FUEL REVIEW: SUPPLY
Mining the supply gap1 September 2008
The increased demand for nuclear power over the last few years has led to increased activity in the uranium supply market, stimulating mine development and expansion plans. By Julian Steyn
During the past several years there has been a brightening outlook for nuclear power around the world. An important factor in the success of this new nuclear era will be the adequacy of uranium supply to meet expanding requirements for nuclear fuel. There are indications that supply will be adequate but costs, and thus prices, will be substantially higher than those enjoyed during the 1980s and 1990s.
The price increases in both the spot and term markets have led to an enormous increase in uranium exploration and development activity around the world, particularly in countries that do not put obstacles in the way of the many entrepreneurs that have emerged.
Utilities should feel comforted by the increasingly positive uranium supply outlook. For example, Kazakhstan, which only ranked sixth in the world as a producer in 2001 with an output of about 5 million pounds, is expected to produce approximately 34 million pounds in 2009, more than any other country in the world. While the Kazakh expansion has occurred in parallel with the market price rise, it has not been driven by it since the costs of production are relatively low in that country, albeit burdened with substantial taxes. Canada’s 2007 production level of almost 25 million pounds is projected to approximately double by 2015, assuming the 2006-flooded Cigar Lake project is brought into trouble-free production during the next three or four years. Australia’s production level is expected to increase substantially in the second half of the next decade as the large Olympic Dam project’s output is expanded to several times its current level of 8 million pounds per year. While world uranium supply and demand has been relatively tight during the past several years, supply is slowly becoming adequate and is likely to remain adequate through at least 2020 and beyond as currently prospective deposits are brought into production.
The first new nuclear plants in the USA are not expected to be in operation before about 2016, and their significant contribution to an increase in US uranium requirements is almost ten years away. However, assurance of supply concerns has already prompted some US utilities into seeking early supply for first cores. The same concerns are evident elsewhere around the world; for example, China, Russia, and India are already taking steps to assure long-term supply from other countries. Russia has committed to a programme to develop a substantial expansion of domestic supply.
There have been a number of other issues responsible for domestic market uncertainty during the past several years. Chief among these has been the decline in the US dollar against other world currencies including the Canadian and Australian dollars, the euro, the pound sterling and the Japanese yen. A factor on the demand side that may slow down nuclear plant commitments in the USA is the capital cost price run-up that is emerging due to the rapid increase in materials, labour, and energy costs during the past year or so and the accompanying deflation in the dollar. These same factors could also slow down uranium projects. Nuclear plant commitments in the USA could be slowed during the next one or two years due to the possibility of more gains in Congress by the Democratic party and possible changes in the presidency accompanied by changes in the administration in Washington, and the resulting time needed for the new guard to determine its strategy. A continuation in the uncertainty in oil prices may be expected to result in a cooling off of economies around the world, even in China, which may have seemed immune up to now.
The world long-term demand outlook for uranium has been increased in recent years by the announced large nuclear programmes of China, Russia, and India. Chinese uranium production activities during the past ten years have not been generally successful, and thus, that country has recently begun to negotiate long-term supply from other countries. Russia has similarly not yet been very successful in developing domestic uranium production centres and has therefore concluded that it must limit exports of uranium beyond that included in existing agreements such as the USA-Russia highly enriched uranium (HEU) agreement of 1993 and nuclear plant sales packages. In fact, Russia has already begun entering into uranium import arrangements for the longer term. India has also not been very successful yet in regard to discovery and development of indigenous resources, and the negotiation of import arrangements has been handicapped by nuclear nonproliferation concerns in supply countries such as Australia. Japan has also been negotiating supply arrangements with many countries. It is becoming clear that there will be an increased level of world competition for long-term supply, similar to that which already exists for oil and gas, and other critical resources. The short-lived cutoff of natural gas supplies by Russia to Ukraine in the winter of 2006-2007 served as an assurance of supply warning for countries in Europe as well as elsewhere in the world.
