The following is an InFocus piece published in the July 5, 2013 issue of the Nuclear Market Review
DOE Releases Updated Excess Uranium Inventory Management Plan
The US Department of Energy (DOE) released on July 3, its long-awaited “2013 Excess Uranium Inventory Management Plan,” which updates the previous plan released in December 2008, and reflects evolving information, programs, and Department mission needs since the 2008 Plan was issued. The 2013 Plan identifies uranium inventories that have entered the uranium market since the 2008 Plan and those anticipated to potentially enter the market through the end of Calendar Year 2018. While DOE has provided transparency in the categories of material in its excess inventory, a level of uncertainty still remains as there is no clear indication of the quantities and time frames for introducing material into the uranium market in the long term. In addition, the new Plan removes the 10 percent of US requirements guideline for uranium transfers.
DOE notes the 2013 Plan is not a commitment to specific activities beyond those that have already been contracted, nor is it a restriction on actions the Department may undertake in the future due to changing conditions. However, the new Plan does differ from the previous Plan released in December 2008.
One of the most important changes in the new Plan involves the removal of DOE’s previous guideline that uranium inventory transfers should not exceed 10 percent of total annual fuel requirements of all US nuclear plants and should not have an adverse material impact on the US uranium mining, conversion, or enrichment industries.
DOE said, based on experience gained since issuing the 2008 Plan, including the market impact analysis that supported the May 15, 2012 Secretarial Determination, the Department has determined it can meet its statutory and policy objectives through uranium sales or transfers without an “established guideline.”
In addition, the new plan will adhere to the Consolidated Appropriations Act of 2012, which provides that all Secretarial Determinations are only valid for two calendar years. Therefore, DOE will revisit its analyses of market impacts and issue new Secretarial Determinations every two years for transfers, if it seeks to continue transactions covered within the Plan.
DOE has added more flexibility to the new Plan by stating, “changing Departmental priorities may require changes to plans or schedules for sale or transfer of uranium that cannot be anticipated at this time.” This includes the possibility that uranium now directed to national security needs may be declared to be “excess” and, conversely, that uranium now considered to be “excess” could be directed to national security needs.
DOE notes that although the focus of this new Plan includes transactions under consideration by the Department through Calendar Year 2018, the final disposition of its excess uranium inventories could take at least 20 years when all inventories are considered. Other changes include the introduction of one new material group—Off-Spec LEU (5 million pounds U3O8), which was referenced as unspecified material in the 2008 Plan. The 2013 Plan also adds more material (43 million pounds NUe) within the Depleted UF6 category, and greater utilization of the Allocated HEU category (Figures 1 & 2).
DOE has reported that remaining excess inventory totals 108.3 million pounds U3O8, which is marginally higher than TradeTech’s previous analysis, which accounted for 107.3 million pounds in remaining DOE inventory. Note: Recent Secretarial Determinations were issue by DOE on May 15, 2012, and March 15, 2013.
In May last year, DOE agreed to provide Energy Northwest with approximately 9,000 tonnes of high-assay depleted uranium, in conjunction with the five-party deal with USEC, Energy Northwest, the Bonneville Power Administration, and the Tennessee Valley Authority, to extend uranium enrichment operations at the Paducah Gaseous Diffusion Plant in Paducah, Kentucky by about one year.
In March this year, DOE issued a Secretarial Determination covering a one-time transaction to transfer 299,000 SWU to USEC, to keep the research, development, and demonstration program for the American Centrifuge Plant project running through June.
The full 2013 Excess Uranium Inventory Management Plan is available at: http://energy.gov/sites/prod/files/2013/07/f2/Excess%20Uranium%20Inventory%20Management%20Plan.pdf. [top]
The following is an InFocus piece published in the November 30, 2012 issue of the Nuclear Market Review
US Energy Policy in Obama’s Second Term
US President Barack Obama’s November re-election has refocused the US nuclear industry on domestic energy policy. Noting that he is " . . . a firm believer that climate change is real, that it is impacted by human behavior and carbon emissions” and that “ . . . we have an obligation to future generations to do something about it," Obama has stated that a comprehensive energy policy would be an area of focus during his second term. Obama has previously underscored nuclear’s role in a clean-energy plan through government-funded programs, though he has tended to focus on wind and solar in his speeches. Obama’s energy plan, so far, is “all of the above”—wind, solar, clean coal, natural gas, biofuels, and nuclear. This diversified approach is meant to protect against supply shortages and price shocks in any one energy sector.
Bipartisan Support for Energy Policy?
Although both Obama and Republican challenger Mitt Romney largely avoided the issue of climate change during the recent campaign season, each voiced a desire to secure energy independence as a matter of national security. While the campaigns differed in their strategies, their respective party’s overall priorities remain closely aligned—freedom from foreign oil, expansion of domestic energy production, and increased profits from energy exports. Thus, the possibility of bipartisan support for energy standards in the coming term has garnered much attention.
