1. Introduction: Tight SWU Market Ahead of Us?
Over the past six years:
• starting prices charged under new long-term natural uranium contracts increased 400%, from US$9.50/lb U3O8 at the end of July 2000 to US$47.50/lb U3O8 at the end of July 2006; and
• starting prices charged in North America under new conversion long-term contracts went up 280%, from then US$3.25/kg U to US$12.25/kg U now, while prices for European customers went up 240%, from then US$
4.00/kg U to US$13.50/kg U now.
Simultaneously, starting prices charged under new enrichment long-term contracts went up just 60%, from then US$83/SWU to US$132/SWU.
If we regard price movements as the clearest indicators of changes in the supply and demand situation of commodities and services, then the said price increases are clear signs of tightened uranium and conversion supply.
But what do the much smaller SWU price increases mean? Is the SWU supply and demand situation still less strained than are the markets for natural uranium and conversion services? And where does the Russian enrichment industry find itself in this SWU market? What about this industry's short-, medium- and longer-term perspectives? These are just some of the questions to be addressed in my presentation.
2. Basic Assumptions
This analysis of the current situation and the likely medium- and longer-term directions of the SWU market are based on the following observations and assumptions:
• The "nuclear renaissance" is gathering momentum. Evidence suggests, that in the next twenty years more NPP projects will be launched and start up than expected 12 months ago. In addition, the number of NPPs awaiting upgrading and lifetime extension has increased.
• Accordingly, NUKEM revised future installed world nuclear electricity generating capacity figures upwards. We currently proceed on the assumption that worldwide installed NPP capacities will increase from 366 GWe at year-end 2006 to 518 GWe by year-end 2026, meaning a total increase of 152 GWe, representing 42% in total or 2.1% annually. Figure 1 shows that for the period beyond 2020 NUKEMís figures are clearly above the capacities given in the World Nuclear Association's (WNA) Reference Scenario dated September 2005. Furthermore, NUKEM expects average load factors to increase further in quite a number of countries, implying that worldwide uranium, conversion and enrichment demand will increase more strongly than installed reactor capacities.
• As shown in Figure 2, NPP capacities in Western Europe will gradually decrease. In contrast, in the USA installed NPP capacities will go up. In the CIS and Eastern Europe, NPP capacities will even double over the next twenty years. However, the Far Fast will experience the biggest leap ahead in terms of installed NPP capacities. Thus, the focus of uranium, conversion and SWU sales will shift somewhat eastwards.
• Figure 3 shows installed NPP capacity by type of reactor design. Throughout the period considered, Western design reactors will dominate. However, the capacity of the Russian-design reactors will more than double until 2026, and the Russian nuclear fuel industry is expected to dominate the related uranium, conversion and SWU market segments throughout the entire period considered. This is a basic assumption for my Figures presented hereinafter.
3. Is the Enrichment Industry Prepared for the Challenges of the "Nuclear Renaissance"?
The enrichment industry came out with a great deal of good news in the past twelve months:
• Firstly, AREVA got the necessary formal approval for the Cardiff Agreement on the planned Urenco/AREVA joint venture in gas centrifuge technology and SWU production.
• Secondly, Urenco's enrichment capacity expansion in Europe is progressing as planned.
• Thirdly, LES got the license for the construction and operation of the National Enrichment Facility (NEF) at Eunice in south eastern New Mexico (USA).
• And last, but not least, the execution of the US-Russian HEU-LEU Agreement (HEU Deal) is still going smoothly.
However, other items are anything but clear:
• Given Russia's repeated announcements that there will be no follow-on HEU deal, USEC is doomed to be successful with its centrifuge technology in order to stay as a main player in the enrichment business. However, USEC's technical approach triggers a number of questions:
• Early in August 2006, information emerged that Rosatom might stop the commercial tails re-enrichment, but no clear indication was given when this would happen. The information is of particular interest insofar as Russia is believed to use part of the Western tails and part of its SWU capacity to produce urgently needed enriched natural uranium (ENU) for its own fuel portfolio. Where would the replacement uranium come from? But in this paper I am talking about SWU. Therefore the following question: If the Russians confirm that they will cease re-enriching Western tails, is it further evidence that SWU supply sources are expected to become tighter? I will return to this point later.
- Can USEC's centrifuges compete economically against Urenco's, LES', AREVA's and Rosatom's maintenance-free machines?
- Will the announced delay in the installation of the full lead cascade for the American Centrifuge Plant (ACP) induce delays of the entire ACP project?
- Will there be sufficient confidence in the operational economics of USEC's centrifuge technology in order to meet the schedule of private sector financing for the proposed ACP?
• Russia and Kazakhstan will establish a 50:50 percent uranium enrichment joint venture, expected to be set up at the site of the Angarsk Electrolysis Chemical Combine (AECC). This joint venture is understood to create additional enrichment capacities at AECC. But how much and when? Will these capacities replace part of Russia's previous sole SWU capacity expansion plans?
