Supply | Fuel review
Uranium: the emerging global commodity6 October 2010
In spite of the global financial crisis, a general lack of capital and widespread uncertainty, primary production of uranium is increasing. World production, which was 132 million pounds in 2009, is expected to be about 140 million pounds in 2010. A high level of global competition for long-term supply is emerging. By Julian Steyn and Thomas Meade
The dramatic changes in the global financial outlook during the past two years have underlined the uncertainties confronting the nuclear industry, and in particular the uranium market. Finding capital now to go forward with either uranium mine development or nuclear power plant construction has become more difficult than in the past. In the United States, the secretary of energy is authorized to make loan guarantees to qualified projects. While there are prospects for nuclear power plant loan guarantees of up to $54 billion, only $8 billion has so far been granted. In addition, the financial market cooling since mid-2007 has caused some new uranium projects around the world to slow, others to be re-assessed, and some to be put on hold. There are even projects which received positive go-aheads a year or two ago that are now being slowed down.
The spot market price of uranium as reported by TradeTech spiked at $135 per pound U3O8 in June 2007 and fell back to the $40s in 2009, and was reported to be $45.25 at the end of July 2010. The high prices of a few years ago led utilities to build up inventories and resulted in the price being cooled in the past two years. At the same time, the long-term price, which peaked in 2007, at $95, has since declined to approximately $60. The TradeTech mid-term market price is currently at $50.
The long-term contract commitments entered into during 2005-2007 amounted to approximately 750 million pounds (340 million tonnes). While the long-term volumes committed since then have been generally less, they still total about 250 million pounds. Operators of nuclear power plants, particularly in China, have continued to lock in supply well in advance of physical need.
Just as the nuclear power renaissance around the world and the associated increase in uranium requirements forecasts were factors contributing to the high prices of several years ago, so too does the outlook for increases in production in the coming years help moderate prices since last summer. Utilities are feeling comforted by the increasingly positive supply outlook, which will remain so as long as inventories can be maintained and supply expansion continues. There are indications that supply will be adequate throughout most of this decade, though production costs are likely to rise. The increasing output of Kazakhstan, already number one producer in the world, has contributed significantly to the expansion.
Kazakhstan only ranked sixth in the world as a producer in 2001 with an output of 5.3 million pounds. Eight years later, it produced approximately 37 million pounds, more than any other country in the world. The ongoing and planned development of in-situ leach (ISL) mines is projected to increase Kazakhstan’s production to more than 60 million pounds by 2015. While the Kazakh expansion has occurred in parallel with the market price rise, it has not been driven by it, since the costs of production are relatively low in that country. (However, costs are expected to increase in the coming years as higher-cost deposits are developed and infrastructure and supporting costs increase).
Australia’s production level is expected to more than double by the end of the decade if the output of the large Olympic Dam project is approximately quadrupled over its current level, as was planned prior to the global recession. However, the expansion project could be slowed or halted because of the high multibillion-dollar capital investment required, and the regulatory stumbling blocks that are still being raised by Australian anti-nuclear groups.
The world long-term requirements outlook for uranium has increased in recent years as a result of the large nuclear programmes announced in China and India. Chinese domestic uranium production activities have not been generally successful, and as a result, that country has been busy negotiating long-term supply from other countries. It has been reported that China will import approximately 60 million pounds of uranium from Kazakhstan through 2012. It has recently negotiated long term supply arrangements in Canada. However, there are concerns as to whether China can sustain its current industrial growth into the long term.
While India’s industrial growth has also been expanding, its rate has not been as great as China’s. Like China, India too has been busy setting up uranium supply deals with Kazakhstan and other countries. However, it has been handicapped by nuclear non-proliferation concerns in some supplier countries such as Australia. At home, Indian uranium production expansion has been hindered by environmental concerns at the community level. Development of nuclear power projects involving vendors from other countries has confronted nuclear liability issues at the national legislative level.
