefore, as always, a number of interesting things happening in the world enrichment sector. The transition to the more efficient centrifuge technology has been accomplished to the benefit of the customers (if not the uranium producers). There is no real risk of customers suddenly experiencing an acute shortage of enrichment capacity, while competitive forces should ensure that prices remain keen. Not many new nuclear countries are on the horizon and one of these (the UAE) has already signed away its right (generally accepted to exist through the Treaty on Non-Proliferation of Nuclear Weapons) to establish its own enrichment facility for civil purposes.

Steve Kidd is an independent nuclear consultant and economist with 17 years of work in senior positions at the World Nuclear Association and its predecessor organization, the Uranium Institute.