The public appears ready for such an effort. While studies abound showing wide-ranging support for wind and solar power, a survey conducted in late 2011 by Bisconti Research and cited by the Nuclear Energy Institute (NEI), revealed a similar position on nuclear power. Sixty-two percent of the study’s respondents answered in favor of nuclear energy as part of the USA’s energy mix, while 83 percent believe nuclear will play an important role in satisfying the nation’s future energy needs.
The USA’s 104 commercial reactors generated an estimated 789 billion kWh of electricity in 2011, about 20 percent of total domestic energy production. And, the US Department of Energy (DOE) projects energy requirements will increase 22 percent by 2035, although, maintaining the US nuclear sector’s 20 percent share would require building nearly two dozen new reactors (at an estimated US$8 billion per reactor) in the next 20 years.
New Nuclear Build
Although nearly all of the USA's newest energy plants built in the last 10 years are fueled by natural gas, Obama has taken credit for the first nuclear build licensed by the US Nuclear Regulatory Commission (NRC) in 30 years, with Southern Co.’s Vogtle Units 3 & 4 aided by $8.33 billion in federal loan guarantees. The NRC has also issued licenses to SCANA subsidiary South Carolina Electric & Gas and Santee Cooper for two new AP1000 plants at the V.C. Summer site in South Carolina. And, the Tennessee Valley Authority’s (TVA) completion of Watts Bar Units 2 is imminent.
While the public appears to endorse new builds and the NRC has granted the first combined licenses for construction and operation of new reactors , projected need alone may not be enough to convince the government to allocate the necessary funding. Energy independence has emerged as the purpose of energy policy advocates in 2012.
By leveraging new technologies (such as shale gas extraction) and (re)investing in proven clean energy sources such as nuclear, some analysts believe the USA could become energy independent in the next decade. While this would have global implications due to the USA’s diminished security interests in the Middle East, energy independence would satisfy one of the President’s greatest policy goals.
In his victory speech, Obama mentioned "freeing ourselves from foreign oil” as one of the areas where bipartisan Congressional effort was essential to success. However, any movement toward a comprehensive energy plan must first navigate a Republican-controlled House of Representatives. Many are calling for a clean energy plan that will not only attempt to mitigate the threat of climate change, but also provide guidance to the clean-energy sector.
Emissions and Cap-and-Trade
As with many other nations addressing carbon emissions, the issue of a carbon tax is certain to be at the center of any energy plan debate.
In 2010, cap-and-trade legislation met staunch opposition on Capitol Hill and was defeated as a result; some states have taken measures to introduce their own carbon emission control programs, with California implementing a program this year. President Obama has recently stated he does not plan on introducing carbon tax legislation to Congress, however, increasingly strict Environmental Protection Agency (EPA) restrictions on the use of industrial materials, such as sulfur and mercury, are incidentally regulating greenhouse gas emissions in the absence of an inclusive energy plan. It is important to note that nuclear power accounts for about 75 percent of all carbon-, sulfur dioxide-, and nitrogen oxide-free energy production in the USA.
US Nuclear Exports
NEI continues to address the issue of export controls and has requested a review of National Nuclear Security Administration (NNSA) regulations. On behalf of industry interests, NEI outlined in a 2010 memorandum (Nuclear Export Controls: The Nuclear Energy Industry’s Major Concerns), a number of steps it recommends to simplify and clarify the NNSA’s export control authority. Revision of these rules (specifically, 10 CFR Part 810) is key to allowing for expanded international commerce in the nuclear sector.
NEI president and CEO Martin Fertel has publicly expressed concern that if the USA continues to interdict enrichment in its cooperative agreements, foreign interests are likely to start looking elsewhere for partners.
US Fuel Cycle Issues
Nuclear fuel production is a key topic in the political arena, and represents an area where issues of economic efficiency, energy independence, and national security converge. USEC, the USA’s sole domestic uranium enricher, received $280 million in operating funds from the US Department of Energy in June; the company still intends to apply for a $2 billion loan guarantee to fund construction of its American Centrifuge Plant project in Ohio, a key battleground state in the recent election. While candidates in this year’s presidential race both pledged support for USEC, some Congressional representatives are skeptical of the continued funding. Staffers in both campaigns pointed to the 400 jobs the plant will bring to Piketon, Ohio, as well as the implicit national security benefit of having a domestic source of enriched uranium.
Amidst the debates surrounding uranium production and export, the EPA is implementing its National Enforcement Initiatives , a suite of enforcement measures that are revised every three years. Its 2011-2013 initiatives are focused on non-compliance with pollution laws and focus heavily on energy extraction and waste management.
Obama has previously qualified his support for nuclear, stating that nuclear’s role in a clean energy future is contingent on developing technologies that ensure matters of safety and waste disposal are thoroughly resolved. As his support for the Yucca Mountain nuclear waste facility has been elusive, and the recent election has allowed Yucca Mountain opponent Harry Reid (Democrat-Nevada) to retain his position as Senate Majority leader, the country’s waste storage options are limited to the Waste Isolation Pilot Project in New Mexico or on-site storage at nuclear plants. The latter being a widely used but temporary solution to a very long-term problem, and a solution that is not entirely in keeping with the US government’s own environmental and safety goals and against the timeline for waste acceptance set by the Nuclear Waste Policy Act of 1982.