Like China and India, Russia has also not yet been successful in developing substantial domestic uranium production centres and has therefore concluded that it must limit exporting uranium beyond the amount included in existing agreements such as the US-Russia highly enriched uranium (HEU) Agreement of 1993 and nuclear power plant export sales. Russia is bolstering its supply capability through investment in foreign uranium resources. Japan has also been negotiating long-term supply arrangements.
Thus, it is becoming clear that there will be an increased level of world competition for long-term uranium supply, similar to that which already exists for oil and gas, and other critical resources.
Six countries are expected to provide about 83% of world mine production during the next ten years: Kazakhstan, Canada, Australia, Namibia, Russia, and Niger.
With 19 operating ISL production centres and one conventional centre, Kazakhstan was the world’s number one producer in 2009 with a reported nameplate output of 36.7 million pounds. In addition it has four more ISL mines coming on line in 2010 for a total expected output of approximately 45 million pounds. While some stockpiling may be occurring, the bulk of production is destined for export to customers around the world. Many of the mines are owned in joint venture with the Kazatomprom state agency and many are wholly-owned by Kazatomprom.
Canada was the world’s second-largest mine producer of uranium in 2009, producing 26.5 million pounds U3O8. Canadian production is projected to rise to about 45 million pounds per year by 2016, assuming the Cigar Lake, McArthur River, and Midwest mines are in production. The Cigar Lake mine, flooded in 2006, is being remediated and is expected to begin production by about 2013. The Midwest mine’s development has been put on hold until at least 2015. The Rabbit Lake mine may be depleted by about 2014. The McClean Lake mines are shutdown and the Jeb mill is on standby until it is required to process Cigar Lake ore.
Australia was the world’s third-largest uranium producer at about 21 million pounds U3O8 in 2009. It has two large production centres in operation, Ranger and Olympic Dam, and a single small solution-mining centre, Beverly. While the Ranger mine’s existing reserves were expected to be exhausted by now, the delineation of additional reserves will allow production to continue through about 2020, though at a diminishing rate. The large Olympic Dam centre, which currently is licensed to produce up to 17 million pounds per year, only produced about 7.8 million pounds in 2009 because of a serious accident in its production shaft in October 2008.
On 1 May 2009, Olympic Dam’s owner, BHP Billiton, released its draft environmental impact statement for a proposal to dig a very large open pit over five years beginning in 2011. Production from this pit would begin in 2016 and rise to 32 million pounds per year by 2021, which together with the present underground operation would result in a total mine output of about 42 million pounds per year from 2021. The planned expansion would make this mine the world’s largest uranium producer, and there is also some potential for even further expansion if the market demands it. It is noted that as a uranium-copper co-producer, the outlook for the copper market will be a factor in the investment decision. If the necessary governmental approvals expected in 2010 are positive, then the BHP board of directors must take the next step of facing the substantial investment decision that will be required. The capital requirement is reported to be in the range of $15 to $20 billion, which creates some uncertainty about the project schedule and the overall outcome.
The third Australian centre under development, the Beverly Four Mile East and Four Mile West ISL project, is expected to begin operation in 2011. The fourth Australian centre under development, the small solution-mining operation Honeymoon, is targeted to begin production in 2011 but could be delayed.
While production in Niger is expected to remain constant during the next few years, it could more than double from its 2007 level by 2017 when Areva’s Imouraren mine is brought into production. Production at Namibia’s Rossing centre, which some years ago was scheduled to end in 2009, is now expected to continue at its current level through 2020 and possibly beyond. The Langer Heinrich mine in Namibia will be expanded to 5.2 million pounds per year by 2012, and possibly more after that. The Trekkopje mine (also in Namibia) is being developed for start up by 2011. Domestic economics could keep South African production from three small producers at relatively low levels for the foreseeable future, about 4 million pounds per year by 2012. Paladin has started up the Kayelekera mine in Malawi. Ore from the Lumwana mine in Zambia is being stockpiled for later processing. For the foreseeable future, China will be expanding production slowly; it is expected to be a significant importer of uranium during the next 15 years.