• Over the longer term, China is unlikely to pursue its ambitious NPP construction program without looking to secure a substantial part of its enrichment needs by domestic SWU capacities. Thus, ramping up its own small enrichment capacities is a likely option, albeit not the only one. But where to get the necessary machines from? Will Russia decide in favour of supplying more and more modern centrifuges to China?
• Reportedly, Japan is working on a new generation of centrifuges. Will this technology prove economic or fail to be deployed?
• And last, but not least: The discussion on the pros and cons of US and European import restriction on Russian SWU is heating up. Are these restrictions still justified? Or have they lost their legitimacy, particularly in view of global medium- and long-term SWU supply security? I will give an answer in this presentation.
4. World SWU Capacity and Demand
Based on the above mentioned NPP capacities, increasing average annual NPP load factors and a gradual shift towards lower tails assays in case of Western-designed reactors, worldwide SWU demand will go up from 43 million SWU in 2005 to 71 million SWU in 2026 (see Figure 4). Remarkably, in just ten years from now, more than 50% of the SWU will be produced by yet-to-be-installed advanced generation centrifuges and/or in facilities, the foundation of which have not yet been Iaid. This number is a clear indicator of the enormous restructuring which the enrichment industry is currently undergoing.
But the most important message of Figure 4 is that, in a global unrestricted market for enrichment services, primary SWU alone - comprising existing and firmly planned enrichment capacities, but no prospective capacities - would be sufficient for SWU needs only until about 2013. Thus, for the period beyond 2013 additional SWU capacities - or secondary SWU sources - must come from somewhere.
This Figure 5 is very similar to Figure 4, but it compares worldwide SWU demand with existing and firmly planned SWU capacities by enricher. The Figure suggests that if currently firmly planned diffusion plant replacement and SWU capacity expansion of the Western World enrichers is finalised around 2017/2018 (in about 12 years from now), and if there is to be no add-on (prospective) capacity thereafter, then worldwide installed SWU capacities would remain almost evenly split between Russia and the rest of the world.
Now, what about prospective capacities? Well, they are difficult to quantify with reasonable accuracy. For the purpose of this paper, NUKEM basically assumes that established centrifuge manufacturing plants will continue operating close to their nominal capacities, allowing for the worldwide installed SWU capacity to develop as shown in Figure 6. Between 2011 and 2026 - meaning over a period of 15 years - these prospective capacities would add another 18 million SWU. Accordingly, the gap between worldwide SWU demand and existing and planned capacities would largely disappear.
5. Russian Enrichment Capacity and SWU Portfolio
Let me now draw your attention to the Russian enrichment capacities and SWU portfolio.
Figure 7 shows NUKEMís assumptions on Russia's existing, planned and prospective enrichment capacity. The numbers were derived from different sources, whereby the category "Prospective Capacity" reflects to some extent the degree of uncertainty over Russiaís progress in boosting its SWU capacities.
Figure 8 suggests that Russia's SWU capacities are currently largely, but not completely, booked out by:
• the production of low-enriched uranium (LEU) for Russian-design reactors;
• the production of LEU for Western-design reactors;
• the production of enriched natural uranium (ENU), using "rich" western tails; and
• by using part of this ENU for the production of LEU (1.5% U-235) needed as blendstock under the US-Russia HEU-LEU Agreement.
Based on this Figure, until 2013 Russia has an additional 3 to 4.5 million SWU per year available for sale. These numbers are based on the assumption that a small portion of the Russian reactors' SWU needs are met by enriched reprocessed uranium (ERU) gained by the blending of Western and Russian reprocessed uranium with medium- (MEU) or highly-enriched Russian uranium (HEU), and - after 2013 - by downblended Russian HEU.
Now, what about the Russian primary SWU portfolio after the expiration of the HEU deal in 2013?
• As stated before, there will definitely be no follow-on US-Russia HEU-LEU Agreement (HEU Deal II). But what about using the existing technical infrastructure for the blending of Russian HEU - albeit at a reduced pace - in order to generate reactor fuel for domestic and foreign Russian-design reactors?
• Blending of Russian HEU is widely seen as being technically linked with the re-enrichment of "clean" Western tails with relatively high U-235 assays. If the re-enrichment deals with Western companies cease, as reportedly planned, where would the tails come from to produce any HEU blendstock?
• If the re-enrichment of Western tails would no longer absorb large Russian SWU capacities, what to do with the emerging surplus enrichment capacities?
• Will Western administrations and authorities provide over time for the unrestricted, direct sales of Russian primary SWU into the fuel market for Western-design reactors, depriving larger-scale tails re-enrichment of any economic justification?