Loan Guarantees & Grants
Loans and grants are an especially controversial topic for the Obama administration, given the attention brought on by solar company Solyndra's bankruptcy, the flagship recipient of the President’s initiative to promote alternative energy. Earlier this month, the Obama administration, DOE, and TVA, in conjunction with energy company Babcock & Wilcox and Bechtel International, announced $8 billion for a five-year study on the design and deployment of small modular reactors.
Overall, the Obama administration has allocated $34.7 billion in DOE loan guarantees for clean energy companies. Where to send all of that money is sure to be one of the more complicated decisions in Obama’s “all of the above” strategy and one he insists is not political in nature. In the very near term, the President has stated he intends to conduct "…wide-ranging conversation(s) with scientists, engineers, and elected officials to find out what ... more can we do to make short-term progress in reducing carbons." [top]
The following is an InFocus piece published in the October 12, 2012 issue of the Nuclear Market Review
The Changing Landscape of Australia’s Uranium Mining Industry
The production outlook of Australia’s uranium mining industry is undergoing significant change, as are the politics that guide policy in the country’s six states. The financial realities of mining in Australia have resulted in notable acquisitions, project delays, and policy reformation all aimed at sustaining a mining boom that few want to see drawn to a close. Australia is currently third in global uranium production behind Canada and Kazakhstan; new projects and the expansion of the world’s largest uranium deposit are expected to maintain Australia’s position as a leading uranium producer. However, state governments averse to nuclear technology, along with the downward pressure on current commodity prices, are presenting formidable challenges to producers.
Uranium Mining in Australia Today
Today, Australia has four uranium mines in production: Energy Resources of Australia’s (ERA) Ranger, BHP Billiton’s Olympic Dam, Heathgate Resources’ Beverley, and Uranium One’s Honeymoon projects. Mined since 1980, the Ranger project is operated by Rio Tinto subsidiary ERA, which is outlining plans to extend the life of the Ranger operation, inside the Kakadu National Park, well beyond the current 2016 end-of-life estimate (Ranger 3 Deeps project). ERA revealed this week that a mining agreement with Traditional owners is very close to completion after 14 years of discussion.
BHP’s Olympic Dam mine, where uranium is mined as a coproduct of copper, is the world’s largest uranium deposit with a reserve base of 300,000 tU. Heathgate Resources’ Beverley mine in South Australia has an expected lifespan of 15 to 30 years and is the country’s first in-situ recovery (ISR) operation. The mine has been approved for expansion by the Australian government, based on Heathgate’s use of ISR technology. Honeymoon is an ISR mine, also in South Australia, commissioned in 2011. In 2008, Uranium One formed a joint venture with Mitsui (49%) to fund development of the mine, but that arrangement is slated to end later this year.
Future Uranium Production
In addition to these projects, Australia is home to more than 30 identified major deposits and prospective mines. Producers are eyeing these resources, as well as countless other exploration projects, in hopes of capitalizing on increasingly permissive government policies. A selection of projects that could become future production centers are highlighted in Figure 3. ERA’s Ranger 3 Deeps project has confirmed resources of 75 million pounds U3O8, and is slated for completion in early 2014. ERA has committed US$57 million toward feasibility studies, which include drilling and assessment of unexplored areas of the deposit. The total cost of the project is expected to reach $122 million and a final decision is expected in 2014.
Toro Energy is moving forward with the Wiluna project in Western Australia, which will be the state’s first uranium mine. The open-cut mine consists of the Lake Way and Centipede deposits and has a projected life of 14 years. The project entered the licensing phase three years ago and just days ago received approval from the Western Australia Environment Ministry. Anticipating a federal government approval in the fourth quarter of 2012, Toro plans to begin construction in 2013, with annual production of 1.8 million pounds U3O8 per year starting in 2014. Toro also counts among its assets the greenfield discovery Theseus Uranium Project in Western Australia, where exploration and additional drill work will extend in 2013.
Mega Uranium is slated to begin production next year at the Lake Maitland project in Western Australia. Jointly owned by Mega Uranium and Japanese consortium Japan Australia Uranium Resources Development Co., the project has an expected life of ten years. Changing ownership is a theme that is becoming more prevalent as mining companies reassess their risk exposure in the face of an increasingly subdued uranium market.
Adjacent to the Beverley project is the Four Mile uranium deposit, owned by Heathgate Resources subsidiary Quasar Resources’ and partner Alliance Resources. Development of the ISR site received approval in 2009, but legal issues have pushed the production date well beyond the initial 2010 deadline. Earlier this year, Alliance Resources joined in a strategic partnership with ITOCHU Corp., which could see the Japanese trading company acquire up to 25 percent of Alliance Resources; the money raised could fund an ISR operation independent of Heathgate and Beverley.