Production in Russia, currently about 10 million pounds, is projected to be expanded to about 15 million pounds by 2015. Russia has plans to develop the large Elkon deposits in Siberia later in this decade and is seeking equity participation in projects abroad such as in Namibia. Even as Russia seeks to develop mines at home, it is also increasing imports from Kazakhstan and Uzbekistan. Russia is a partner in a number of joint venture centres in Kazakhstan. Ukrainian production could be more than doubled from its current level of 2.6 million pounds by 2014 in order to reduce the costs incurred for imports. Uzbekistan production is expected to remain relatively constant in this decade at about eight million pounds.
Uranium supply sufficiency
The issue of long-term uranium supply adequacy has been receiving considerable attention in many quarters. The headlines reporting the publication of the IAEA/NEA 2009 Red Book in July 2010 state that the world has assured supply of uranium for the next 100 years. What the headlines do not mention are the assumptions that these figures are based on 2008’s rate of consumption and forward production costs of up to $100 per pound. Over a 60-year operating lifetime (20-year life extensions are now regularly licenced in the USA), a 1000MWe nuclear power plant would require an assured supply of 25 to 30 million pounds of uranium. In fact, known (discovered) resources at recovery costs up to $100 reported by the Red Book could only provide assured supply for about 45 or 60 years, depending on whether one assumes a reference case or high case for demand growth.
This review of supply adequacy does not consider unconventional resources which are still largely on the horizon, at best. The 2009 Red Book notes that “if potential barriers such as regulatory requirements and qualified personnel development can be overcome, by-product uranium production from phosphoric acid could again become an important, competitive source of uranium” as it was several decades ago in the US.
Unforeseen events that interrupted supply during the past eight years exemplify what could happen in the coming years. Such events have included fires (at Olympic Dam in Australia in 2001), mine flooding (Rabbit Lake, Cigar Lake, and McArthur River mine in Saskatchewan in the 2003-2008 period), cyclone-caused floods (Ranger open pit in Australia in 2006, 2007 and 2010), leaching acid supply shortages (in Kazakhstan in 2007), and electric power shortages (South Africa in 2007). The foregoing stream of negative events has led ERI to consider it realistic to apply a 90% production capacity factor to planned and announced nameplate mine capacities in the projections in this paper.
At the same time that Kazakhstan was substantially expanding its supply capacity during the past decade, producers in the West have been increasingly confronted with environmental issues. For example, in Australia, due to pressure from indigenous people and environmental activists, Rio Tinto agreed in 2003 to put its large and rich Jabiluka uranium deposit under a long-term care and maintenance agreement, and only develop it at some future time with the support of the traditional native people of the region. In the US, plans for mine development in New Mexico and uranium recovery using non-invasive ISL methods have been opposed for many years by American Indian rights groups. In Canada, the large Michelin resource in Labrador has been banned from production until the region’s Inuit native people determine development criteria during the next year. The Nunatsiavut government of the region is currently in the process of developing its environmental legislation and land use plan, a joint process between the governments of Nunatsiavut, and Newfoundland and Labrador. Both initiatives are expected to be completed no later than March 2011.
In Australia, prior to the economic impact of the 2008 recession becoming clarified, it seemed almost certain that the large Olympic Dam mine would be quadrupled in output capacity by 2021. However, the Australian government proposed a new 40% resource super profits tax on 2 May 2010, which mining companies would have to start paying in 2012. Both BHP Billiton and Rio Tinto quickly protested against the new tax, stating that, “If implemented, these proposals [would] seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians.” Rio Tinto is “concerned about the inclusion of existing operations and the apparently arbitrary way the new resources tax was set at 40% ... Altering the rules for existing multibillion dollar projects in midstream—after large amounts of capital have already been put at risk over many years—would be the worst possible message Australia could send to investors.” Although a change in government reduced the threat of such unfair taxation, it has not apparently been eliminated completely.
