David Stellfox, Senior Editor, Platts Global Nuclear
A global nuclear construction boom is likely to keep the pressure on already tight uranium supplies. The market is responding with new mine projects, higher commodity prices, and new financial products, but will the supply meet the demand?
AS THE NUCLEAR POWER RENAISSANCE continues to build steam, the raw material needed to fuel that renaissanceuraniumbecame a darling of the mining and financial communities in 2007 andlike coal, oil, and gasthe subject of intense global exploration and acquisition activity.
The spot price of uranium skyrocketed to historic highs in 2007, capping a three-year upward trend and reaching $135 per pound this summer on the back of projected demand growth and limited near-term supplies. By autumn, as buyers balked, it was back to the mid-$70s/lbstill historically high.
The phenomenal price rise was both a cause and, many argued, a consequence of the new interest in the uranium market by non-traditional participants like hedge funds and investment houses. Before the price began its upward march in 2004, it hadn't exceeded $20/lb in the previous 15 years.
New investments, and investment vehicles, have proliferated. In 2006, South African uranium miner Nufcor Group launched a uranium investment fund on the London Stock Exchange's AIM. In May 2007, the first uranium futures contract was launched on the New York Mercantile Exchange. In July, the DAXglobal Nuclear Energy Index was launched on the German stock exchange, tracking securities of companies engaged in nuclear energy. In August, Standard & Poor's launched its Global Nuclear Energy Index, and Van Eck Global launched the Market Vectors-Nuclear Energy exchange-traded fund on the American Stock Exchange.
The unprecedented attention from the financial world has led to industry discussions about changing price discovery and other mechanics of the world's nuclear fuel market. But traditional players have resisted giving up the hedge strategies they knowlong-term contracts, often bilaterally negotiatedfor risk management strategies developed in other energy commodity markets.
Uranium AvailableAt What Price?
While world uranium resources are generally considered to be more than adequate to meet foreseeable needs, ongoing production and supply constraints, and questions about whether new production can be timed to meet demand growth, mean the market is likely to remain tight for some years to come.
The OECD Nuclear Energy Agency and the International Atomic Energy Agency's latest (2005) Red Book predicted that primary uranium production could satisfy projected world uranium requirements by 2010 only if all expansions and mine openings proceeded as planned and production were maintained at full capability. Secondary sources, such as ex-weapons and government stockpile material, are expected to dwindle, particularly after 2015, it said.
In that environment, start-up companies and junior minors are proliferating, using venture capital to stake claims and obtain explorations permits the world over, hoping to find enough uranium to lead to a stock market listingor at least to be bought out by one of the majors. Mines once closed as uneconomic are being re-evaluated and re-opened. The Red Book said the bulk of resources identified in 2003-05 were "not the result of new discoveries, but … re-evaluations of previously identified resources in light of … higher uranium prices."
According to a World Nuclear Association study released in September, an adequate supply of uranium is expected until 2030, with production picking up sharply between now and 2015. In 2010-15, WNA said, there could even be a surplus. The WNA study does say that, while uranium resources are considered to be extensive, many are not delineated, let alone developed.
The Reactor Count
Meantime, uranium's customer base is growing. In addition to the 438 reactors operating worldwide in 2007, the WNA counted 46 under or about to start construction.
Russia is on a crash course to build up to three nuclear power units per year to bring nuclear's share in its electricity supply from today's 15.4% to 23% by 2020.
China is also planning a major nuclear power expansion. China Guangdong Nuclear Power Holding Co. Ltd. announced plans earlier this year to have 6,000 MW of nuclear capacity on line by 2010, 15,000 MW by 2015, and 34,000 MW by 2020. The company operates half the 8,000 MW of nuclear capacity in China today. China is rapidly acquiring nuclear technology, partly through technology transfer agreements built into supply contracts with Western vendors, and hopes to begin exporting reactors by 2020.
India has a mostly indigenous nuclear power program and plans to have 20,000 MW on line by 2020, from today's 3,500 MW, and to get 25% of its electricity from nuclear by 2050. India may be aided by a special agreement with the US, which is to open up nuclear power trade despite India's refusal to give up its nuclear weapons program.
Japan, with 55 reactors, plans more but has difficulty with public acceptance for new sites. South Korea, which like Japan must import virtually all energy, continues its program to reach 26,600 nuclear MW by 2017. It has 18,400 MW today.
Russia has been corporatizing and consolidating its nuclear companies, long part of the state bureaucracy, in a bid to expand domestically and support Russian vendors in export markets. Russian industry has built reactors of Soviet design in China, India, Finland and Eastern Europe, and has a near monopoly on their fuel supply.
Global consolidation among nuclear vendors continued through 2007. They included French vendor Areva's acquisition of junior uranium miner UraMin and its assets in Africa; a General Electric-Hitachi joint venture for new nuclear construction; a Constellation Energy and Electricite de France tie-up to support deployment of Areva's EPR reactor design in the US; Westinghouse's purchase of IST Nuclear, a major supplier for the Pebble Bed Modular Reactor under development in South Africa; Kazakhstan national uranium miner Kazatomprom's purchase of a 10% share in Westinghouse from Japan's Toshiba, Westinghouse's majority owner; and Kazatomprom's 10% share in Russian industry's enrichment venture, the Angarsk International Uranium Enrichment Center.
