Goodbye gaseous diffusion9 October 2013
Despite the closure of the Paducah Gaseous Diffusion Plant this summer, the enrichment market remains over-supplied by around 12% in 2013. It is estimated that 85% of 2020 requirements are already contracted, and in the reference case scenario little in the way of additional new capacity is needed through 2025. By Thomas Meade and Eileen Supko
The enrichment services market has entered a new phase, as the transfer from gaseous diffusion to centrifuge enrichment technology is now complete with the June 2013 shut down of the Paducah GDP (PGDP). Rosatom and Urenco have cemented their market positions as the two dominant suppliers, while USEC's standing is now greatly reduced from its former market-leading days. The industry is well-equipped to add new centrifuge capacity when needed, but must first wait out the current market doldrums. With the exception of China, the prospects for new greenfield projects appear poor, as market growth is likely to be handled by expansion of existing plants. Market prices have declined steadily over the past two years and reflect limited near-term demand, highly-committed end users and excess primary supply.
Nuclear power plant requirements for enrichment services increased 7% to 41.8 million separative work units (SWU) in 2012, but remained depressed due to the prolonged outages at Japanese nuclear power plants. Requirements are expected to rebound to a pre-Fukushima level of 49 million SWU in 2015 and to continue to climb to 59 million SWU in 2020 and to 76 million SWU in 2035. The average annual growth rate is 2.6% per year. Led by China, growth is strong in East Asia, but also takes place in the 'Other' region ((led by India, Saudi Arabia and the UAE), the Commonwealth of Independent States (CIS)/Eastern Europe, and the United States (where requirements are expected to grow from 14.5 million SWU in 2012 to an average of 15.1 million SWU between 2031 and 2035).
World requirements under the ERI high nuclear power growth forecast climb to 80 million SWU per year in 2025 and to 106 million SWU by 2035. The overall average growth rate is 4.1% per year. Under the ERI low forecast, world enrichment services requirements are projected to demonstrate slight growth to 2020, but then level off at 50 million SWU per year through 2030. A decline then takes place and low requirements drop to 46 million SWU by 2035. Figure 1 presents ERI's low, reference and high forecasts of reactor enrichment requirements.
Base enrichment services supply is provided by active primary suppliers such as AREVA, Rosatom, Urenco and USEC Inc, as well as regional suppliers including China Nuclear Energy Industry Corporation (CNEIC), Japan Nuclear Fuel Limited (JNFL) and others. It also includes some secondary sources of supply, mainly US and Russian supplies of high-enriched uranium (HEU).
AREVA is presently building a new enrichment plant near Pierrelatte, France that utilizes Enrichment Technology Company (ETC) centrifuge technology. The new plant, Georges Besse II (GB II), became operational in 2011, reached 2.8 million SWU in 2012, and is continuing to ramp up to its nameplate capacity of 7.5 million SWU per year by 2016. The Georges Besse I (GB I) GDP was shut down permanently on 7 June 2012. Only one million SWU were produced in 2012.
Urenco Europe refers to capability from machines that are presently in operation or expected to be installed at Urenco's three European enrichment plants, which are located in Gronau (Germany), Almelo, (Netherlands) and Capenhurst (United Kingdom). These plants had a combined annual production capability of 14.7 million SWU at the end of 2012. No further expansion is planned at present.
The Urenco USA enrichment facility in Lea County, New Mexico is owned and operated by Urenco and began operating in 2010. At the end of 2012, it had an annual enrichment capacity of 2.2 million SWU. Urenco continues to add enrichment cascades, and Urenco's board approved expansion of the facility to 5.7 million SWU in December 2012. While Urenco originally planned to complete the expansion by 2016, installation of the last one million SWU will now take place between 2016 and 2022, in recognition of market realities. Urenco has also submitted a request to the NRC to increase the facility's licensed annual capacity to 10.0 million SWU, but this will be based on market need, which may not materialize for ten years or more.
USEC enrichment capability came from the PGDP located in Paducah, Kentucky. Unable to extend arrangements to enrich US Department of Energy high-assay tails, PGDP commenced shut-down activities at the end of May 2013. LEU previously created from DOE tails in 2012 and 2013 will be held by Energy Northwest (ENW) and the Tennessee Valley Authority (TVA) for use between 2015 and 2021. Figure 2 shows this supply in the years the stockpiled LEU is actually used and not in mid-2012 to mid-2013.
