uranium supplies and nuclear energy policy

Uranium supplies and nuclear energy policy

Terence Price

In the course of the Sizewell Inquiry some doubts have been expressed about a policy of relying on uranium as principal fuel for electricity generation in the UK. The reality is that for many decades to come more than sufficient supplies of uranium will continue to be available, at prices which will permit Pressurized Water and other types of thermal reactor to produce electricity at costs which will be highly competitive with those for generation from fossil fuels. Secure fuel supplies depend on a combination of physical and political availability. On both counts there need be no grounds for anxiety. Moreover, unlike coal and oil, uranium is easily stored. For hydrocarbon fuels a major effort is required to store even 100 days' stocks, whereas for uranium several years' worth of forward stocks have accumulated as an almost casual by-product of past mis- matches between production and consumption.

Keywords: Nuclear power; Uranium supplies; UK

Contrary to what is often stated, uranium is not a rare mineral. It is more abundant than relatively common metals such as chromium, silver, mercury, tungsten or cadmium. It is widely dispersed geo- graphically, and major production centres exist in Canada, the USA, South Africa, Australia, Nami- bia, Niger, France and Gabon (see Table 1). In addition, many other countries are known to have

Table 1. Estimated western world annual uranium production ranges, 1983-84 (thousand tonnes U).

uranium deposits, including, notably, China, countries of the Soviet bloc, and Brazil. The fact that the Anglo-Saxon and francophone countries are still the principal producers in the western world probably owes more to the fact that stable political conditions and economic connections have encouraged exploration, rather than to any geological exclusivity.

Our knowledge of the resource base which sup- ports present and future production stems mainly from exploration, but also in recent years from important developments in our understanding of the processes by which uranium deposits originally came to be formed. Exploration coverage of the earth's surface is still far from complete, and this is likely to remain true until the currently depressed price of uranium rises sufficiently to support once more the costly and long-drawn-out process of identifying new ore-bodies. Table 2 shows how exploration has historically followed the uranium price, with a short time lag. There is every reason to believe that this will continue to be the case in future.

As with other minerals, uranium occurs in deposits of widely differing ore grades. In many cases the deposit boundaries are not well defined, and the limit of the mineable ore is set by" the point at which the concentration falls to a level where mining is no longer economic at the contracted price (or, in the case of co-production with gold, copper or phos- phates, by the combined return from the mining operation). If the price rises, more of the lower- grade ores can be mined economically; so in this sense a price rise automatically generates fresh

Table 2. Correlation between uranium price and exploration activity. Canada 8.5- 9.5 USA 7.0- 7.7 Relative spot Relative South Alrica 5.0- 5.5 price in exploration Australia 4.0- 4.5 Year constant dollars activity Namibia 3.8- 4.0 1972 0.20 0.44 Niger 3.3- 3.5 1974 0.30 0.62 France 2.5- 3.0 1975 0.61 0.72 Gabon 0.8- 1.0 1976 1.00 1.00 Others 0.5- 1.0 1978 0.95 1.38 Total 35.4-39.7 1980 0.54 0.81

1983 0.33 0.22

The author is Secretary General of the Uranium Institute, London.

Source: Nuexco exchange value adjusted for inflation by US price indexes; and statistics for US uranium exploration drilling,

266 0301-4215/84/030266-05503.00 ~) 1984 Butterworth & Co (Publishers) Ltd

resources. Resource estimates must therefore be quoted in terms of some price or cost indicator, if they are to have any significance. This is rather more easily said than done: although the 'spot' price for immediate sales of uranium is published regularly, much less information is available about the prices for the long-term contracts on which most of the world's uranium is traded. There is also no fixed relationship between the price and the mining cost: much depends on the state of the market , and on the compulsions operating on both buyers and sellers to agree contracts. In practice, therefore, resource compilations are entrusted to national bodies, such as the Canadian Depar tment of Energy, Mines and Resources, which have access to confidential information; and internationally, they are entrusted to the International Atomic Energy Agency in Vienna, which works closely with the Nuclear Energy Agen- cy of the OEC D in Paris. A comparison of the figures given in 'Fable 3 with those in Table 1 shows that the current rate of extraction could be main- tained for decades, without having to draw on ore bodies which are still only speculative at present.

URANIUM REQUIREMENTS

Uranium requirements depend on the installed nuclear capacity, recent estimates for which are given in Table 4. These point to more than a doubling in the 12 years ending in 1995. Because of the long lead times for nuclear power plant construction, many of the stations contributing to the

Table 3. Uranium resource estimates (thousands of tonnes U).

Reasonably assured Estimated additional resources resources - Category I

Australia a 336 394 Brazil 163 92 Canada 185 229 France 67 33 Gabon 23 10 India 43 19 Namibia 135 53 Niger 160 53 South Africa 313 147 USA 407 83

World (WOCA) a 2000 1190

Source: Uranium Resources, Production and Demand, published jointly by the Nuclear Energy Agency of OECD and IAEA, December 1983. The figures apply to ore bodies assessed as exploitable at 'forward costs' below US $30/kg of contained U (equivalent to $50/Ib U308). The estimated additional resources shown are for the IAENOECD Category I, referring to deposits which have been partly explored. In addition the less well established EAR Category II accounts for a further I million tonnes U; while speculative resources are currently placed in the range 9.6-12.0 million tonnes U. "Note that neither the Australian figure nor the total includes the full 1 million tonnes U in the Olympic Dam copper and uranium ore body, from which uranium will be co-produced with copper.


Table 4. Nuclear generating capacity (most probable case) and annual uranium requirements - WOCA.