Planned reactor construction in the USwhere up to five requests for combined construction/operating licenses are expected by the Nuclear Regulatory Commission by the end of 2007 and up to 32 total by 2010is grabbing headlines.
But in addition, all the 104 operating US units are expected to run for 60 years, rather than the 40 years initially licensed, and most are being uprated, some by more than 100 MW.
In Europe, with reactors under construction in Finland, France, Romania, Bulgaria and Slovakia, all eyes are now on the UK for its policy decision on replacing its rapidly aging reactor fleet, whose technical ills won't allow life extension. Nuclear supplies about a quarter of UK electricity. The UK government wrapped up a second public consultation on whether to permit new nuclear construction this fall, which some environmental groups boycotted. But with North Sea oil and gas reserves being rapidly used, and increasing dependence on gas and coal imports, the UK was widely expected to approve new nuclear construction.
Luc Oursel, CEO of Areva NP, said in September that the UK represents the first new large-scale nuclear power program in a European country that had effectively given up on nuclear. Also, the UK has one of Europe's most open, competitive energy markets, so a successful nuclear revival there would demonstrate anew nuclear's economic competitiveness, he said.
Europe's Environment Shift
After the 1986 accident at the Soviet nuclear unit at Chernobyl, many European countries began officially or unofficially pursuing nuclear phase-out. But with increasing global warming concerns and a newly aggressive EU energy policy, many countries are reconsidering.
In its first attempt at a comprehensive EU energy policy in January 2007, the European Commission for the first time openly supported new nuclear generation in the name of supply security and carbon emissions reductions. In a bow to officially anti-nuclear EU members, the EU maintains that use of nuclear power is up to individual countries. Nonetheless, the EU is gearing up towards increasing Europe's nuclear capacity.
Discussions are under way to reinvigorate the Euratom loan program, last used following the collapse of the Soviet Union to improve safety at Soviet-designed plants in eastern Europe. In 1977-87, 90 Euratom loans helped finance nuclear facilities in five countries. But the program has a budget cap of €4 billion. There are increasing calls, and quiet discussions, aimed at making Euratom loans again available to help finance nuclear plants by increasing the cap to at least €6 billion.
Similarly, the European Investment Bank, the EU's investment arm, has said it will once again consider financing new nuclear power plant construction in line with EC energy policy. Although it aided building reactors in the past, it hasn't done so since the 1980s.
Although new construction is still unlikely in some western European countries, upgrades to increase output of existing reactors have been under way for more than a decade and the idea of life extension is increasingly breaking through long-standing political agreements on phase-out.
In Belgium, Suez-Electrabel's seven units are scheduled to close beginning in 2015 under a 2003 nuclear phase-out law. While Belgium's fractured political parties had not succeeded in forming a new government months after the June 10 elections, the parties did agree during summer negotiations that at least some units should be allowed to operate beyond the 40-year limit. A Belgian government commission went further, arguing that without nuclear power and carbon capture and storage, Belgium would never reach its Kyoto Protocol carbon dioxide emission reduction targets, unless CO2 costs rose to between €500 and €2,000 per metric ton.
In the Netherlands, the single nuclear unit, Borssele, has overcome a politically-imposed phase-out and can now run 30 additional years. Discussion on new nuclear construction is under way, with utilities Essent and Delta said to be interested in building. An October report from the government's highest advisory body, the Social and Economic Committee, says that, while nuclear can not be considered a "renewable" source, it can contribute to CO2 reductions and is cheaper than on-shore wind facilities.
Sweden retains a ban on new nuclear, but power uprates at existing reactors will result in adding the equivalent of a large reactor by next year. Bulgaria has just begun a project to build two new Russian 1,000-MW reactors. Romania is planning to add one, and maybe two, Candu reactors at its Cernavoda station.
Slovakia will build another two Russian-design VVER-440 units under the aegis of Italy's Enel, owner of national utility Slovenske Elektrarne. In the Czech Republic, state utility CEZ is exploring adding a second pair of large reactors at Temelin. To join the EU, Lithuania was forced to plan shutdown of the two Soviet-design units at Ignalina, the largest of the Chernobyl design type, whose 2,400 MW produced 80% of the country's generation. With unit 2 to close in 2009, the government is moving to build a new reactor at the site, and has the national utilities of Latvia, Estonia and Poland on board. Ukraine, which got almost 50% of its electricity from nuclear in 2006, is considering adding up to 11 new reactors by 2030.
According to the Red Book, installed global nuclear capacity is projected to grow from about 369 GW net at the beginning of 2005 to about 449 GW net by 2025 in the lowest case and in the high case to 553 GW net. The uranium needed to fuel this growth is projected to increase by 22% and 50% in the low and high case, respectively, from 2004. The biggest growth is expected in East Asia, where uranium requirements are forecast to double between 2004 and 2025.
The Red Book says, "Planned capability from all reported existing and committed production centers based on resources recoverable at a cost of less than $80/kilogram uranium is projected to satisfy about 79% of the low case requirements and only about 64% of the high case requirements in 2025."
Along with predicted global shortages in manufacturing capacity for reactor components, technically skilled labor and management expertise, uranium too could become a limiting factor for the global nuclear renaissance.
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