Russia is not expected to "put all its cards on the table", but when the time comes it may indeed have different choices.
For the purpose of this Figure 8, NUKEM proceeds on the assumption that tails re-enrichment and blending of Russian HEU will be continued at a much reduced level, at 10 tonnes HEU per year, and that all of the derived LEU will flow into the Russian fuel portfolio. In that particular case, Russia would have substantial idle (free) SWU capacities available for sale after 2014.
However, in case Russia would abandon HEU blending and tails re-enrichment entirely after 2013, Russia's primary SWU portfolio would look as presented in Figure 9. In that particular case, Russian excess SWU capacities would be smaller, peaking in 2015 at almost 12 million SWU (or 55% of Russia's currently installed SWU capacity), but declining to 4.5 to 5 million SWU at the end of the period under consideration.
What to do with these excess SWU? Would they threaten the existence of the other commercial enrichers if the door would be opened for the entry of more Russian SWU into the US and the European Union's SWU markets?
6. Western-Design Reactors SWU Supply and Demand: Medium- and Longer-Term Needs for Russian SWU
Figure 10 gives part of the answer: Taking the Western enrichers' existing and planned SWU capacities and Russian anticipated LEU exports to the West, plus secondary supplies such as downblended Russian HEU, MOX, RepU, and weapons plutonium, the reactors' SWU needs are largely filled just up to 2013, the date when the HEU deal expires. However, thereafter, a supply gap would emerge, and it would gradually widen until the end of the period under consideration. But idle Russian SWU capacities could fill just part of this gap.
But why should the Western enrichers restrict themselves to their currently existing and planned capacities? What would the picture look like if the Western enrichers and Russia succeeded in installing and marketing also prospective SWU capacities, as mentioned before? Well, Figure 11 shows that in such case the idle Russian SWU capacities would perfectly fit to fill most - but not all - of the supply gap.
So, from my point of view the last two Figures shown here suggest the following messages:
• Firstly, based on the assumptions given before, over the medium and longer term there will be sufficient room in the SWU market for all enrichers, including Rosatom, for all their existing and planned capacities, and there will be even an urgent need for SWU capacities going much beyond the commercial enrichersí current planning horizons.
• Secondly, there will be a need - at the latest when the HEU Deal expires in 2013 - to abolish Western restrictions on the import of Russian SWU. There will definitely be a considerable need for Russian primary SWU in the West, in addition to current Russian SWU sales to the West.
Contrary to some Western companies, I do not at all see the threat of a cutthroat competition between the established enrichers for SWU customers if the Russians were given free access to the Western SWU market. Quite the contrary, "cutthroat bid requesting" among utilities for SWU appears more likely if the commercial enrichers do not invest much, much more than what they have currently in mind.
I think the Figures I have presented and the conclusions drawn from them are very good news for US Enrichment Corporation (USEC). USEC is very positive about their American Centrifuge Program (ACP). But while SWU capacity expansions of all other major enrichers is based on technically and economically well-proven centrifuges, USEC's centrifuges have yet to demonstrate their technical and economic long-term features on an industrial scale. Thus, what if ACP would fail and if USEC's only still operating gaseous diffusion plant at Paducah could no longer be operated economically?
As shown in Figure 12, in case of ACP's failure and the gradual final shutdown of the Paducah diffusion plant, the currently perceivable primary SWU - together with the secondary SWU sources listed above - could by no means suffice the Western-design reactors' SWU needs. Instead, the enrichers would have to commence operation of further capacities - in addition to existing, firmly planned and prospective capacities - and they would have to come on line with these further capacities as early as in 2014, and that is only eight years from now. In view of the lead times needed to find appropriate sites, to design and license additional enrichment facilities and to construct them, the commercial enrichers would face enormous challenges to fill the SWU needs of all Western-design reactors.
I am fully aware that my paper dealt with a highly controversial issue. Let me summarize my position:
• The Charts which I have presented here suggest that the SWU supply and demand situation is not yet as strained as the markets for natural uranium and conversion services. But this situation is about to change dramatically with the expiration of the HEU Deal in 2013.
• Furthermore, the SWU supply and demand balance shows that Russia currently does not have sufficient excess SWU to "flood" Western SWU markets to such extent that the competitiveness of individual Western enrichers would be at risk.
• Proceeding on the assumption that current plans for new nuclear generating capacities will be realized, medium- and longer-term SWU demand will increase so rapidly that soon additional Russian SWU exports to Western markets will be highly appreciated.
Accordingly, all those who share the facts, reasonable assumptions and conclusions presented in this paper should cross their fingers:
• that the commercial enrichers having established centrifuge technologies will have smooth sailing in expanding their existing and in setting up new enrichment facilities;
• that USEC's centrifuge technology will prove to be efficient; and
• that Rosatom will no longer be discriminated against in the most important segments of the Western SWU market.