The critical link3 September 2003
The world natural uranium (U 3 O8) to uranium hexafluoride (UF6) conversion services market during the past five years has been characterised by 'soft' demand and adequate supply, a situation that will persist for several more years. By Julian Steyn and Thomas Meade
While conversion is one of the critical links in the nuclear fuel cycle, its importance tends to get overlooked because it only amounts to about 2% of total nuclear fuel cycle costs. However, by the middle of the decade when one of the western world's four major converters, BNFL, is scheduled to shut down its plant in the UK, the significance of conversion is likely to change as the market begins to 'harden'.
The market price changes during the past five years illustrate the market's weaknesses and strengths. The North American spot market price began a gradual decline from $5.85 per kgU as UF6 (Ux Spot Price) in May 1997 that did not end until July 2000, when it bottomed out at $2.25. The market price then received an upward impetus in February 2001 when BNFL announced that it planned to shut down its Springfields conversion plant at the end of March 2006 and that, as a consequence, it was ceasing all further marketing of conversion services. The North American spot market price doubled quickly, rising to $5.25 by September 2001 where it remained until March 2002 when it began a gradual decline to its current price level of $4.90. The European conversion services spot market price rose from $3.85 in September 2000 to $5.60 in October 2001. It has since risen gradually to its current level of $6.50.
The sustainable capacities of the existing conversion plants, when combined with the highly enriched uranium (HEU) from Russia and secondary supplies (inventories, HEU, and recycle) can be viewed as sufficient to provide equivalent conversion services supply through the middle of this decade and possibly to about 2010. However, the supply capability margin after 2005 is sufficiently thin that an interruption by any one of the producers or the sources of secondary supply could cause problems for consumers. The secondary supplies consist of the inventories of the US enricher, USEC, and Russian HEU-derived low enriched uranium (LEU), European enrichment tails upgraded in Russia, commercial inventory drawdown, and plutonium and uranium recycle in some countries. These supplies will provide the market with a substantial equivalent conversion services throughout this decade, a supply that is almost as large as the output of two major world-class conversion plants. Nevertheless, substantial capacity expansion will have to be underway by 2010 if the US-Russian HEU agreement is not to be extended beyond 2013.
Some European utilities are currently finding it more cost effective to purchase North American conversion services and pay the transatlantic shipping costs than to purchase European conversion services. However, transportation costs and shipping capacity are beginning to become serious issues. The reduction of enrichment production in the USA resulting from increased reliance on Russian HEU has impacted the international conversion services market flow, particularly for ConverDyn. If an enrichment plant is constructed in the USA later in this decade then the prospects for domestic conversion supply could brighten.
The world conversion services market annual requirements for uranium as UF6 for enriched uranium fuelled reactors is projected to gradually rise from 61,400tU in 2002 to 64,300tU in 2010, and to 65,300tU in 2015. There is also demand for services to convert U3O8 into UF4/UO3 and ultimately into UO2 to meet the requirements of natural uranium fuelled reactors in Canada, UK, South Korea, India, China, Argentina and Pakistan that do not require enriched UF6. World requirements for these conversion services are small but steady at about 3500tU per year and are generally met by domestic plants.
The annual requirements for UF6 conversion services of the USA, eastern Europe, and the Commonwealth of Independent States (CIS) are projected to remain relatively constant during this decade, while a decline of 1300tU (6.5%) is projected for western Europe. However, collective annual requirements in East Asia and other countries are projected to increase by about 3400tU (25%) during the same period. Western Europe and the USA are expected to account for the largest cumulative shares of world annual requirements through 2010, 30% and 33%, respectively. East Asia represents about 23% of world requirements, with Japan accounting for almost 60% of this sector. France represents approximately 14% of world requirements and almost half (47%) of western European requirements.
The spot market volume in 2002 was approximately the same as in the previous two years, about 5000tU as UF6, about 8% of world requirements. Two-thirds of the transactions were for UF6 and almost one-third was for conversion services, with only about 5% being for enriched uranium product (EUP). The increasing volume of HEU feed was a contributing factor to an increasing volume of UF6 and the reason for the slight price decline. Nuclear power generators accounted for two-thirds of the purchases. Trading companies accounted for about 70% of the spot sales with converters and other sellers making up the remaining 10% and 20%, respectively.
The long-term market volume in 2002 was about 19,000tU as UF6. US nuclear power generators accounted for slightly more than 40% of this volume. Non-US buyers commitments extended on average to 2008 whereas US buyers only committed for coverage to about 2006, on average. Approximately two-thirds of the US purchases were for UF6, 30% were for conversion services, and about 5% was for EUP. In the non-US sector almost 90% of the volume was for conversion services.
The long-term price indicators are currently close to the corresponding spot market price indicators. The gap between North American and European spot market prices has widened from $0.35 at the beginning of 2002 to $1.60 today, partly due to the growing imbalance in the availability of secondary supply in the two regions. Other factors in the price difference are the availability of primary supply for long-term commitments and transatlantic transportation costs. Regional supply imbalance and transportation costs are expected to be increasingly important factors during the coming years.
The world currently has five major commercial primary suppliers of conversion services for transforming uranium mine concentrates into either UF6, ceramic grade uranium dioxide (UO2), or uranium metal. Two of these suppliers are in North America, two are in western Europe, and one is in Russia. The suppliers are: BNFL, Cameco, Comurhex, ConverDyn, and Minatom. Minatom does not export conversion services as such, but has for some years been exporting EUP containing equivalent conversion services to western Europe, the USA, and East Asia. The status of the five major suppliers is as follows:
BNFL operates a 6000tU per year UF6 plant located at Springfields, near Preston in the UK. The plant is currently reported to be producing at up to 5000tU per year. On 9 February 2001, BNFL announced that it planned to stop production at Springfields after 31 March 2006. It took this decision based on the fact that fuel production for its Magnox nuclear plants is expected to end shortly after 2005, when its Magnox stations will then be approaching terminal shutdown. Operation of the Springfields plant for UF6 production alone after the Magnox fuel production ends was not considered commercially economic. Portions of the current BNFL production are believed to be stockpiled in order to meet contracted deliveries after 2006. It is understood that BNFL has entered into an agreement whereby Cameco has the right to purchase any unsold conversion production until the Springfields plant is shut down. Cameco also has the option to take over full production at the plant if operations are desired beyond 2006, but such an action seems highly speculative at this time.
