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Russia Expands Role in U.S. Energy Sector with Uranium Deal

Commodities / Uranium May 27, 2009 - 01:44 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJason Simpkins writes: Russia (Tuesday) will begin selling enriched uranium directly to U.S. utilities, a development that will give the fuel supplier an expanded role in the U.S. energy sector for decades to come.


Techsnabexport, a state-owned nuclear energy company, has agreed to sell an undisclosed quantity of enriched uranium to a consortium of American companies for more than $1 billion, Reuters reported. The U.S. companies involved include PG&E Corp. (NYSE: PCG) and Ameren Corp. (NYSE: AEE).

deal will give utilities a chance to deal directly with enriched uranium suppliers and creates a better opportunity for Russian energy companies to come into the U.S. market.

However, it also undermines the United States’ ability to dissuade other countries from pursuing their own uranium enrichment programs.

North Korea, which carried out a nuclear test over the weekend, and Iran, which is currently facing United Nations sanctions for pursuing its own enrichment program, are two countries that could potentially use Russia’s commercial uranium sales to justify their atomic ambitions.

Nuclear reactors run on uranium that has a composition of 3% and 5% uranium 235. However, uranium houses just 0.7% of uranium 235 in nature, which means it needs to be enriched. Atomic weapons and nuclear submarines require a uranium 235 density of more than 90%.

Thanks to its Cold War buildup, Russia leads the world with about 40% of global uranium enrichment capacity and has long supplied atomic fuel to countries in Europe and Asia.

Russia is also the leading supplier of enriched uranium to the United States, but those dealings were previously funneled through the United States Enrichment Corporation (USEC) as part of a program to eliminate nuclear weapons.

The USEC was originally part of the U.S. department of energy, but has since been sold to a private company.  Though even after the company was sold, the government allowed the USEC to maintain its monopoly on the sale of diluted weapons-grade uranium from Russia. And Russian authorities complained that the USEC was underpaying.

Sales of diluted weapons grade uranium will still go through USEC, but Techsnabexport and other Russian companies now have the opportunity to sell separate, commercially conscripted uranium directly to U.S. utilities.

That gives Russia, which provides half of all the uranium used in U.S. civilian reactors, a chance to be a key supplier in an industry that is growing exponentially as the demand for clean energy continues to soar.

Nuclear Energy’s Bright Future

There are 104 nuclear power plants currently operating in the United States, and one more under construction. And many more are on the way, as nuclear plants provide 70% of the United States’ non-carbon-generated electricity.

With electricity demand expected to grow by 50% in the United States between now and 2030, utilities have applied to build more than 30 new reactors here in the United States, often at spots adjacent to existing plants. And to meet global warming goals, 42 reactors could be built the next two decades, according to the Electric Power Research Institute.

President Barack Obama is pro-nuclear, but his administration favors renewable sources - such as solar, wind, geothermal, and hydropower - rather than atomic energy. However, there is a strong groundswell of support building for nuclear power in the U.S. Senate.

U.S. Sen. Lamar Alexander, R-Tenn., will call this week for the construction of 100 new nuclear power plants over the next 20 years.

"If we’re serious about clean air, if we’re serious about climate change, if we’re serious about having enough low-cost, reliable electricity to keep our jobs from going overseas, we don’t have any other option," Alexander told the Knoxville News Sentinel.

Alexander acknowledged that renewable sources are the best option for the future but that the technology and infrastructure probably won’t be ready for another 30, 40 or even 50 years.

“Climate change may be the inconvenient problem, but nuclear power is the inconvenient answer," he said.

The Senate Republican Conference this week will begin a series of hearings on issues, such as loan financing, nuclear waste, and labor. Senate Republicans hope to piece together a blueprint over the next several months that will offer more details about building new nuclear plants to meet growing demand.

 

[Editor's Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this "New Reality"will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive - they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as "Golden Age of Wealth Creation" The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it's particularly well suited to the kind of market we're all facing right now. Check out our latest report on these new rules, and on this new market environment.

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