The Rosatom uranium enrichment plant production capability refers to the production at four centrifuge plants in Russia: the Ural Electrochemical Integrated Plant, the Production Association Electrochemical Plant, the Angarsk Electrolysis Chemical Complex and the Siberian Group of Chemical Enterprises. Production during 2012 is estimated to have been 26 million SWU. Rosatom production is reduced approximately 7% from nameplate capacity due to the low operating tails assay employed (0.13 weight percent, or w/o, U-235 is assumed). Rosatom's utilization of its substantial enrichment capacity and how it interacts in the world market is much more complex than is the case for any of the other enrichers. For 2012, approximately 5.5 million SWU were devoted to CIS and Eastern European requirements, which are referred to as Rosatom Internal. Direct and indirect sales to Western customers were also about 5.5 million SWU during 2012 and are referred to as Rosatom Export. Rosatom exports are expected to increase substantially in 2014 -- particularly in the US -- and to grow thereafter. In addition to direct sales to utility customers, Rosatom exports include wholesale arrangements with other suppliers. Since Russian enrichment capacity is constrained due to US and European trade policies, a substantial amount will be used to underfeed in meeting its commercial enrichment contracts and to re-enrich depleted uranium tails. Rosatom is assumed to maintain market shares of approximately 100% and 25%-30% for internal and export markets, respectively. As older centrifuges reach their design lifetimes, Rosatom is replacing them with newer designs that have higher outputs; effective capacity is expected to increase to 32.3 million SWU by 2025 as a result.
The supply of Russian HEU-derived LEU declines slightly to 5.3 million SWU in 2013 as the term of the US-Russian agreement for 500 Mt HEU concludes. An additional small quantity of SWU is derived from Russian HEU directly blended with European RepU. The programme has gradually expanded and now provides an estimated 0.6 million SWU per year, but will decline in the future, as supplies of the non-weapons-grade HEU are limited.
At present, US HEU includes material that is being used by TVA in the so-called BLEU programme that began in 2005 as well as LEU derived from other HEU downblending operations, a portion of which is used to compensate the blending contractors. The contribution to supply is expected to gradually decline from 1.0 million SWU in 2012 to 0.2 million SWU per year in 2020 and beyond.
China is now thought to have 2.5 million SWU of annual centrifuge enrichment capability. The majority of this capability is used internally, although China exports modest amounts to the US and Europe. The current Chinese enrichment capability primarily uses centrifuges that are imported from Russia (1.5 million SWU). A plant using Chinese centrifuge technology started pilot operations in 2010, and is believed to have a capacity of 1 million SWU as of the end of 2012, although there is uncertainty regarding its exact capacity. Total Chinese centrifuge enrichment capacity is expected to expand to 8 million SWU by 2020 and 16 million SWU by 2030, as China ensures its ability to fill its own requirements with domestic supply. New conversion, enrichment and fabrication plants were planned at the Heshan Nuclear Power Industry Park in Guangdong province, but recent local protests may force the use of a different site. China is expected to use its own centrifuge technology for the expansion, although additional use of Russian centrifuge technology remains a possible backup. Details remain closely held by the Chinese government.
Other capability is primarily in Japan, where JNFL put into operation the first 'half' cascade of a next-generation centrifuge in 2012. JNFL capacity is scheduled to slowly rise to 1.5 million SWU just after 2020. Brazil has started operation of a small uranium enrichment facility at Resende, with a capacity of about 40,000 SWU at the end of 2012. Resende is scheduled to ramp up capacity to 125,000-200,000 SWU by 2016, and its product will be devoted to internal requirements. Despite international efforts to the contrary, Iran continues to install centrifuges and could have 0.1 million SWU of capacity in operation.
Recycle materials contributed about 1.2 million SWU equivalent to supply in 2012 and are expected to supply the equivalent
of 2 million SWU by 2020 and later.
In addition to the government HEU inventories described above, some supply will also come from commercial inventories. Producer inventory is mainly from preproduction at the GDPs prior to their shutdown and is expected to be drawn down at an average 1.7 million SWU per year through 2015. Some utility inventory may also be used in the near term, although Japanese utilities have not released enrichment inventories thus far. No long-term contribution to world supply is expected from LEU inventories, however.
The supply of enrichment services is greater than requirements at present. For 2013, the average annual economically-competitive and physically-usable production capacity that is not constrained by international trade agreements, together with the equivalent enrichment services that are derived from Russian HEU and other sources, is 47 million SWU. However, this is 5 million SWU (12%) more than nuclear power plant operating requirements of 42 million SWU. This level of supply excess is higher than the 9% supply excess of 2011 and 2012 and well above the average of 5% of requirements observed between 2006 and 2010. The 2013 supply excess would be even larger if the PGDP and GB I plants had not ceased operations. In addition, the PGDP was devoted to re-enriching DOE tails and building inventory for TVA and ENW during its last year.
