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Lack of Cold WarWeapons ThreatensEnriched Uranium Shortage

By Vaughan Scully
S&P's The Outlook

Amid growing worries over the volatility of oil and natural gas prices and the environmental effects of burning coal, many electric utilities are turning to nuclear power for its history of stable fuel costs and lack of carbon dioxide emissions. A massive expansion of the global nuclear power industry is now taking shape, with plans being laid or construction already underway for more than 200 new reactors around the world - about a 50% increase from today's total. But a possible shortage of nuclear fuel has some companies building or planning to build uranium enrichment plants.
Underlying this shift is the belief that fuel for nuclear power plants - most plants use the uranium 235 isotope enriched to a concentration of between 3% and 5% - will be readily available at stable prices. According to the World Nuclear Association, "uranium's worldwide availability at economically viable cost is a key factor that would allow a sharp expansion in nuclear power."
Whether, in fact, a shortage will be the case a few years down the road is a matter of growing unease for utility executives and industry regulators, due to an expected shortage not of uranium itself - which is found in relative abundance around the world - but of the capacity to enrich "natural" uranium to the concentrations needed by the world's current and future fleet of commercial reactors. A shortage could materialize as soon as 2010, according to the Euratom Supply Agency - the body tasked by the European Commission with ensuring "the regular and equitable supply of nuclear fuels."
"The period from 2010 to 2013 could be very sensitive regarding the balance between enrichment services demand and offer," the Agency said in an April 2008 communique, adding it is also "concerned about the situation from 2013 onwards," and countries receiving enriched uranium from a single supplier "may face serious problems."
Much of the potential for a shortage of enriched uranium stems from the scheduled end of the Megatons to Megawatts program, a joint U.S./Russian effort begun in 1994 that takes highly enriched uranium out of Russia's cold war atomic arsenal and reprocesses it into commercial grade reactor fuel. The program supplies about half of the fuel consumed in the United States by nuclear power generation plants. It is scheduled to end in 2013, though it may supply smaller volumes afterward.
Current world enrichment capacity is about 45 million separation work units (SWUs). About 100,000 SWUs are needed to make enough uranium to power a standard size 1,000 MW nuclear power plant for one year. According to World Nuclear Association data, the loss of the Russian supply will create a deficit in the availability of enrichment services between 4 million and 12 million SWUs (8% and 20%of the current supply) by 2015 that will persist several years into the future.
The loss of the Russian supply comes at a particularly inconvenient time. Currently, much of the world's uranium enrichment capacity is found in aging plants that use the energy intensive "gas diffusion" process. Several of these plants are scheduled to be shut down in the coming years as new ones come onstream. The transition period, however, will occur just as the Megatons to Megawatts program shuts down, creating the potential for a serious supply crunch, especially if the new plants are unable to perform at their nameplate capacities due to technical or safety issues. Together, the Russian program and the plants scheduled to be shut down provide about 46% of the world's supply of enriched uranium.
Several companies are moving to fill this void in the $6 billion annual enrichment industry. Of the Western world's existing uranium enrichment companies, all three - USEC (NYSE: USU, www.usec.com), Areva (GSZ Paris NR, www.suez.com), and Urenco (www.urenco.com) - have multi-billion dollar, modern enrichment plants under construction that use the centrifuge method of enrichment, which is more energy efficient. A fourth, General Electric's (NYSE: GE) nuclear joint venture with Hitachi (NYSE: HIT), has submitted preliminary documents for a facility based on a new technology known as laser excitement.
In the United States, Urenco is building an enrichment facility in Hobbs, N.M. scheduled to open in the second half of 2009. After the first of a four-phase project, it will have a capacity of 1.6 million SWUs. Urenco currently operates three enrichment facilities in Europe with a combined capacity of about 10 million SWUs. It hopes to raise its overall capacity to 15 million by 2012.
Following closely behind is USEC, formerly a Department of Energy operation that was privatized in 1998. USEC runs the only enrichment facility in the United States currently in operation, and is building a new centrifuge-based facility in Piketon, Ohio. USEC hopes it will be operating by 2010, with full capacity of 3.8 million SWUs expected by 2012.
Also in the hunt for new capacity is France's Areva - which is controlled by the French government but has some listed shares. Areva is building a new 3 billion euro enrichment facility in France that will have a capacity of about 7.5 million SWUs by 2016. French utility conglomerate Suez recently agreed to take a 5% stake in the project. Areva also intends to begin construction of a $2 billion enrichment plant in Idaho Falls, Idaho in 2011, with operations expected to start in 2014, and full capacity of 3 million SWUs planned by 2019.
A GE/Hitachi plant will be built if a test facility expected to be completed in North Carolina this year demonstrates the commercial feasibility of new technology developed by and licensed from Australian firm Silex Systems (SLX Australia NR). The technology, laser excitement, is much more energy efficient than either centrifuge or gas diffusion systems. While its exact efficiency is classified, centrifuge technology is about 1.3 times as efficient as gas diffusion, while laser excitement is between two and 20 times as efficient.
Other sources of fuel are also possible. The Department of Energy is building a facility to produce mixed-oxide fuel (MOX), which can be made from spent reactor fuel. Already, 30 reactors in Europe use MOX fuel, and others in Japan also plan to use it. Each ton of MOX fuel would save about 80,000 SWUs.
Editor's Note: Vaughan Scully is a member of the Standard & Poor's editorial board. Mr. Scully's article appeared in S&P's The Outlook, 55 Water St., New York, NY 10041, 1 year, 48 issues, $298. www.standardandpoors.com.

http://www.theresourceinvestor.com/RI-archive/2008/1108-uranium.html