Is uranium supply adequacy being taken for granted?

Although the natural uranium market continues to be characterised by relatively flat demand and perceptions of supply adequacy, there are signs that the market could begin to tighten by about the middle of the decade. Nonetheless, the continuing soft market has led a number of primary producers to scale back their plans to expand existing supply facilities and, in some cases, to defer development of new capacity. This is partially due to the fact that inventories in the form of excess weapons material currently represent substantial sources of uranium supply, and will continue to do so throughout the decade, though their rate of entry into the market is regulated. However, US government inventories are either already committed or restricted from being sold until the end of the decade. The inventories held by electricity generators are being drawn down and those held by fuel suppliers are being committed.

The number of purchasers on the consuming side of the market is rapidly shrinking in the USA as a result of mergers and alliances, though the buying power of the remaining purchasers is increasing. On the supply side, consolidation in recent years has resulted in uranium supply being increasingly concentrated among a small number of large suppliers – something that has always been the case in the conversion and enrichment markets.

While trade regulations in the USA continue to prohibit the import of uranium from Russia, constraints on uranium imports from Uzbekistan and Kazakhstan have been removed. Though overall supply may be sufficient to meet demand, there is likely to be some upward pressure on market prices in the foreseeable future as commercial inventories diminish and new mine production is required.

THE MARKET

With the continuing rise in nuclear plant capacity factors to record levels, 90% in the USA, and more than half of the US reactor fleet having already opted to undergo power up-rating, nuclear power forward operating costs are currently at an all-time low and could continue to be reduced. Nuclear power costs are being further enhanced by the life extension of US nuclear plant operating licenses by an additional 20 years – 44 of the 103 US nuclear plant fleet are either already in or about to enter the licence extension process. Today, the generating cost of nuclear power is only two-thirds that of its fossil fuel rival, natural gas. Furthermore, in the USA, natural gas has been hit by rising prices at the well-head as well as by delivery problems and new generator manufacturing is back-logged several years. Electricity supply shortages in the USA this year have resulted in nuclear power being seen in an improved light by the media and the public. The high operating level of the nation’s nuclear fleet has already resulted in increases in uranium demand over that forecast several years ago.

In spite of the increasingly optimistic outlook, the mid-case scenario for world uranium demand is forecastto remain relatively flat during most of the next 20 years at about 160 million lb U3O8 per year. This level is adjusted for assumed plutonium and uranium recycle in some western European countries and Japan. While world demand in this decade is forecast to be relatively flat, a 10% cumulative decline in US requirements is currently projected during the 2011-2020 decade. A 23% increase in east Asian cumulative requirements is projected during the same corresponding periods. Western European and CIS cumulative requirements are projected to decline by about 15% and 18%, respectively, in the 2011-2020 decade.

In May 2001, the Nuclear Energy Institute (NEI) released its Vision 2020, that forecast a possible 50% increase in US installed nuclear power generating capacity to 150GWe by 2020. Vision 2020 also envisions a 10% improvement in the present fleet of plants, that if accomplished, would result in a total US installed capacity of 160GWe by 2020. This indicates that there is a potential for annual uranium demand to rise to about 250 million lb by 2020. However, at about the same time that NEI’s very optimistic forecast was announced, ERI projected a less optimistic forecast that envisioned a possible US high growth case increase of only 20%. ERI projected that world uranium demand by 2020 could range between 103 and 219 million lbs U3O8.

The Ux non-CIS origin spot market price of uranium, which was $8.75 per lb U3O8 in December 1998 and which is currently $8.90, was at an interim high of $10.85 in March 1999 and down again to a low of $7.10 for three months last winter. However, since there are few mines that could continue to produce uranium at these low prices, the corresponding base prices in long-term contracts can be expected to be generally at or above $10 per lb.

Transactions in the spot market in 2000 totaled about 15 million lb, with about 3 million lb being of CIS origin. Approximately 60% of the volume transacted was in the form of uranium concentrates, almost one-third as UF6 and only about one-fifth as enriched uranium product (EUP). The fact that one quarter of the transactions involved discretionary purchases last year suggests that buyers recognised that some market upturn lay ahead. Volume during the first half of 2001 is running slightly below last year’s corresponding rate.

Long-term contract volume of about 50 million lbs in 2000 was considered to be relatively strong. There was a very significant decrease in 2000 in procurement of EUP, from about 60% in 1999 to less than 20%, probably because USEC, the 1999 major EUP supplier, had committed most of its available source of supply. It is expected that overall volume in 2001 will be about the same as in 2000.