Pending approval later this year by the government of Western Australia, Cameco has acquired the Yeelirrie uranium project for $430 million. While BHP had given up on the project due to its comparably diminutive size and single-resource nature, some suspect the sale represents a lack of confidence in the mid-term market. For Cameco, it is an opportunity to widen its production base and meet its goal of 40 million pounds of production by 2018. With BHP’s exploration work already done, Cameco could go into production at Yeelirrie before 2018.
Cameco also has plans to develop the Kintyre project in Western Australia with partner Mitsubishi. While the project is still in the feasibility stage, the company has indicated that current uranium prices are prohibitively low. With 63,000 tU3O8 Measured and Indicated Resources at the site, production over the seven-year main lifespan would still be nearly 30 percent short of the required volume, at current spot prices, to make the project economically feasible.
Political and Economic Issues
While mining companies are taking differing strategies to insulate themselves from lower uranium prices and burdensome production costs, the government is also taking steps to ensure demand for uranium production well into the future. This summer, Australia and the United Arab Emirates signed a nuclear cooperation agreement to provide fuel for the Arab country’s first nuclear power plant. The 15-year deal is notable as prices are locked in for the duration of the contract.
The Australian government is also taking steps toward an agreement to sell uranium to India. Opposition to the move rests on the fact that India has not signed the Nuclear Nonproliferation Treaty (NPT). Sources close to ongoing negotiations say the parameters of any deal will contain language that echoes boundaries of the NPT. International fuel supply deals are a boon to mines in Australia, but not all states would be able to capitalize on the opportunity. Mining and exploration are permitted in South Australia, Western Australia, and the Northern Territory. Queensland and New South Wales allow exploration only. However, the state government in Queensland recently indicated it is willing to reconsider the mining ban.
Economic progress in Western Australia, which lifted its mining ban in 2008, and global demand forecasts that support projections of 38 percent and 86 percent increases in export and revenues, respectively, are putting pressure on state officials to re-examine their positions. While the state of Victoria prohibits exploration for uranium, New South Wales recently lifted the ban on uranium exploration but has yet to repeal the ban on mining. The state government recently solicited expressions of interest in exploration licenses and hopes to capitalize on uranium in the same manner as neighboring states. The extent to which companies are willing to explore identified deposits despite an existing mining ban remains to be seen.
However, as the politics of uranium mining evolve, the economic climate is dictating the strategies of Australia’s largest projects. BHP recently asked the South Australian state government to afford it four more years to decide the fate of its $20 billion Olympic Dam expansion project. Government leaders were expecting the expanded project to provide an economic uplift to the region; annual production was expected to increase sevenfold and would have increased BHP’s uranium market contribution to 17 percent by 2020. BHP executives pointed to the current economic climate and muted commodity prices as reasons to seek less capital-intensive means of production for the expansion. The delay of the expansion relieves some anticipated supply surplus, which is beneficial to a market still waiting for Japan to announce whether they will restart more nuclear power plants and whether they will implement a planned nuclear phaseout program over the next 25 years.
The delayed expansion would have changed the project from a three-shaft underground operation to an open-pit mine, making Olympic Dam the largest mine in the world. BHP is licensed to operate the mine until 2036, with an option for a 50-year extension; the 2016 deadline coincides with the expiration of the project’s environmental approval license. The company is expected to take a $346 million writedown on the project in 2012.
ERA, while it moves ahead with plans to keep Ranger in production, has posted losses in the last two years and has recently warned of job cuts in order to remain appropriately sized. Prevailing market conditions have persuaded the company to announce it will reduce its workforce through natural attrition. ERA also shelved a plan in 2011 to conduct heap leach operations at Ranger due to capital cost constraints.
In Conclusion . . .
Mining companies are retrenching according to differing strategies that reveal differing competencies, but advertise a common assertion that uranium prices must rise to accommodate production expansion in the near term. Look for TradeTech to explore the issues facing uranium producers in Australia in future editions of The Nuclear Review. [top]
The following is an InFocus piece published in the July 31, 2012 issue of the Nuclear Market Review
US Uranium & Conversion Industries Seek Resolution to DOE Inventory Sales
The ongoing topic of US Department of Energy (DOE) uranium inventory sales took center stage at today's Nuclear Fuel Supply Forum, hosted by the Nuclear Energy Institute in Washington, DC. Scott Melbye, executive vice president, marketing for Uranium One, and ConverDyn President and CEO Ganpat Mani off ered a joint presentation on "US Government Policy and Domestic Uranium Production," which focused on heightened concerns of the US uranium and conversion industries related to the evolution of DOE's management of its excess uranium inventory and sales plans. [top]
The following is an In Focus piece from the July 6, 2012 issue of the Nuclear Market Review
Abraham, ConverDyn Question ERI Analysis of DOE Uranium Transfers
Ongoing uranium transfers by the US Department of Energy (DOE) remain an important topic of discussion among US uranium industry participants and are once again the focus of criticism, as the methodology of a study supporting a recent DOE Secretarial Determination are questioned by a former US Energy Secretary and
US uranium converter ConverDyn.
