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Will 'Megatons To Megawatts' Solve The Uranium Supply Pinch ?

Commodities / Uranium Oct 27, 2010 - 03:44 PM GMT

By: Andrew_McKillop

Commodities

Best Financial Markets Analysis ArticleMEGATONS TO MEGAWATTS
World uranium supply deficit, currently running at about 12 500 to 15 000 tons (2010 mine and supply forecasts relative to demand forecasts), or about 20 percent, is covered from sources especially including stocks held by mining companies, power plant operators and builders. This massive deficit is also partly covered, perhaps by 4 000 tons of uranium equivalent per year, with recycled and diluted highly radioactive wastes including plutonium that are converted to so-called MOX fuel (Mixed OXide), almost exclusively in France and the UK.


There is one other "supply side solution", which is given periodic headline treatment, and that is the US-Russian "Megatons to Megawatts" programme, turning Russian arms, and an undisclosed number of US warheads into ploughshares by dismantling surplus atom bombs and recycling their atomic materials as reactor fuel. This programme was first mooted from just before the collapse of the USSR, in 1990-1991. The first physical operations, concerning 500 tons of Highly Enriched Uranium (HEU) from Russian bomb warheads started in July1993, but the first arrivals in the USA of 24 tons of Low Enriched Uranium (LEU) reactor grade fuel produced from 0.786 tons of Russian HEU only started in January 1995.

For this first year of shipments from Russia, the specially created US public-private entity US Enrichment Corp. (USEC) which administers this trade and partners with a small number of fully private entities on the commercial downstream received atomic materials equivalent to about 244 nuclear warheads (or 6.1 tons of HEU able to replace 186 tons of LEU reactor grade fuel). As of end 2009, the USEC says on its Web site that some 15 294 warheads have been "recycled" this way. According to the US Natural Resources Defense Council, the combined US and Russian atomic weapons stockpiles peaked in the 1985-1987 at about 41 000 warheads, and had already fallen well below 40 000 warheads by the time the Soviet Union collapsed.

Megatons to Megawatts is basically a "diluting" operation, stepping weapons-grade HEU down to the LEU fuels needed for most conventional civil power reactors. Plutonium is also separated, and can be "cut" into utilisable fuel using the MOX route although the amounts treated this way are not published and may be very low. The amount of fresh mined uranium the programme "displaces" , almost exclusively in the USA and not elsewhere, is however controversial. It is claimed by some sources like the WNA (World Nuclear Association) and the OECD's NEA (Nuclear Energy Agency) to have "displaced" about 13 percent of world reactor fuel requirements, around 8 000 tons of uranium in 2009, covering about 45 percent of the USA's total reactor fuel that year.

According to the US Council on Foreign Relations in a paper published January 14, 2010 and as of December 2009, a total of about 382 tons of HEU, equal to 15 294 warheads, has been turned into about 11 000 tons of fuel, for which the Russian government received more than US $8 billion, valuing the uranium equivalent fuel at around US $ 72 per kilogram (well below the current uranium price and far behind the 2007 most recent peak price of about US$ 290 per kilogram). The potential value of cut-down and diluted bomb materials, recycled as reactor fuel, can be gauged from analysts forecasts for uranium prices, in 2011, probably attaining US $ 175 per kilogram

END IN SIGHT ?

One major problem for this rather small but heavily mediatized fuel source is the probable near-term end to the "Megatons to Megawatts" programme, which is presently scheduled to stop in 2013. The "political and policy considerations" include just how much more of their weapons stockpiles the USA and Russia want to scrap. They also include the willingness or not of Russian suppliers to sell at below-market prices, into a very opaque market that can quickly add 20% or more to reported prices for the declared transactions that are used to report prices. Other factors weighing against Megatons to Megawatts include technical and technology issues, notably the amount of converted bomb material that can be used in reactors.

When we look at the actual declared amounts that are traded, by commercial private companies, we find quite large "missing amounts" of finished fuel (or upstream scrapped weapons), suggesting that uranium stocks and reactor (but not bomb warhead) materials are increasingly entering the programme.

The major authorized private company operating this market, the world's largest uranium mining and fuel supply company Cameco, is estimated by industry observers as buying and reselling around 7 million pounds (3182 tonnes) of Russian ex-military source uranium fuel each year, in the past 2 to 3 years. Other suppliers handle much less than this, and Cameco's agreement with the sole Russian supplier, the state firm Techsnabexport (Tenex) will terminate in 2013 unless president Obama and the Medvedev-Putin duo make a decision to continue scrapping warheads.

For the select group of North American re-seller companies including Cameco, for which this supply represents about one-quarter of its total sales of uranium, termination will represent a major challenge. For the USA's 100-plus civil reactors in current operation, a claimed 45 percent or more of their present annual fuel generates a need for at least 8000 tons a year, perhaps more, to satisfy the 45 percent claim.

The most important point is that any start of phasing down in operations of the Megatons to Megawatts programme from the most recent rate (since 2006) of an average 1200 warheads scrapped each year, which was already lower than the rate in the preceding 3 years 2002-2005), will automatically increase the quantities of "fresh mined" uranium needed by US reactor operators. This will quickly add another twist to a world supply/demand context already heavily in deficit.

OPAQUE MARKET - TRANSPARENT PRICE OUTLOOK

There is no "open market" for uranium fuel of any kind, either produced or "fabricated" from fresh mined uranium, or MOX fuels derived from nuclear wastes, or fuels from scrapped nuclear weapons. The few entities which provide price data, such as TechTrade and UxC, report prices given on private transactions by the parties concerned, often with several weeks delay, and with no capacity for verifying the actual or real amounts, and prices. The Megatons to Megawatts programme fits well with this secretive hard to verify business, to the extent that real amounts of uranium equivalent fuel supplied may be well below the published amounts. On the Russian side these are likely made up to the declared amounts through mine stocks of uranium, and uranium fuel stocks from so-called "research and military" reactors, for which no data is available.

All of these sources to, and substitutes of the Megatons to Megawatts programme are unlikely to increase their net supplies of uranium equivalent fuel, and the majority may quite rapidly decrease. As already mentioned we have a basic and massive undersupply of world uranium fuel supply, but also have some 56 new reactors under construction and 439 in operation, with perhaps as many as 200 more reactors planned or proposed for the next 9 years (2011-2020). Results of this "outright and announced crisis" will certainly include a radical increase of uranium prices, triggering more mine investment and development, and possibly a Russian decision to cash in on the coming uranium price boom through staying their decision to stop scrapping bomb warheads in 2013.  

To be sure, fuel costs for nuclear reactors are a small slice of total costs, but over and above about a uranium price of US $ 80 to 100 per pound, fuel costs start to become very significant for power plant operators and builders, because of stockpiling needs and their costs, with first loading requirements of a typical industry standard 900 MW reactor being about 250 - 350 tons. Probably much more important for the industry, any long-term structural-type fuel shortage will cast a long and deep shadow on the highly mediatized "Nuclear Renaissance".

By Andrew McKillop

gsoassociates.com

Project Director, GSO Consulting Associates

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

Contact: xtran9@gmail.com

© 2010 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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