As the electric power industry goes through restructuring there seems to be a growing trend toward off-market transactions – more than half of the 2000 transactions were off-market. Restructuring also seems to be resulting in power companies focusing on the near term with shorter lead-time and shorter contract term becoming the norm, at least in the USA. This also suggests that volume would have been much larger if the lead and term periods had not been reduced.

ALREADY-MINED URANIUM

The world uranium supply capability in the future will be obtained mine production, commercial and government uranium (and uranium equivalent) inventories, and HEU stockpiles (see table). As commercial inventories are depleted later in this decade, HEU and mine production are projected to meet approximately 15% and 71% of cumulative world requirements by the end of the decade, respectively. Relatively small miscellaneous government inventories and enrichment tails upgrading is expected to meet about 9% of cumulative requirements in the same period.

At the beginning of 2001, the US private sector held 112 million lb in inventory. Owners and operators of nuclear electricity generating plants owned almost exactly half of this inventory with US suppliers owning the other half. Most of the supplier’s inventory was held by the enrichment company, USEC. ERI estimates that other western world countries are holding commercial inventories totaling about 350 million lb, split about equally between Western Europe and other countries, with East Asian countries holding about two-thirds of the other countries’ inventories.

The US Department of Energy is currently holding an inventory of about 73 million lb. This inventory is composed of 15 million lb of equivalent uranium (U3O8e) that is contained in 33 tU of HEU that is committed to the Tennessee Valley Authority (TVA) and 58 million lb that is to be stockpiled until 2009. Though the HEU that is committed to TVA is outside ASTM fuel specifications, it has been demonstrated through a lead use assembly programme that this material can be used in TVA’s reactors. The stockpiled uranium is “frozen” under the March 1999 Commercial Marketing Agreement between the US and Russian governments and the three western nuclear fuel companies that are marketing Russian HEU-derived uranium feed. The material in the frozen stockpile is composed of 37.6 million lb of HEU feed uranium that DOE purchased from Russia in the 1995-1998 period, 5.9 million lb contained in 10 tU of US HEU held under IAEA safeguards, and 14.2 million lb of residual material that DOE has held for many years. The DOE frozen stockpile is to be counterbalanced by a 58 million lb stockpile being established in Russia. Because of the high rate of HEU uranium feed returns, this is expected to be accomplished by about the end of 2002.

It is estimated that at least 75% of the 75 million lb that was transferred to USEC at the time of its privatisation in July 1998 has been either already committed or delivered to customers. Approximately 20% of the inventory was committed prior to privatisation for delivery to utilities in the future. However, in December 2000, USEC advised the DOE that approximately 24.7 million lbs of reputed natural uranium in the form of UF6 inventory that the DOE had transferred to USEC had inflated levels of technetium that would put the material out of specification. USEC has not yet indicated what the levels of contamination are. While USEC has publicly stated that it expects the DOE to replace that material with conforming material, the DOE has been publicly silent on the issue. It is believed that the contamination occurred as a result of having used old cylinders to store “fresh” natural uranium. The old cylinders had previously been used to transport some of the over 100,000 tU of reprocessed uranium from the government’s reprocessing plant to the government’s enrichment plants in the 1950s-1970s period. There are now some concerns that there may be the potential for a 25 million lb demand “bubble” in the market by 2003 if the material cannot be easily processed to meet specifications. It is believed that the DOE cannot swap any of the contaminated uranium with uranium in the 58 million lb stockpile.

Under the 1999 Commercial Marketing Agreement between Russia and the three western companies for up to 73% of the Russian HEU feed, Russia may take the unsold feed back to Russia. Because of the soft market of the past few years and the Russian sales floor price of approximately $29 per kgU as UF6, approximately 35 million lb has already been returned to Russia. The returned uranium, which is almost twice what had originally been envisioned, is to go into the Russian 58 million lb frozen stockpile. The returned material may be used for HEU blend-stock after a tails swap out.

ERI estimates that that Russia had a 173 million lb civilian nuclear plant stockpile at the beginning of 2001, approximately half of it in the form of reprocessed uranium, that it can use to meet CIS and Eastern European nuclear fuel requirements. Approximately 26 million lb of the stockpile is HEU-derived uranium feed returned from the USA.

MINE PRODUCTION

Mines and already-mined uranium are expected to meet approximately 63% and 37%, respectively, of cumulative requirements in this decade. Five countries will provide almost 90% of Western world mine production: Canada, Australia, Namibia, Niger and Uzbekistan.