An issue that has been receiving increasing attention from electric utility companies in the USA and elsewhere during the past few years is nuclear fuel supply chain vulnerability. While risk analysis can be used to optimise supply strategy, it can only serve to minimise vulnerability by weighing supply assurance against economic cost. For example, although utilities were drawing down their uranium inventories in the early years of this decade, they have been building them up during the past three years by taking maximum advantage of the upside quantity flexibility in their legacy contracts where possible, while at the same time taking advantage of the lower than market prices available in those contracts.
Unforeseen supply-interrupting market events such as floods, fires, and lower than anticipated ore grades, amongst others, during the past six years exemplify what could happen in this decade. The array of negative supply events that have occurred in recent years have led Energy Resources International (ERI) to consider it realistic to apply a 90% production capacity factor to planned and announced nameplate mine capacities in the projections presented here.
In Australia, due to environmental activist pressures, the owners of the large Jabiluka deposit agreed about three years ago to put it under a long-term care and maintenance agreement, and only develop it at some future time with the support of the traditional native people of the region. In the USA, plans for reopening former mines in New Mexico and Arizona are currently being opposed by American Indian rights groups, particularly from the Navajo Nation. In Canada, the large Michelin resource of Aurora Energy Resources in Labrador has been restricted from production until the Inuit people of the region determine appropriate development and production criteria during the next three years to allow it to go forward. Fortunately, the Inuit do not seem to be saying no to uranium mining so long as it is regulated. Areva’s Kiggavik-Sissons project in the Thelon Basin is confronted with some of the same problems as Michelin, though its owners are relatively optimistic about its future.
On the positive side, the large McArthur River mine in Canada’s Athabasca Basin is awaiting regulatory approval to be expanded by about 12% within the next year or so. The ongoing and planned development of in situ leach (ISL) mines in Kazakhstan is projected to increase that country’s annual production, optimistically, to almost 60 million pounds by 2015. While there is no longer a federal restriction on uranium developments in Australia, there are restrictions in the states of Queensland and Western Australia. It may be several years at best before the restrictions in those states are relaxed or removed. The possible takeover of Rio Tinto by BHP Billiton, if successful, would result in Ranger, Rössing, and Olympic Dam being owned by a single company, and represent a formidable force in the market.
In Australia, BHP Billiton will decide in 2009 how to expand the output of its 5 billion pound resource, Olympic Dam. It seems highly probable that the mine will be increased in scheduled stages through development of a very large open pit mine to an output capacity of at least 33 million pounds per year by the early 2020s or sooner. If there is any cause for concern in this regard it is the fact that the expansion will cost at least $5 billion, and larger amounts have been mentioned in the press. The planned expansion will make this mine the world’s largest uranium producer, and there is also some potential for even further expansion if the market demands it. It is noted that as a uranium-copper coproducer, the outlook for the copper market will be a factor in the investment decision.
Namibia is planning the development of a number of important projects that may triple that country’s output capacity to almost 30 million pounds per year by the middle of the next decade. The country is a welcoming host to uranium mine exploration and development and companies from many countries are active there. There is also considerable exploration in Niger by Chinese companies. Political unrest led by rebel groups has presented some problems to exploration but these problems may soon be resolved.
The international uranium market has seen considerable excitement in uranium pricing during the past several years. Spot market prices began to climb in 2003 from their $10 and below levels of most of the previous 14 years and accelerated through the ‘teens’ in 2004. The price rise continued to the record peak of $135 per pound of concentrate (U3O8) in June 2007 before beginning a downward slide to $64 by July 2008. The fall of the past year was due in part to the fact that many utilities began increasing their long-term contracting volumes, term lead times and delivery term durations in 2004 through 2006. The long-term uranium contract volume during 2005 and 2006 was about the same and amounted to almost four times the average volume of the previous 15 years, approximately 250 million pounds in each of the two years.