As shown in Figure 2, under ERI's reference requirements scenario little in the way of additional new capacity beyond the base supply appears to be required through 2025. Much of the increase in base supply shown in the figure comes from China, where it is assumed capacity will increase to match internal requirements. Supply remains well in excess of requirements over the next two years, with excess supply averaging 5 million SWU, equivalent to 12% of reactor requirements. During the period 2015 through 2025, base supply is well-matched to the reference nuclear power growth forecast, with an average of just under 1 million SWU per year (<2%) of supply excess. During the subsequent decade, supply is an average of 1.5 million SWU per year (2%) short of meeting world average annual requirements, indicating the need for just a small amount of additional new capacity beyond the base supply.
It is important to note that the supply shown in Figure 2 assumes that underfeeding will take place at western enrichment plants. Urenco stated in June 2013 that 10%-15% of its production capacity is currently switched to feed production by refeeding high-assay tails. The base supply shown in Figure 2 would be 2-2.5 million SWU per year greater in the long term without the assumed underfeeding.
The reduced prospects for additional new enrichment capacity beyond the ongoing expansions at the Urenco USA and AREVA GB-II plants led to centrifuge manufacturer Enrichment Technology Company's (ETC) announcement that it is preparing to downsize as orders decline dramatically after 2015. Co-owner Urenco states that ETC machine manufacture can be ramped up again when appropriate.
Proposed new supply
Figure 2 demonstrates that base supply is essentially satisfactory to cover reference requirements over the long term. If requirements are higher than the reference, or if not all of the base supply materializes as expected, there are proposed sources of enrichment services that have each made a substantial financial commitment to establishing new capability to provide enrichment services on a commercial basis. Three proposed new facilities have received US NRC construction and operating licences. Additional proposed supply involves expansion of supply at existing facilities, but would require licensing approval for the increased output. Proposed supply (shown in Figure 3) totals 22 million SWU by the year 2025, but very little is likely to be developed under the reference requirements scenario. It includes the following sources:
AREVA has received a licence from the NRC to build and operate a centrifuge enrichment plant, the Eagle Rock Enrichment Facility, EREF, in Idaho, using the same technology being deployed in GB II. Initial production had originally been expected to occur in 2014 with ultimate capacity ranging between 3.3 and 6.6 million SWU based on market conditions. The start of construction is currently on hold. AREVA has suspended the project until an equity partner (or partners) is found or the Action 2016 Plan is completed. AREVA also has the potential to extend the GB II North plant in France. The extension could add 2.3 million SWU and could be implemented five years from decision date. AREVA has stated it has no plans to extend the GB II capacity at present.
Global Laser Enrichment (GLE) received a NRC construction licence for a commercial plant using laser enrichment technology in 2012 and could decide to proceed with construction of a commercial plant by the end of 2013. The earliest that it might be expected to begin operation is 2016. GLE expects that by the end of the first year of operation it would reach an enrichment capacity of one million SWU and could then increase by one million SWU per year to the planned maximum target of six million SWU around the year 2021. Based on current market conditions, GLE may continue to delay making a decision on commercial construction. GLE is also exploring the possibility of building a plant at a DOE site to process DOE tails, but this is highly speculative. A new NRC licence would be required, but tails processing could provide an alternative path for initial commercialization of a new technology in a difficult market. Others have recently expressed interest in acquiring DOE high assay tails, and in 2011 Urenco offered to enrich DOE tails at the Urenco USA plant.
Urenco has submitted a licence amendment to the NRC to increase capacity to 10 million SWU per year at the Urenco USA centrifuge enrichment plant. Licence approval is expected in 2014. Any expansion beyond the 5.7 million SWU already committed will be based on customer support and market need.
USEC plans to replace the PGDP with the new 3.8 million SWU per year American Centrifuge Plant (ACP). USEC has received a licence from the NRC to build and operate the ACP, but continues to experience delays in obtaining the financing needed to complete construction. USEC plans to submit a revised DOE loan guarantee application later in 2013, but faces significant obstacles. The company now has a negative net equity following an April 2013 write-off of $1.1 billion in past ACP investments, and must bring in new equity investors, restructure the company, and sign new contracts above current market price if it is to resume construction of the ACP.