On July 3, former US Secretary of Energy Spencer Abraham released a statement through his eponymous consulting firm criticizing the Obama Administration, the US Congress, and DOE for its transfer of excess uranium stockpiles to US enricher USEC Inc.
Traditionally, USEC has the been the sole agent granted authority to purchase nuclear fuel from Russian suppliers. As Russia has lately preferred to sell uranium on the open market, USEC’s uranium resources have declined and the company has negotiated the transfer of DOE stockpiles in an effort to satisfy its contractual obligations. Most recently, USEC and DOE crafted a five-party agreement, involving Energy Northwest, the Bonneville Power Administration, and the Tennessee Valley Authority, which extends operation of the Paducah enrichment facility by another year. It involves the transfer of DOE inventories of depleted UF6 (tails) into the civil nuclear fuel cycle for re-enrichment into low-enriched uranium—a deal that gives USEC commercial contracts with two US utilities.
DOE’s Excess Uranium Inventory Management Plan, issued in but not updated since December 2008, allows for quarterly uranium transfers, but many perceive the DOE-USEC transfers as inequitable government interference in the US uranium mining and uranium conversion markets.
Abraham identifies the latest market impact analysis, conducted by Energy Resources International, Inc. (ERI) for DOE’s Office of Nuclear Energy, as the key element in the agreement. Charged with assessing the impact of the agreements on commercial markets, ERI concludes in its latest study, Quantification of the Potential Impact on Commercial Markets of Introduction of DOE Excess Uranium Inventory in Various Forms and Quantities During Calendar Years 2012 through 2033, that there is no market impact. Reliant on the study, an official Secretarial Determination echoing the “no market impact” conclusion was issued in May. “These transfers of DOE inventories of uranium have typically been justified with an independent market impact analysis leading to a Secretarial Determination of no market impact.
Unfortunately, this latest analysis, like the previous ones, is fundamentally flawed and therefore does not support the Secretarial Determination,” Abraham commented, adding he believes there are “significant shortcomings” with the study that raise serious questions about DOE’s May 2012 determination of no market impact.
ConverDyn Analyzes Impact on Conversion Market
The study’s methodology and reasoning are being widely scrutinized by market interests, including US uranium converter ConverDyn, the country’s sole uranium conversion plant operator.
Specifically, both ConverDyn and Abraham have expressed concern over ERI’s decision to use market price as the sole dependent variable in its analysis. This aspect of ERI’s methodology has raised concern not only for its perceived oversimplification of market impact, but also because it neglects to address issues associated with volume reduction in the conversion market. ConverDyn and Abraham also similarly highlight the lack of transparency in ERI’s market clearing model and the study’s prevalent use of market clearing price instead of spot pricing (DOE traditionally sells its inventories on the spot market).
ConverDyn also points to inconsistencies in the reliability of ERI’s clearing model from year to year, as well as its disproportionate effect on domestic mining operators, an apparent violation of DOE’s mandate to avoid adverse material impact on the US nuclear fuel cycle industry. ConverDyn’s review of the ERI study identifies assertions about market trends as incompatible with conversion business constraints. The company has publicized their concerns and openly questioned ERI’s approach in a recently completed review (ConverDyn’s full report and former Secretary Abraham’s formal statement are available at: http://www.converdyn.com/press_room/presentations.html.)
UPA Expresses Concern for DOE Uranium Transfers
The Uranium Producers of America (UPA), which represents US uranium producers and converters, also strongly objects to US Secretary of Energy Steven Chu’s May 15 Secretarial Determination and the accompanying analysis provided by DOE concerning the sale or transfer of uranium by the Department. In a May 17 statement, the UPA said the announcement is “clearly an example of the mismanagement of US uranium inventories by DOE, which result in continued uncertainty for domestic uranium mining and production industries.”
GAO Finds Inconsistency in DOE Uranium Transactions
The recent dissent over ERI’s report has once again focused attention on the consistency between DOE’s own uranium inventory management plan and the specific transfers to USEC. In September 2011, the US Government Accountability Office (GAO) recommended that DOE update its Excess Uranium Inventory Management Plan for better clarity and consistency.
In its final report—Excess Uranium Inventories: Clarifying DOE’s Disposition Options Could Help Avoid Further Legal Violations—GAO found that DOE’s uranium transactions “have been consistent with parts of its uranium management plan but not with others,” and noted that the DOE has, to date, not exceeded the target of no more than 10 percent of annual US fuel requirements, but that it has allowed more uranium to enter the market sooner than cited in the plan.
In addition, GAO found that the DOE’s uranium transactions with USEC were authorized by the USEC Privatization Act, but did not comply with federal fiscal law, meaning the Department “has inappropriately circumvented the power of the purse granted to Congress under the Constitution.”