The term market price followed the increase in the spot market price until it reached $95 in June 2007, the same month that the spot price peaked. The term price remained at that level for 11 months, and then declined to $80 by the end of July 2008. While both of these price indices have fallen back from their peaks, it is unlikely that they will ever again return to their low levels of the past. The price rise resulted in industry plans to expand existing production facilities and bring new ones into production. It has stimulated mine development worldwide. An offsetting factor on the uranium demand side has been the reduction in enrichment tails assays and associated requirements caused by the price increases.
The forecast in the Tabl (ERI reference case) projects world nuclear plant uranium requirements as rising from the 2008 level of about 164 million pounds U3O8 per year to 246 million pounds in 2030. This analysis does not adjust requirements for recycle, but instead categorises recycle as a supply source. Western European and US requirements are forecast to increase only gradually between now and 2020, from 49 and 52 million pounds to 52 and 55 million pounds, respectively. East Asian requirements and Commonwealth of Independent States (CIS) and Eastern European (EE, which includes the new members of the European Union) requirements are each projected to increase by about 60% by 2020.
It is of interest to note that the reference and high case requirements projections extrapolate to 350 and 480 million pounds per year, respectively by 2060. This indicates that world production must be increased to between three and four times current production by 2060, or reprocessing and recycle must be widely deployed by then. The year 2060 assumes startup in 2020 and a 40-year operating life. However most US nuclear plants will have a 60-year operating life.
The world U3O8 supply capacity to meet requirements during the coming decades will be obtained from civilian and government U3O8 (and U3O8-equivalent) inventories, nuclear weapons fissile material stockpiles, enrichment tails upgrading, and plutonium and uranium recycle, that is, already mined uranium (AMU) in many forms, and uranium mine production.
The Table summarises the projected mine and AMU supply capacity to meet the ERI reference case requirements forecast for the period
2008-2030, and the resulting excess/shortfall. The AMU projection assumes that there will be plutonium and uranium recycle in some Western European countries and Japan, and that some excess weapons plutonium will be consumed in the USA and Russia as mixed oxide (MOX) fuel during the next decade. Sustainable mine production capacity is projected to increase from its current level of about 71% of 2008 reference requirements to more than 100% of requirements in 2015. Sustainable production capacity is taken as 95% of 2008 actual nameplate capacity and 90% in 2009 and thereafter. These capacity factors are based on the industry’s experience since 2000. It is clear from the data in the table that current mine capacity and capacity under development plus total AMU are projected to be more than adequate to meet reference requirements from 2008-2025. In addition, the projected supply will be augmented by prospective mine capacity of which there is a significant amount.
From an economic standpoint, much of the AMU is likely to be consumed before mine production and supply concerns are likely to result in inventory buildup. Excess mine capacity could further support this inventory buildup, and minimise mine production cutbacks.
While the excess commercial stocks of inventories in many forms held by utilities have now been largely consumed, AMU held by governments will continue to enter the market at a modest level during the next 15 to 20 years. The most significant components of AMU will be Russian HEU through 2013, and miscellaneous US HEU, plutonium and reprocessed uranium recycle in Europe and Japan, and uranium enrichment tails upgraded in Russia and the USA. AMU will continue to provide significant supply through 2030.
The 1993 USA-Russia HEU Agreement allows the sale in the USA through 2013 of HEU separative work units (SWU) contained in HEU and contained uranium equivalent feed in accord with the Usec Privatization Act of 1996. However, US utilities have been concerned about the market impact of the loss of that supply after 2013. Fortunately, on 1 February 2008, after lengthy negotiations, the USA and Russian governments signed an amendment to the Russian Suspension Agreement that will permit imports of Russian uranium products to the USA under a new quota system. From 2011 through 2013, very small quantities of Russian LEU will be permitted to enter the USA. However, from 2014 through 2020, Russia will be permitted to supply up to approximately 20% of the US market for enriched uranium in the form of enriched uranium product (EUP), that is, containing about 13 million pounds per year. While the amendment is intended to promote a stable uranium market in the USA, one which will encourage investment in new enrichment facilities, there are many open questions regarding the amendment’s implementation. After 2020 there are currently no restrictions on the import of Russian uranium to the USA.