According to monthly data published by TradeTech LLC the term market price indicator for enrichment services has declined nearly continuously over the last two years. The impact of reduced Japanese demand and resulting open supply, as well as increasing inventory availability, caused the price to steadily decline from $158 per SWU in August 2011 to $114 per SWU by 31 July 2013. The long-term price indicator has declined $26 per SWU (19%) over the last 12 months and $44 per SWU (28%) since August 2011. The 31 July 2013 spot price indicator was $110 per SWU. The spot and term market price indicators have typically been in close alignment over the past 15 years, but they started to diverge in 2010 and the spot price indicator averaged a $15 (11%) discount over the past year before narrowing in recent months. The discount has been driven by the current surplus of supplier capacity in conjunction with very low near-term demand. The amount of material purchased on the spot market over the past year was at the low end of the traditional range of 2% to 4% of world requirements.
Enrichment market activity declined considerably in 2012, making it the fourth year in a row that activity has dropped. ERI's estimate of new commitments (both term and spot) executed by end-users during 2012 was 23 million SWU, a 41% decline from 2011. Contracting in 2012 was not particularly diversified among the primary suppliers, but this is not unexpected given the low level of activity.
The four primary suppliers (AREVA, Rosatom, Urenco and USEC) account for 93% of enrichment supply in 2012. Sales by other producers (for example, CNEIC, JNFL, and DOE) fill the remaining 7% of market needs.
The supplier market shares (shown in Figure 4) are given as a percentage of total deliveries by suppliers and therefore exclude recycle (MOX) and utility inventory use. Note that market shares may include purchases by customers to build inventory, intentionally or otherwise. The sales of Russian HEU-derived EUP under the US-Russian HEU Agreement, which accounted for 13% of the world market in 2012, are included in USEC's market share. USEC's market share is expected to decline drastically beyond 2013, perhaps to around 25% of the 2012 level, based on known commitments. European supplier market shares include 2% from wholesale purchases of Rosatom supply, which are then delivered to their customer base. If the HEU and supplier wholesale sales are directly attributed to Rosatom, its market share of world enrichment requirements in 2012 would be 40%.
Trade restrictions continue to influence the enrichment market, but the impact is declining. Rosatom's direct market share is growing and approximately 75% of the 2014 to 2020 US quota under the Russian Suspension Agreement has been filled. Russia will also deliver 21.5 million SWU to USEC from 2013 through 2022 under a wholesale arrangement. The US trade case brought by USEC against AREVA is in the middle of a 'sunset' review to determine if revocation of duties will lead to material injury. Russian sales to the EU-15 countries in Europe are expected to be limited to 25%-30% of requirements in the longer term, although in recent years they have been as high as 35%.
During the last year, all of the Urenco owners have indicated that they are now seriously examining the sale of some or all of their shares. The UK government is motivated by budget concerns, while the German utility owners (E.On and RWE) are looking to sell non-core nuclear businesses in response to economic difficulties following Germany's nuclear exit. The Netherlands government has seemed less motivated, but is interested as well. Each of the owners has employed financial advisors to assist in the possible sale, which will require approval of all of the owners as well as the German government. Due to the sensitive nature of the technology and existing treaties, the governments of the UK, Germany and the Netherlands will retain supervisory roles, including approval of enrichment sales to new customers. Early estimates have put the value of the company at EUR10 billion ($13 billion) or more, but the company may prove difficult to value. Potential buyers are believed to include major nuclear players such as Cameco, Mitsubishi and Toshiba, as well as private equity firms such as Carlyle, KKR, GIC (Government of Singapore Investment Corporation) and others. In July 2013 AREVA announced that while it is monitoring the planned sale of Urenco, the company would not endanger its finances to participate in a bid. Given the level of governmental involvement and high price expectations of the current owners in the current nuclear market, the sale may prove difficult.
With Urenco and Rosatom controlling a significant part of future market supply, a near-duopoly has emerged and has the potential to negatively-impact competition. China is expected to ramp up internal enrichment capacity to match requirements, but will probably remain a minor supplier outside its home market. End-users are highly committed over the next several years, so spot activity is expected to remain limited despite the low prices. The current term price indicator reflects the relative lack of contracting opportunities at present and the pressure of the even lower spot price indicator and potential buy-and-hold arbitrage. Present long-term market prices may not provide sufficient stimulus for construction of greenfield centrifuge plant capacity. When term contracting returns to more normal (that is, replacement) volumes, the term indicator should rise a bit, however the increase in contracting volume may not take place for several years.