Furthermore, the report recommended that Secretary Chu update the plan to more accurately reflect DOE’s current marketing plans. GAO also recommends that if Congress plans to continue paying for cleanup of US enrichment facilities with proceeds from DOE uranium barters, then Congress should consider either providing the Department with explicit authority to barter uranium and retain proceeds for that purpose, or direct DOE to sell the uranium directly for cash and make proceeds available through appropriations. (The full GAO report is available at: http://www.gao.gov/assets/590/585406.pdf.)
DOE has disagreed with GAO’s conclusion that it violated federal fiscal law. Therefore, at the present time, it seems likely that the Department will continue with its uranium barter program unless Congress takes action on this matter or litigation is pursued in the courts by US uranium industry participants.
Editor’s Note: Spencer Abraham served as US Secretary of Energy in 2001 through 2005, and as a US Senator from Michigan from 1995 through 2000. He currently serves as chairman & CEO of The Abraham Group, a management consulting firm, and is also an advisor to ConverDyn. [top]
The following is an In Focus piece from the June 22, 2012 issue of the Nuclear Market Review
Japan Approves Restart for Ohi 3 & 4--More Restarts to Follow?
On June 15, Japanese Prime Minister Yoshihiko Noda officially approved the restart of Units 3 and 4 (1,127 MWe PWRs) at the Ohi nuclear station in Fukui Prefecture—the first two commercial reactors to return to service after the crisis that began on March 11, 2011, as a result of the devastating earthquake and tsunami that severely damaged reactors at the Fukushima Daiichi nuclear station.
All 50 of Japan’s reactors have been idled for inspections, the last going off line in May (Tomari 3—866 MWe PWR), and the central government has warned of power shortages during the summer.
Kansai Electric Power Co., which operates the Ohi station, has started work to restart Unit 3, which is expected to reach full power by July 8; Unit 4 is expected to be operating by July 24. The government is urging residents and industrial businesses to continue conserving power in the Kansai area, especially if the rainy season ends early. Meanwhile, some major steel and paper companies are reportedly planning to build their own power generation facilities and to sell the surplus electricity to utility companies.
One of the next reactors likely to be considered for restart is Unit 3 at Shikoku Electric’s Ikata plant, which gained approval of plant stress tests in March from the Nuclear and Industrial Safety Agency (NISA). The agency is reportedly preparing five additional reactors for possible restart after the review of stress tests (Figure 1). However, the timeline for future restarts remains uncertain as the government will not approve units for return to service until plant safety is guaranteed. It also remains unclear if future restarts will be the work of the new Nuclear Regulatory Commission, which had yet to be created.
New Nuclear Regulatory System Awaits Approval
Japan’s lower house passed a bill last week to reorganize the country’s nuclear regulatory system, with the formation of a new, independent five-member Nuclear Regulatory Commission to replace the present Nuclear Safety Commission. Under the proposed plan, NISA would become the Nuclear Regulations Agency and would operate under the new commission. Both agencies would be part of the Ministry of the Environment. The bill is expected to be approved by the upper house of parliament.
Nuclear’s Future in Japan
Under Japan’s present nuclear regulatory program, commercial reactors are licensed for 40 years and then require approval for extended operation in 10-year increments. However, the new Nuclear Regulatory Commission could revise this rule and limit the operating life of reactors to 40 years in principle, with extensions allowed only under strict conditions. If approved, a revised rule would mark the first time that Japan would legally limit how long reactors remain in operation. This is an obvious concern for the Japanese utilities that have invested in programs for long-term operation of nuclear power plants throughout the country.
In addition, there is the question of how much Japan will rely on nuclear-generated power in the future. On May 28, an advisory panel to Japan’s Industry Ministry finalized four options for the country’s future energy mix, which will be presented to the government as it works to compile a new energy policy this summer.
The options call for the government to seek an energy policy that would either completely phase out nuclear power or allow nuclear plants to provide 15 to 25 percent of the nation’s electricity by 2030, compared with 26 percent in Fiscal Year 2010.
Depending on the outcome of discussions surrounding a future energy policy and the pace at which reactors return to the grid, there exists the potential for reduced uranium demand in the Japanese market. TradeTech has a less optimistic view on the demand outlook for Japan, as changes in Japan’s uranium requirements result in a reduction of over 30 percent in total demand over the 2011-2025 time frame, including a decrease of over a 70 percent, from the previously forecasted 2012 uranium requirements.
Incentives for Renewable Energy
Japan approved on June 18, incentives for renewable energy that could earmark billions of dollars in investment and help the country reduce its reliance on nuclear power in the future. Industry Minister Yukio Edano approved the introduction of feed-in tariffs, which could reportedly expand revenue from renewable generation and related equipment to more than US$30 billion by 2016. [top]
The following is an In Focus piece from the June 8, 2012 issue of the Nuclear Market Review
WNFM--A Focus on Fundamentals One Year After Fukushima
The 39th annual World Nuclear Fuel Market conference entitled “Scaling the Peaks: Back to Fundamentals One Year after the Fukushima Accident” opened in Banff, Canada, on June 4, and located “next door” to the country’s uranium-rich Athasbasca Basin in the province of Saskatchewan, as keynote speaker Cameco President & CEO Tim Gitzel reminded those attending the opening session.