It is estimated that the world nuclear industry, including fuel suppliers and nuclear power plant operators, currently holds commercial inventories in the amount of approximately 630 million pounds, equivalent to about four years of world forward requirements. France and Japan hold particularly large inventories. Although some countries, such as Japan, had been drawing down inventories earlier in this decade, this practice now appears to have ended. In general, US nuclear power plant operators are now holding about 19 months of requirements, up from about ten months of requirements in 2003.
It is estimated that US utilities and private sector suppliers held approximately 110 million pounds U3O8 (U3O8e) at the beginning of 2008. It is estimated that commercial inventories held by non-US utilities and suppliers, excluding those in the CIS, Eastern Europe, and China, amounted to the equivalent of approximately 370 million pounds U3O8e. The total of commercial Western world inventories is accordingly estimated to have been approximately 480 million pounds U3O8e. It is estimated that the CIS and Eastern Europe hold about 150 million pounds. These and DoE inventories of about 43 million pounds, bring the world total ‘commercial’ inventory to about 670 million pounds.
In addition to the commercial sector inventories, the USA and Russia are holding HEU inventories that are equivalent to about 340 and 440 million pounds U3O8e, respectively. These same two countries are also holding enrichment tails corresponding to approximately 90 and 350 million pounds, respectively, quantities that are highly dependent on assumed assays. The amount of uranium that could be generated from Russian tails will depend upon the amount of tails available and excess enrichment capacity available. The amount shown above is for the period 2008 to 2030.
There are other small inventories of uranium in other countries, for example, in the UK and France, but the amounts and their market availability are not well known. A rough estimate of such miscellaneous inventories amounts to 35 million pounds.
Six countries are expected to provide about 80% of world mine production during the next ten years: Canada, Australia, Kazakhstan, Namibia, Russia, and Niger.
Canada was the world’s largest mine producer of uranium in 2007, producing 24.6 million pounds U3O8. Canadian production is projected to rise to about 60 million pounds by 2016 when Cigar Lake, an expanded McArthur River, Midwest, and McClean Lake projects are in full production. In addition, the Rabbit Lake Eagle Point mine is expected to continue operating and sending ore to its mill until at least the middle of the next decade. The Midwest mine is expected to be mined over about five years beginning in 2011, and the stockpiled ore used to dilute the Cigar Lake ore fed to the Jeb mill and Rabbit Lake mill. The Cigar Lake mine underground workings are currently being recovered from the catastrophic flooding in October 2006. The mine is expected to be brought into production during the 2011-2012 time period. Resources at the Dawn Lake, Millennium, Kiggavik-Sissons, and Michelin projects are being developed on schedules that could lead to startups by the middle of the next decade.
Australia was the world’s second largest uranium producing country at 22.4 million pounds U3O8 in 2007. It has two large production centres in operation, Ranger and Olympic Dam, and a single small ISL centre, Beverly. The 2007 production from these mines was 11.9, 8.8, and 1.7 million pounds, respectively. There are sufficient reserves at the Ranger mine to allow it to operate through at least 2020, and if the nearby Jabiluka deposit can get approval for development then the Ranger milling operations could continue for at least another 20 years after this. The prospects for this happening are brightened by the changes in the uranium mining policies of the Australian Labour Party (ALP) during its annual convention in 2007. The Beverly mine is likely to be shut down by about 2010 and replaced by its neighbour, the Four Mile mine. The outlook for the other prospective Australian centre, the small solution-mining deposit, Honeymoon, is uncertain following the recent decision of its owner, Uranium One, to put it up for sale.
