In a paper ConverDyn presented at the World Nuclear Fuel Market (WNFM) meeting earlier in 1997 we focused on information and communication in the nuclear fuel industry and the impact market perception has on both production and procurement planning (Ref 1). We also reviewed the variation in total demand projections developed by our industry experts and the difficulties those variations present to primary convertors, as well as others, in predicting potential sales and price movements.

For this paper for the Uranium Institute Symposium, I would like to shift the focus to the supply side. To facilitate this, for all of our supply/demand balance comparisons I have assumed demand consistent with the natural UF6 equivalent of the Uranium Institute's reference scenario for world uranium requirements, as presented in the 1996 Market Report (Ref 2).

Projected conversion service supplies and the stability of those supplies are key factors for utility procurement planning and for supplier long-range production planning. Conversion services represent the smallest component of the fuel cycle in terms of total investment (approximately 4% of front-end costs for most utilities); however, conversion represents an essential element in new fuel production. While a perception of a forthcoming oversupply of conversion services seems to be prevalent in the market today, and many industry analysts are predicting softening prices, the reality may be quite different.

In this paper I will present ConverDyn's view of "supply reality" in the conversion market place. Initially, I will focus on primary production. In ConverDyn's view, really only four of the five primary suppliers of conversion services have significant production available to the Western World market place without restrictions. For these four, estimates of actual output historically have been 85% of the nameplate capacity. However, this assumption clearly does not apply to estimates of output available to the Western World from Minatom facilities. Furthermore, ConverDyn believes that this assumption is questionable for any of the primary suppliers in today's tight market. Here are a few comments regarding the reality of the numbers.

Primary Supply Sources

In the United Kingdom, British Nuclear Fuels plc (BNFL) reports a nameplate capacity of 6000 tU/year, but may actually be producing at higher than expected levels of output at its new facility in order to meet contracted demand. Therefore, 6600 tU/y has been included in the primary supply chart (Figure 1).

In Canada, Cameco Corporation, with a nameplate capacity of 10 500 tU/y, has reached an output of approximately 95% of capacity, but may be more comfortable with a sustained level closer to 85%. Nevertheless, a constant level of 95% of capacity has been included (10 000 tU/y). We do not include Cameco's UO2 production capabilities in this analysis.

In France, Comurhex has an annual nameplate capacity of 14 000 tU, but is believed to be operating at closer to the 90% level. Therefore, approximately 12 600 tU has been included in our primary supplier totals.

In the United States, as a result of upgrades to the Metropolis facility, ConverDyn has recently operated at 99% of nameplate capacity, or approximately 12 500 tU annually, to meet contracted demand. While sustained operations at this level are sometimes extremely challenging, we have been optimistic and used this figure in our totals.

The final primary convertor and the most difficult to forecast is, of course, Minatom of Russia. While earlier published reports have estimated Minatom's capacity at 22 000 tU/y, more recent studies indicate that maximum capacity may be closer to 19 800 tU, and of that amount only about 12 000 tU is produced on an annual basis. Of this 12 000 tU, approximately 9000 tU is consumed domestically and in the former Soviet Union, which leaves only 3000 tU/y available for export.

As it is not possible for legal reasons to deliver uranium concentrates to Russia for conversion from the United States, and it may not be practical to deliver concentrates from many other nations, the amount of conversion that is sold outside Russia is directly tied to the quantity that can make its way into the West through enriched uranium product (EUP) deliveries. This in turn depends on the restrictions on uranium imports from Russia which exist in the main Western markets.

The five primary conversion suppliers, with an estimated total projected output of 53 700 tU/y, have been the fundamental providers of conversion to the industry and remain critical to the long term stability of nuclear fuel supply. Figure 2 and Figure 3 show their total nameplate and nominal capacities respectively against the UI reference scenario demand.

Secondary Supply Sources

Secondary Supplies from Russia
In terms of additional supplies of conversion services to the market, by far the largest significant source of near term supply beyond the primary suppliers is the projected delivery of HEU from Russia (Figure 4).