While the excess commercial stocks of already-mined uranium (AMU) held by the operators of nuclear power plants have now been largely consumed, AMU held by governments will continue to enter the market at a significant rate during the next 15 to 20 years. The most significant components of AMU will be Russian HEU through 2013, miscellaneous US HEU, plutonium and reprocessed uranium recycle in Europe and East Asia, and uranium enrichment tails upgraded in Russia and the US Even though AMU will continue to provide significant supply for a decade or so, an expanding resource base of new uranium deposits will have to be identified through a resurgence of exploration activities in this decade.
The 1993 US-Russia HEU agreement allows the sale of HEU-derived separative work units (SWU) and uranium in the USA through 2013 in accord with the USEC Privatization Act of 1996. The domestic market has been concerned about the market impact of the loss of that supply after 2013. Fortunately, after lengthy negotiations, the US and Russian governments signed an amendment to the Russian Suspension Agreement on 1 February 2008 that will permit limited exports of Russian uranium products to the US under a new quota system. From 2014 through 2020, Russia will be permitted to supply up to 20% of the US market for enriched uranium in the form of enriched uranium product (EUP).
In addition, in December 2008, the US Department of Energy reported that the government had an inventory of excess uranium in various forms that was equivalent to 153 million pounds U3O8. In November 2009, the DOE announced a proposal to begin disposing some of its stockpile. It decided to transfer up to 2.9 million pounds to USEC Inc., in four small lots beginning in December 2009, to fund decontamination and decommissioning (D&D) work performed at the Portsmouth gaseous diffusion plant. The fourth transfer took place in July 2010. The DOE uranium barters were criticized by the Uranium Producers of America (UPA), and some legislative limits may be imposed in the future.
ERI’s forecast projects world nuclear power plant uranium requirements as rising from the 2010 level of about 171 million pounds U3O8 per year to between 265 and 361 million pounds per year in 2030; see Figure 1 and Table 1. This projection does not adjust requirements for recycle, but instead categorizes recycle as a supply source. US reference case requirements are forecast to climb gradually from 50 to 56 million pounds per year during the 2010 to 2020 time period, and to 61 million pounds by 2030. Western European requirements are only projected to climb from 48 to 52 million pounds by 2030. East Asian requirements are projected to rise from 44 to 100 million pounds per year during the same period. Approximately half of East Asia’s requirements in 2030 will be Chinese. The Commonwealth of Independent States (CIS) and Eastern European (EE) requirements are projected to rise by 28% by 2030.
The world U3O8 supply during the coming decades will be supplemented by civilian and government U3O8 (and U3O8-equivalent) inventories, nuclear weapons fissile material stockpiles, enrichment tails upgrading, and plutonium and uranium recycle, that is, AMU in many forms, and uranium mine production.
It is clear from Table 1 that current mine capacity and capacity under development, plus total AMU, are projected to be more than adequate to meet reference requirements through the early 2020s. In addition, projected existing mine supply will be augmented by significant prospective uranium (see box, below).
In general, US nuclear power plant operators are now holding about 20 months of supply of uranium as inventory, up from about ten months of requirements in 2003. It is estimated that commercial inventories held by non-US utilities and suppliers, excluding those in the CIS, amounted to approximately 415 million pounds U3O8e. The total of the US and non-US commercial Western world inventories is accordingly estimated to be approximately 525 million pounds U3O8e. If Russian commercial inventories of 140 million pounds are included, then a total world commercial inventory of approximately 665 million pounds is obtained, which is equivalent to about 3.9 years of world forward requirements.
In addition to the foregoing commercial sector inventories, the US and Russia are believed to be holding HEU inventories that are equivalent to 340 and 420 million pounds U3O8e, respectively. These same two countries are also holding enrichment tails corresponding to approximately 67 and 157 million pounds, respectively. The upgrading of tails is dependent upon the availability of excess enrichment capacity and the economics of using it to upgrade tails. There are other small inventories of uranium in other countries around the world.
Julian Steyn and Thomas Meade, Energy Resources International (ERI), 1015 18th Street NW, Suite 650, Washington DC 20036, USA
There are many uranium reserve deposits around the world that may be regarded as prospective mines. Some are already into development and others are poised to begin as soon as regulatory barriers and financing hurdles are resolved. Others are awaiting improvements in the market price in order to be viable.