The anticipated rise in uranium fuel prices in the decade ahead is turning attention to the new IAEA plan to establish a uranium fuel bank in Russia. The International Atomic Energy Agency (IAEA) announced the plan in December 2010. The idea is not new. A plan to move low enriched uranium (NYSEMKT:LEU) fuel out of public hands to be managed by an international organization was first proposed by U.S. President Dwight D. Eisenhower in December 1953. But during the Cold War years none of the major countries were willing to let a uranium fuel bank be located in a competitor country. So the plan stalled. It was brought up again after the demise of the USSR, but the uranium market was in the doldrums. The blending down of weapons-grade uranium for use in nuclear reactors left the uranium market depressed for two nearly decades.
In 2013 this U.S. Department of Energy-sponsored uranium blend-down program, the “Megatons to Megawatts Program” is scheduled to come to an end. Indications are that the Russian counterpart, Rosatom, will not renew the contract. Over the course of the program at total of 500 tons of LEU has been marketed through the U.S. agent, USEC Corporation. The fissile material capable of 20,000 Soviet-era nuclear warheads was blended down, supplying electricity to roughly ten percent of US demand. Looking ahead, the conventional uranium suppliers will be picking up the shortfall.
There are good reasons to expect unmet nuclear fuel demand to rise in the decade ahead. The nuclear industry has been experiencing a “renaissance” of public support for nuclear reactor-produced electric energy as a carbon-free, bridge fuel until fusion or hydrogen power comes on the line sometime later in the century. Popular anxieties that rose after the 1979 Three Mile Island accident and the 1986 Chernobyl catastrophe have been put into a larger perspective by rising oil and gas prices and the perceived oil energy market vulnerability. These factors suggest a new round of competition in uranium markets.
Power generation capacity indicates rising demand for nuclear fuel. The World Nuclear Association, a producer-sponsored independent research organization, anticipates a steep increase in fuel supply. Worldwide, 441 nuclear power plants are now in operation and another 63 are under construction. An additional 163 are in planning stages. Down the line, larger numbers of potential nuclear power stations are being discussed.
Given contemporary energy economics, rising uranium demand is inevitable if not imminent. Rising exploration, production, refining, and transit costs for hydrocarbons are sure to make nuclear reactors an increasingly attractive power source. So as concerns the prospects for nuclear fuel, the question is not if but when. But given the inevitability of rising demand, analysts should be more carefully sorting out the timing implications of the coming boom for a market with a long and established history of a highly volatile, hard-to-anticipate boom-to-bust pattern.
The plays tend to be divided among the fuel, the miners, the down-stream fuel processing companies, and the ETFs trying to hedge the risk across the board. Market analysts tend to be focused on choosing among the standard drivers—the large cap mining companies such as Cameco Corp. (NYSE: CCJ), which operates the world's largest single uranium mine or the more agile and smaller companies such as Uranium Resources (URRE), Denison Mines (DNN), or Ur-Energy (URG) or, alterne the EFTs who are tracking the market such as iShares Global Nuclear Energy Index Fund (NUCL), the PowerShares Global Nuclear Energy Portfolio ETF (PKN).
But the action is rapidly moving—actually it has already moved—offshore. China National Nuclear Corp (OTC:CNNC) has been incrementally expanding domestic uranium production, stepping up uranium exploration activity within China particularly within Inner Mongolia and the western Xinjiang province. CNNC spun off a subsidiary, the China Uranium Corporation, to go shopping on the world uranium market. According to the World Nuclear Association, in 2009 Kazakhstan’s uranium production surpassed Canada’s production. Kazakhstan alone is now producing more than a quarter of the world’s uranium for fuel purposes.
Russia’s international fuel bank project—now officially referred to as the uranium reserve—was originally part of a complicated diplomatic horse-trade. To encourage new nuclear non-proliferation constraints at the same time as expanding international cooperation in peaceful nuclear power, the members of the UN Security Council reached consensus on the idea of establishing a means to assure all IAEA states access to LEU for power generation without the necessity of developing their own uranium enrichment technology. The Russia project was endorsed with EU and U.S. support and start-up funding.
The day it received IAEA approval, the Russian fuel bank opened its doors. Located in the Siberian city of Angarsk near Lake Irkutsk, the plant is a reworked Cold War era uranium enrichment facility. It will be expanded into a 120-tonne LEU reserve that can serve as a last-instance supplier to IAEA Member States supplying LEU fuel at “market prices.” Russia’s rapidly expanding fuel bank concept, piggybacks on Russia’s state-owned and strategically-focused nuclear power industry. There is still a lot to be determined by the details. The wild card will be the enduring price-effect of guaranteed access to uranium fuel at “market prices.”
Disclosure: Author holds no position on any commodity or stock mentioned in this article.
Disclaimer: The content appearing here represents the private views of the author and does not represent the position of the U.S. Department of Defense or the George C. Marshall Center.