During 1995 and 1996, 18 t of Russian HEU (equivalent to 5490 tU as natural UF6) was delivered to the US Enrichment Corporation (USEC). Consistent with the 1996 USEC Privatization Act, USEC transferred the natural feed component of this to the US Department of Energy (DOE). Subsequently, DOE entered into a contract which supplied approximately 2700 tU of this material to the Russian Executive Agent to be used in matched sales under the anti-dumping Suspension Agreement between the USA and Russia.

A significant portion of this feed component (uranium and conversion) has already been sold through that mechanism. The balance, which remains with DOE, is expected to enter the market in the post 2001 time period in accordance with DOE plans.

For the period 1997 and beyond, availability of feed from the Russian HEU may be the most uncertain source of conversion supply. As reported in the industry press, the sale of the natural uranium and conversion contained in the Russian HEU has been the subject of long negotiations and many differing predictions. Sales are also subject to unexpected actions by the United States and Russian governments - two entities which may not move in ways which appear rational to the nuclear fuel industry.

Most recently, published reports have stated that Minatom will sell 45% of the available UF6 to Cameco, 45% to Cogema and 10% to Nukem Inc in the first five years. Minatom reportedly will keep some of the UF6 for its own uses, including re-export back to Russia for enrichment and use in Russia's domestic market.

The current contract between USEC and Minatom for the enrichment component of the HEU calls for the blending of Russian HEU at the rate of 18 t in 1997, 24 t in 1998, and 30 t for each of the three years 1999 through 2001. If deliveries of SWU to USEC are made on this schedule, the natural UF6 component (consisting of 5480 tU in 1997, 7307 tU in 1998, and 9133 tU/y from 1999 through 2001) will enter the United States.

There are many questions surrounding Russia's ability to meet such a schedule. More than halfway through 1997, Russia had only delivered 40% (7.3 t) of the scheduled 1997 deliveries of HEU-derived material to the United States, and the subsequent sale of the UF6 feed component is still uncertain. Even if Minatom is able to accelerate shipments for the remainder of 1997, is an even more aggressive schedule for the following years realistic?

The UI recently published a report titled The Recycling of Fissile Nuclear Materials (Ref 3) that reflects on three potential scenarios for HEU blending, with the mid range case based upon Russia sustaining its current blending capacity of 12 tHEU/y. Based upon our research at ConverDyn, we believe that an annual blending rate of 18 tHEU is obtainable over a long period without significant additional capital investment on the part of Russia, but even at this level the additional supplies of conversion services do not dominate demand in the way that many fuel buyers may expect.

Secondary Supplies from the USA
Along with the Russian natural UF6 derived from HEU that may enter the market place, the USEC Privatization Act provided for the transfer of 50 t of US HEU metal (equivalent to 6751 tU as natural UF6) to USEC from DOE. Assuming an aggressive blending schedule by USEC, this material could begin to enter the market as early as 1998 (Figure 5).

In addition, the National Energy Policy Act of 1992 mandated the transfer of 13 t of HEU in the form of enriched UF6 to USEC from DOE. This material is currently being fed into the cascades at USEC's enrichment plants; its feed component could theoretically be sold into the market at any time, most likely as EUP.

The USEC Privatization Act required also DOE to transfer up to 7000 tU as natural UF6 from its stockpile to USEC. This material may be brought to the market under certain conditions as defined in the act. However, this material could alternatively be used as blendstock for diluting the 50 t of HEU mentioned earlier, in which case it would not show up as additional supply available to the market.

Over and above those stockpiles transferred to USEC, another 76 t of US HEU in the form of metal and nitrates (equivalent to 10 262 tU as natural UF6) has been deemed surplus, and marketable, by the US government. This material is expected to be blended down and introduced to the market after 2000.

Aside from all the HEU that may potentially enter the market, DOE holds a surplus stockpile consisting of approximately 8229 tU as natural UF6 (Figure 6). Approximately 460 tU is in the form of EUP, which is projected to be destined for USEC. In response to the USEC Privatization Act, DOE issued earlier in 1997 a determination by the Secretary of Energy that the domestic uranium mining, conversion and enrichment industries would not be adversely impacted as a result of DOE providing up to 3.2 million pounds U3O8 (1230 tU) equivalent to the market in 1997.