Gitzel, who addressed a record number of attendees, said the nuclear industry has not returned to its pre-Fukushima level of stability and won’t for some time as safety concerns remain omnipresent. He added that the nuclear industry needs to provide assurances that will make the public feel that nuclear power remains safe.
Turning to industry dynamics, Gitzel said the demand for uranium has long outpaced production and secondary supplies (most importantly the soon-to-expire US-Russian HEU Agreement) have helped fill a supply gap. He cautioned that many secondary supply sources will come to end and primary supply has been impacted by low uranium prices. “Keep your eye on supply, because it is not obvious to me where the future supply will come from,” Gitzel said, before leading into an explanation of Cameco’s “Double U” strategy, which involves an increase in production from 20 million pounds U3O8 today to 40 million pounds by 2018. Growth will be achieved with production from the new Cigar Lake mine and existing McArthur river mine, both in Canada, as well as the company’s uranium projects in Australia, Kazakhstan, and the USA.
Gitzel explained that primary uranium supply is challenged by long lead times, as well as delayed or canceled mining projects. Cameco believes the nuclear industry could see a wider than expected supply/demand gap “sooner than expected,” according to Gitzel.
The Post-Fukushima Nuclear World
This year’s conference theme of “scaling the peaks” is directly related to the post-Fukushima challenges faced on an international level as the nuclear industry waits for positive signs from Japan’s nuclear power industry. Masaya Aida, general manager for the nuclear fuel department of Japanese trading and firm Marubeni Corp., said the situation surrounding Japan’s nuclear program today is one that is political in nature due to a loss of credibility. There is an environment of “who do we trust?” among residential and business communities in Japan, as neither the central and local governments want to be held responsible, according to Aida.
Aida explained the “roadmap to restart” for Japan’s 50 commercial reactors, which today remain offline following government-mandated stress tests and safety reviews. He stressed that Japan’s central government must provide a “strong commitment” and then it is likely that the local government would be in favor of restarting the first two plants—Ohi 3 & 4 in Fukui Prefecture.
From a utility perspective, Southern Nuclear Chairman, President & CEO Steve Kuczynski outlined challenges of building new plants, as the utility works to construct the first new reactors in the USA in more than 30 years—Vogtle 3 and 4 at the existing Plant Vogtle site in Georgia. He said it is a “great time to be building, as interest rates are low, jobs are needed, and the economy is strengthening.” Kuczynski pointed to the driving factors for Southern’s continuing commitment to nuclear power, which include cost competitiveness, economic benefits, a state regulatory environment, support from the US federal government, and a standardized passive reactor design (the Westinghouse AP1000 reactor design is being deployed at the Plant Vogtle two-unit expansion project). Southern was the first recipient of a US Department of Energy conditional loan guarantee for new nuclear build projects and the group remains hopeful that the loan guarantee will be closed this year, as final conditions move through the approval process. Plant Vogtle Units 3 and 4 are expected to be ready for service in 2016 and 2017, respectively.
Turning to new build in the UK, Kirsty Alexander, head of communications for the UK’s Nuclear Industry Association, said that without nuclear the UK government says it may not be able to keep the lights on, the electricity bills down, and the air clean. Alexander explained that a key point for new build is that plant builders/operators must have decommissioning funds available for eventual plant closure expenses. In May, the British government issued a draft energy bill that outlined plans to guarantee prices for low-carbon electricity and pay producers for providing back-up supply when renewal power falls short. It also includes plans to secure commitments from utilities to fund new reactors and clean power projects. An investment decision by the EDF/Centrica joint venture on plans for the first new reactors in the UK is expected by year end.
Front-end fuel cycle discussions continued on day two of the conference with Uranium One COO and EVP Steve Magnuson stating that the company continues to view the uranium market optimistically, and believes that competitive new mine production will be needed to fulfill demand in emerging markets. He expects uranium demand to grow 2-3 percent annually. Uranium One’s strategy is to maintain a low-cost structure and a stable sales portfolio, while saving in the areas of logistics and inventory management. While the company’s production remains focused on in-situ recovery projects in Kazakhstan and the Honeymoon project in South Australia, it will develop the licensed and permitted Moore Ranch in Wyoming once the market improves. It is also considering expansion of the Willow Bend project in Wyoming and is updating a feasibility study for the Mkuju River project in Tanzania that could lead to higher output.
A retrospective and future outlook for the uranium enrichment industry, presented by NYNCO Vice President Danny Einbund, focused on expansion and the impacts on front end markets. Einbund noted that enrichment expansion should be considered as enrichment contraction, as enrichers have been challenged by an uncertain market during the global economic downturn and the post-Fukushima environment. He linked the notion that “everything is about innovation” to uranium enrichment and questioned whether the industry has “lost its ability to dream.” Presenting a scorecard of each enrichment company’s role and success in the market, Einbund said the future of enrichment is tied to the future of nuclear, which is somewhat uncertain as questions about growth remain in the post-Fukushima environment.