There are at least 20 significant ISL uranium production projects in Kazakhstan as well as one conventional mine project, the underground Tselinny mine and giant Stepnogorsk mill. Many of the projects are relatively large, ranging from 2.6 to 5.2 million pounds capacity, which is large for ISL mining. In fact, Cameco’s Inkai project is expected to increase to 10.4 million pounds capacity by about 2014. The wet yellowcake produced at the mines is shipped to either the Ulba Metallurgical Center or the Stepnogorsk mill. The National Atomic Company (NAC) Kazatomprom, is the sole owner of some projects and the co-owner with foreign companies in other projects. Kazakhstan’s production is projected to be expanded from 17.3 million pounds in 2007 to at least 40 million pounds by 2010 and possibly 60 million pounds by 2015. Whether or not this happens will depend in part upon the country’s mining infrastructure capabilities. For example, there have been serious sulphuric acid shortages during the past year that are still not completely corrected.
While economics and electric power shortages could keep South African production at relatively low levels for the foreseeable future, there are some indications that production could be increased from the current level of 2 million pounds per year to about 4 million pounds per year by 2010, and even 6 million pounds by 2015. There are four projects: Vaal River, Buffelsfontein, Ezulwini, and the Dominion Reef mine. The Dominion mine suffered severe management and ore grade problems in 2007 and early 2008 and is producing at only a fraction of that expected when it was started up last year. Areva is considering the development of its Ryst Kuill deposit in the Beaufort West region of the Western Cape.
In Niger the existing mines, Akouta and Arlit, produced 5.3 and 3.0 million pounds in 2007. Nigerien production, which is expected to remain relatively constant during the next few years, could more than double from its 2007 level of 8.2 million pounds by 2015 when Areva’s Imouraren mine reaches full production.
Production at Namibia’s Rössing centre, which was scheduled to end in 2009, is now expected to continue at its current level through 2020 and possibly beyond. Paladin’s new Langer Heinrich project is operating at 2.4 million pounds per year and being expanded to 3.7 million pounds. Areva’s development of the large Trekkopje project will bring Namibia’s production up to about 20 million pounds per year by 2012.
Paladin’s Kayelekera project in Malawi is being developed to begin production at the beginning of 2009.
Production in Russia is projected to expand from its 2007 level of 9.3 million pounds to about 14 million pounds by 2015. Approximately two-thirds of this output will be coming from the large Priargunsky mine at Krasnokamensk in Siberia. The remainder will likely come from the Khiagda and Dalur ISL projects being ramped up to about 2.6 million pounds each. As Russia seeks to develop mines at home, and intensifies its domestic exploration and development activities, it will increase imports from Kazakhstan, Mongolia, and Uzbekistan and other world regions.
Though Uzbekistan production may remain relatively constant between now and into the next decade there has been Russian and Japanese interest in exploration and development in that country.
Ukrainian production could be almost doubled to 4 million pounds by 2015 in order to reduce the costs incurred for imports.
China will be expanding production slowly in the coming years, and intensifying its exploration and development activities. The country is expected to be a significant importer of uranium from other countries until at least the 2020s.
There are several existing in situ recovery (ISR) production centres in the USA, some of which have been in operation for a number of years. In addition, the recent uranium price rise has resulted in a number of ‘old’ mines being ‘dusted off’ and brought into production, which could result in the USA’s production rising from its 4.5 million pound level in 2007, to 6-8 million pounds by 2010.
There are at least 20 additional identifiable deposits around the world that have the potential to provide a total of about 40 million pounds in 2015 and twice that by 2020. However, in many cases they are obstructed from development by regional politics, notably in Canada and Australia.
Julian Steyn, Energy Resources International, 1015 18th Street, NW, Suite 650, Washington, DC 20036, USARelated ArticlesApplication to expand Ranger NRC revises ISL review process Paladin set to expand Langer Heinrich mine in Namibia Scientist develops method to denature plutonium KEPCO takes a 10% stake in ImourarenFilesUranium supply and requirements Figure Uranium supply and requirements Table