Delays, which may have been influenced by a recent downward trend in uranium prices, have resulted in DOE recently deciding to release only 1 million pounds U3O8 (385 tU) equivalent for sale in 1997. In addition, recent reports indicate that a schedule for sales in the post 1998 period has been defined by DOE with an annual quantity of up to 3.4 million pounds U3O8 (1300 tU) equivalent for 1998 through 2003. DOE is currently drafting another secretarial determination, which will be required prior to any future sale.

Secondary Supplies from MOX Fuel
The last factor contributing to "supply" in the conversion market is the projected increase in the use of mixed oxide (MOX) fuels. Displacement of UF6 conversion services by MOX fuel is projected to increase from a current estimate of 432 tU/y to as much as 2880 tU/y by 2015 (Figure 7). This is based on the assumption that utilities in France, Germany and Japan will continue to reprocess spent fuel.

Implications for the Market

Figure 8 shows the total supply from the secondary sources described above, while Figure 9 compares total supply (primary and secondary) with the UI reference scenario demand; Figure 10 assumes that Russian HEU deliveries are levelised over the period to 2017. These figures show a fairly extended period of relative supply/demand balance. But the biggest question that remains for utility buyers and primary suppliers is who will bring to market the various secondary supplies of natural UF6 and how will the natural uranium and conversion services components be introduced to the market? Given our past experiences of government intervention in the nuclear fuel business, how can either buyers or primary suppliers make dependable forecasts for something as critical as front-end fuel supply?

There are numerous potential scenarios which one could postulate from this uncertain forecasting environment. One scenario is to assume that the secondary supplies will not reach the market as presently predicted. Another scenario is that a primary supplier will need to go into standby to make room for the secondary supply (Figure 11). This is a scenario that has already taken place during this decade with the closure of the Sequoyah Fuels facility in 1992 and the formation of ConverDyn. In terms of security of supply, it is also important to recognise that in the past uncertainty has been reduced by utility owned and controlled UF6 stockpiles that have since dwindled considerably (Figure 12).

In his paper presented at the WNFM meeting (Ref 4), Julian Steyn pointed out that while "more than 40% of all of the uranium produced since the beginning of the 1940s still exists today", approximately half of that inventory is in the form of HEU, owned and controlled by governments. It is, therefore, subject to political constraints. According to Steyn, another 25% "is held by electric utilities and their suppliers" and "may be categorised as commercial". Obviously, much of this inventory, in its various forms, contains conversion. But is the available commercial portion adequate to cover utility needs, and if not where does dependence on government controlled stockpiles leave the nuclear fuel industry?

If a primary supplier were forced to shut down, utilities could become reliant on the import to the USA of material derived from Russian HEU to compensate. Each utility must determine if that alternative near term supply is reliable. What about the US government surplus and HEU stockpiles? Are they coming into market or are they not, and if so, when? Is it prudent to depend upon them for a critical 4% of the fuel cycle? The management of each utility must decide if it wants to depend on government surplus for its front-end fuel supply. In the United States, utilities may well remember how the Nuclear Waste Fund has been handled by their government.

As indicated at the beginning of this paper, predictions are that the industry will see many new sources of conversion contained in stockpiles of various forms, but both timing and predictability are uncertain. How can utility fuel buyers, primary suppliers, traders and governments separate expectations and predictions from reality so that each can make prudent, responsible decisions? What can the fuel buyer do to make the best possible decisions with all of the information that is available? Does the industry continue to work and plan from perception and uncertainty, or do we work with real numbers to maintain reliable forecasts? Look at other industries: automobiles, oil and gas, computer chips - all have one thing in common, they work with real numbers and projections so that the markets remain competitive and growth prevails. Competition assures that supply will be adequate for demand.

As many electricity utilities prepare to face the most competitive era in their history, fuel managers must be able to forecast where the most secure supplies will be available at the lowest price. Stability and predictability are essential to the survival of a healthy nuclear fuel cycle industry. As a long term primary supplier of conversion services to this industry, ConverDyn urges utilities to continue to focus on the principles of successful fuel management, ie. competitive prices, security of supply and a mixed portfolio of supply sources.