Canada is currently the world’s largest producer of uranium, 27.3 million lb U3O8 in 2000, and is expected to maintain this position through the coming decades. In Saskatchewan, two existing centres, Key Lake and Cluff Lake, came to the end of their resource life early this year. However, two new large production centres, McClean Lake and McArthur River, moved into production last year – the Key Lake mill began processing McArthur River ore in December 2000. In addition, two uranium deposits are to be developed by sometime in the middle of the decade, Cigar Lake and Midwest Lake. Approximately 57% of the currently deferred Cigar Lake project’s ore will be fed to the Rabbit Lake mill beginning about 2006. While Rabbit Lake production was suspended early in 2001, it will be restarted in the autumn of 2002 and milling of Eagle Point ore will continue through 2005. The mill will then be modified to accept 43% of the Cigar Lake project’s ore. Midwest Lake ore will be fed to McClean Lake’s Jeb mill.

Australia is the world’s second largest producer of uranium, 19.8 million lb in 2000. Last year’s high production level was provided almost equally by the country’s two large centres, Ranger and Olympic Dam. They were joined this year by the Beverly in-situ leach mine that is already operating at close to its 2.2 million lb per year design level. The Ranger and Olympic Dam centres are likely to be expanded to their licence-approved capacities of 13.2 and 17 million lb per year, respectively, by about the middle of the decade, in accord with market conditions. However, Rio Tinto, the new owners of Energy Resources of Australia’s Ranger, have put development of the large underground Jabiluka deposit on hold until the end of the decade, by which time Ranger’s current reserves and ore stockpile will have been depleted. Honeymoon, another small solution mining operation, is hoping to go into production in the near future.

In South Africa, economic difficulties and lower gold prices are expected to reduce production to relatively low levels for the foreseeable future; production in 2000 was 2.1 million lb. Poor market conditions resulted in China limiting exports and 2000 production of about 2 million lbs primarily to the needs of its own national nuclear power programme, which has been revised downward in the past few years. Production in Namibia and Niger, 7.0 and 7.5 million lb, respectively, is expected to remain relatively constant during this decade. Production in France ended this year as economic reserves are depleted. While US production in 2000 totaled about 3.9 million lb, output is expected to be halved within a few more years.

Although production in Russia, Kazakhstan, Ukraine, and Uzbekistan is expected to continue in the coming years, no significant increase in the 2000 total output of almost 17 million lb from these countries is projected. This is a result of the degradation of existing aging facilities in Russia, and the financial pressures of mining as these countries move slowly toward becoming market economies. The switch from conventional mining techniques to lower cost but rate-of-production limited in-situ leach (ISL) technology in Kazakhstan and Uzbekistan has also been a factor, and of course, limited access to some Western markets. The mine production of Russia, Kazakhstan and Uzbekistan is exported to western world consumers. In 1990-1999, the former Soviet Union (FSU) and the CIS collectively exported more than one-third of a billion lbs U3O8 to the Western world; this includes HEU-derived LEU exports to the USA since 1995.

TRADE CONSTRAINTS

In November 1991, the DOE uranium enrichment enterprise’s labor union and a group of US uranium mining companies petitioned the US Department of Commerce (DOC) to undertake an investigation of alleged dumping by the FSU. A finding in 1992 that harm was being done to the mines and the domestic enrichment enterprise resulted in import tariffs being proposed and then suspended as a result of Suspension Agreements with six of the CIS republics. Today, only Russia is currently limited in its uranium trade with US end-users, though Ukraine uranium imports are subject to US import duty unless they are substantially transformed, for example, by enrichment in Western Europe. While the Kazakhstan suspension agreement is no longer in force, US miners as well as USEC and its labour force union continue to call for trade constraints to be imposed to prevent that country from using the so-called enrichment by-pass as a means of importing uranium enriched in Western Europe.

The European Union (EU) has in the past imposed guidelines to restrict CIS imports to 25% of utility requirements. While the EU will continue to monitor CIS imports to ensure that they are not collectively too high, it is considering the relaxation of restrictions against Kazakhstan and Uzbekistan.

The next decade

The foregoing suggests that civilian commercial inventories will be drawn-down by the middle of the decade, leaving the electricity power generating industry largely reliant on supply from Russian HEU feed and expanded primary production. While Russian HEU feed may continue to be available to the western world through 2013, the quantities could diminish if Russia begins to run short of clean stockpile material and new Russian mine production is not developed in a timely fashion. There are no policies or plans to make US government HEU feed available anytime soon and there are no facilities in the USA capable of blending down HEU at a commercially necessary rate. This leaves us with the question: for how long can adequacy of uranium supply be taken for granted?
Tables

World supply and requirements balance (million lb U308e)