Cameco operates the 18,000tU per year Blind River, Ontario, UO3 plant, the product of which is converted to UF6 at the company's Port Hope, Ontario plant which has a nameplate capacity of 12,500tU as UF6 per year. The Port Hope plant is also licensed to produce 2800tU per year as UO2 to meet the conversion requirements of natural uranium-fuelled heavy water reactors in Canada and South Korea. Cameco's 2002 UF6-plus-UO2 production at Port Hope was about 12,400tU, and UF6 production is estimated to have been about 10,300tU. Sustainable UF6 production capacity is believed to be about 10,500tU per year. Cameco is also one of the three Western companies that have supply from the March 1999 Russian HEU feed commercial marketing agreement; the other two companies are Cogema and Nukem.
Comurhex, a wholly owned subsidiary of Cogema, operates the Malvesi UF4 plant whose product is converted at the Pierrelatte UF6 plant. Production of UF6 in 2002 was estimated to have been about 11,000tU. The Malvesi plant also produces uranium metal for some customers. Although the UF6 conversion services nameplate capacity of the two-plant system is 14,000tU per year, the sustainable capacity is only about 12,000tU per year, about 85% of the nameplate capacity. While it is believed that it may be possible to increase the sustainable output level to the 14,000tU per year nameplate rating in the future, there has been little incentive to do so since Cogema began taking delivery of significant quantities of UF6 under the March 1999 Russian HEU feed commercial marketing agreement.
ConverDyn, a general partnership of affiliates of Honeywell and General Atomics, is the exclusive agent for conversion services provided by the Metropolis Works plant in Metropolis, Illinois. The plant has recently completed work to increase its nameplate capacity from 12,700 up to 14,000tU per year. Sustainable capacity is now believed to be at least 12,000tU per year. Approximately 9500tU were reported to have been produced in 2002.
Russian Ministry of Atomic Energy
Minatom is believed to have a UF6 nameplate capacity of 22,000tU at plants in three locations: Angarsk, Tomsk and Irkutsk. The physically sustainable capacity of the three-plant system may be at least as high as 17,000tU per year, while 2002 production is estimated to have been about 10,000tU. Since the Russian centrifuge enrichment capacity is reportedly used to clean up conversion plant product, Russia has not historically sold either conversion services or UF6, except as contained in EUP. Additional limits are placed by the lack of cooperation agreements allowing the shipment of uranium concentrates to Russia from many countries and the increased transportation costs if enrichment services are not also purchased. 'Clean' output in the form of EUP may be limited to approximately 10,000tU per year, approximately 30% of which is exported to the western world. Since Russian exports of conversion services are limited to the conversion content of EUP sales, they are in effect subject to the various trade restrictions on the purchase of Russian enrichment services.
Little information is available on the conversion services capabilities of China, but it is certainly capable of meeting its current internal demand for UF6 of about 1000tU in 2002, and it is projected to increase capacity to 2000tU by the end of the decade.
There are also small conversion facilities operating in countries developing their own indigenous fuel cycle capabilities, primarily UO2 conversion services for natural uranium fuelled reactors. Argentina has a 150tU per year UO2 conversion plant at Cordoba. India has a 250tU per year UO2 plant at Hyderabad. South Korea has a 200tU per year UF6 to UO2 conversion plant at Daejeon. Brazil has a 90tU per year UF6 plant at Sao Paulo and has had plans to bring a larger plant into operation in the future, though this may be optimistic. The total annual capacity of these small plants is currently about 700tU. Annual UF6 conversion capacity in Brazil and India, which is currently very small, could rise to a total of about 800tU by the end of the decade.
Supply and demand balance
The Table gives the projected world supply through 2015 of conversion services from primary production and secondary sources, and for comparison, world requirements. The secondary sources consist of plutonium and uranium recycle savings, Russian HEU feed, inventory (in all forms) drawdown, and the upgrading of European enrichment tails in Russia. The requirements do not include those of either Brazil or India, since it is assumed that these countries will meet their own demand. The data in the Table shows that the difference between annual sustainable primary production capacity and requirements is projected to rise to about 17,000tU by 2010, a difference that must be supplied from secondary sources of conversion services (recycle, HEU, inventories) and expanded primary capacity. Although a small excess is shown in 2010, 700tU, the reality is that there may be little or no excess between 2006 and 2010, because under the March 1999 HEU feed commercial marketing agreement, both Minatom and the US Department of Energy agreed to maintain 'frozen' uranium feed stockpiles for ten years. Commercial inventory is projected to dry up early in the second half of the decade. The tight market that could emerge at that time will have to be made up for by expansions at existing plants. Thus, a hardening of prices can be expected as supply comes into close balance with demand. Additionally, as the growing disconnect between conversion supply location and enrichment location necessitates increased transatlantic shipping, further increases in conversion costs to the end-user could result.
A shortfall in capacity is projected after the Russian HEU agreement ends in 2013 unless it is extended. If the commercialisation of Russian HEU is not extended beyond the current agreement, a large new conversion plant will be required in 2014. Even if the HEU agreement is extended, unless it continues at the same annual rate, a new plant will be needed by about the middle of the next decade.