More Talk about Uranium Price Transparency
The topic of market liquidity and transparency surfaced once again as a panel led by Rio Tinto Uranium Managing Director Clark Beyer discussed today’s uranium price reporting and if the environment for the uranium market should mirror characteristics of other commodities markets.
In 2007, the uranium spot price moved up rapidly as hedge fund speculators entered the market and competed against one another to get into the uranium game. Nuclear utilities and uranium producers became alarmed at what was happening to this small market and some felt that industry prices were not keeping up with the industry activity. Since that time, the market has fluctuated significantly and financial entities have entered and exited the uranium market, but have remained visible as buyers and sellers.
Beyer challenged the panel by asking if price indicators, reported bids and offers, NYMEX futures, and even complex financial derivatives and forward curves have given market participants more comfort and visibility into price formation. Or, does “price proliferation” only serve to confuse the issue further in a market with a limited number of active players and sporadic liquidity?
On the financial trading side of today’s market, ICAP Nuclear’s Joe Kelly stated that the uranium market is not transparent when compared to other commodities markets and that the market place has to work together to determine how to create a real-time uranium price.
Kevin Smith, with Traxys North America, said there is a link between liquidity and transparency that can’t be ignored as more liquidity leads to a more transparent price. He suggested that the industry is challenged by the 80/20 percent split between the long-term and spot uranium markets and that the spot market needs more activity to function more effectively as a price indicator.
Treva Klingbiel, president of TradeTech, which publishes the longest-running uranium market price indicators, supported the notion that participation in the uranium market has followed the same model for decades, which has made a transition away from the 80/20 long term-spot divide difficult to achieve.
From a utility perspective EdF Senior Procurement Manager Anne Chauvin does not support the idea that the uranium market is a commodity market, as utilities remain primarily concerned about security of supply. She added that uranium will remain a very strategic material and utilities have specific behaviors and try to maintain long-term coverage of their material needs and do not rely on the spot market.
Entergy’s Manager of Nuclear Fuel Supply Eric Lewis commented that utilities have different risk profiles based on the number of plants they operate. Entergy, which has several US nuclear plants in operation, does participate in diversification to “hedge the market.” Lewis added that while he believes there has never been a mechanism that satisfies the utility market, and uranium market pricing today isn’t perfect, he doesn’t know of a better solution.
Klingbiel pointed out that today there are more data points to track market activity and determine accurate price indicators. Cameco’s James Dobchuk agreed, adding that industry participants need to spend time and resources to achieve price discovery in the uranium market. He added, however, that utility buying habits are not likely to change.
Klingbiel commented that the current pricing issues are not new, as the market has struggled with these issues since the first price was reported by NUEXCO in 1968. “In all markets, buyers and sellers look for reference points to assure themselves that they are not paying too much or receiving too little. For such a small and thinly traded market we have an incredible array and variety of price indicators available,” Klingbiel said. She added that market conditions or the expectations of buyers and sellers dictate which indicator is used in a contract at any particular point. “Industry participants continue to use our spot and long-term price indicators in contracts or as a starting point for contract negotiations, which indicates that, while not perfect, our price indicators continue to have credibility.”
Editor’s Note: TradeTech’s Daily U3O8 Spot Price Indicator and Weekly U3O8 Spot Price Indicator are defined as the company’s judgment of the price at which spot and near-term transactions for significant quantities of natural uranium concentrates could be concluded as of the close of business each day or the end of each Friday, respectively. Definitions for TradeTech’s Monthly Price Indicators can be found at: http://www.uranium.info/uranium_price_definitions.php.
TradeTech’s price indicator definition reflects input from buyers’ bids, sellers’ offers, and transactions. The result is a definition that encompasses whatever relevant price information is available. In a buyer’s market, there will be very few, if any, buyers’ bids; in a sellers’ market, there will be few sellers’ offers, if any. The versatility of the current definition has been demonstrated in that it has served the market for over 40 years.
What exactly is TradeTech’s Exchange Value, Weekly Spot Price, and Daily Price? The straight forward answer is that the Exchange Value and TradeTech’s other values are simply as they are defined. An easier answer is that they are merely an indicator of the level of spot market prices. However, an opposite approach notes what the Exchange Value, Weekly U3O8 Spot Price Indicator, and Daily U3O8 Price Indicator definitely are not.
- They do not, in any way, measure, indicate, or provide any information about uranium production costs nor, by extension, about the prices at which future supplies of uranium should be sold in order to justify investment in new production facilities.
- They provide no information with respect to prices being paid for uranium that is being delivered today under contracts entered into at earlier dates.
- They provide no information nor judgment about correct, appropriate, economic, or fair prices for uranium. [top]