Estimated installed Uranium requirements Year nuclear capacity (GWe) (kilotonnes U)

1983 162 35 1990 295 51 1995 361 57

Source: Uranium Supply and Demand: Perspectives to 1995, Uranium Institute, London, May 1984. Data are for WOCA - the world outside the centrally controlled economies.

increase are already under construction or on order, so the forecast is fairly solidly based.

What happens thereafter is necessarily much more speculative. The N E A / I A E A foresee the W O C A installed nuclear generating capacity rising to 1000 GWe before the year 2020. Their low-growth case (which the industry in its present cautious mood tends to regard as probably more realistic than the high-growth case) would bring the cumulative requirement for uranium to about 3 million tonnes U - roughly the total shown in Table 3 - by the year 2020, assuming a once-through fuel cycle in L W R reactors. So even without economies from uranium and plutonium recycling, or from the breeder reactor, it seems unlikely that we will have to call on the less well-established ore bodies for at least another three decades. This should give ample time for mounting the exploration campaigns on which we shall depend in the longer term. Some hint of what those campaigns might achieve is given by the striking fact that one single deposit - Olympic Dam in Australia - contains no less than one million tonnes U, recoverable in co-production with copper. Other forms of co-production will assist with future uranium supplies: already North America has the capacity to produce 1200 tonnes U annually as a phosphate by-product; and there is potential world- wide for increasing the figure to 7000 tonnes U.

STOCKPILES AND THEIR INFLUENCE ON THE MARKET

There is one further respect in which the position in the short and medium term is entirely secure. Historically, uranium production has consistently outstripped uranium consumption, and up until today the accumulated stocks in the hands of consumers have amounted, on average, to something like four years' forward requirements for the world's present population of reactors. This is about twice the size of pipeline that is needed on technical grounds. This oversupply - which in the case of some countries is even greater - has come about as a result

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of unforeseen cutbacks in electricity demand, fol- lowing the reduction in world economic activity due to the two oil shocks of the 1970s.

Over the past three or four years these stocks have come to exert a major effect on the short-term, or spot, market. Even though uranium fuel costs do not amount to a major part of the total cost of nuclear electricity, the carrying charges for these surplus stocks have reached a level at which some destock- ing has become desirable. The result has been a growth in secondary markets, with consumers selling to other consumers, and in some cases even to high-cost producers. The growing complexity and sophistication of the uranium market which these transactions illustrate carries with it its own additional supply assurance - because the market itself can provide multiple and highly diversified sources of supply, which are likely to be of value in dealing with any future unforeseen supply interruptions.

POLITICAL AVAILABILITY

The importance of having some buffer stockpiles becomes apparent when we leave the question of physical supply security and turn to the important issue of political availability. The constraints on the supply of oil in the early 1970s are still fresh in our minds. Could the same happen with uranium?

The short answer is that this would be extremely unlikely. The cartelization of the oil market in 1974 was due in large measure to the fact that, from 1968 onwards, world oil consumption had exceeded the discovery rate. At least for a time, production was under a strain. We are very far from that position with uranium. Firstly; uranium is easily stockpiled, whereas with oil the pipeline was limited to three months. Second, there clearly is now, and will remain, very active competition within the uranium market, resulting from its abundance and from its distribution amongst states with widely differing political outlooks. The situation is totally different from that of the early 1970s, when defensive marketing arrangements were supported by several governments, as a reaction to the depressed state of the uranium market. A US import embargo had previously severely hit the uranium industries of Canada and South Africa - half the mines had closed

- while Australia had gone out of production altogether. The nuclear industry was still stalled. And as a further depressing factor a major middle- man operating in the market had intercepted, and not passed on to the mines, orders worth more than

the total of one year's world production. As conditions improved the arrangements were wound up, according to a Canadian government statement, in 1975. Clearly there is no likelihood whatsoever of such an unusual combination of circumstances reap- pearing. But what cannot be promised is that there will be no supply tightnesses, or that no major price swings will occur. Such events are common to all mineral commodities; but they tend to be transitory, because the situation is self-correcting. Major price increases, such as occur when demand begins to exceed production, are themselves powerful gener- ators of new exploration activity, besides encourag- ing the commissioning of new mines or the recom- missioning of some which have closed down - closures at the present time being more often due to falling prices than to physical exhaustion.

These are strong reasons for believing that free- market forces within the market will remain domi- nant. However, this does not alter the fact that, within the freedom that the market accords, governments will quite naturally attempt to extract the highest possible price for their uranium. The history of uranium production is littered with examples of government interference in the market place, which still continues today. The peculiarly strategic nature of uranium makes this unusually simple, since governments rightly insist on maintaining controls over its trade. Given the need for export approvals, it is a relatively simple step to attach price or other conditions to those exports, for the purpose of enhancing the exporting country's return from the trade. Thus, Canada has had a policy of requiring that its uranium should normally be exported in the most advanced form, to add value : in practice this means in the form of uranium hexafluoride. Pro- vided such conditions are not imposed in an economically unreasonable manner, this is something to which the market can adjust without much difficulty.

Producer governments are also permanently under the temptation to impose price floors. This, for instance, is explicitly the case in both Australia and Canada, where the goverments approve export contracts as much in terms of price as in regard to the intended end use. This may seem like a contradiction of what has just been said regarding a free market in uranium. However, the historical record shows that when a pull develops between government policies for maintaining prices above a certain floor level, and the pressures of the wider market, it is not necessarily the market which gives way. Since 1979 the spot price of uranium has fallen considerably below the levels which some producer governments previously regarded as desirable; but

268 ENERGY POLICY September 1984

the pressures of stock sales have proved irresistible in the current conditions of oversupply.

The setting of price floors is only one of the ways in which governments exert their influence on the uranium market. The USA banned imports for many years, to protect its domestic mining industry; but the result was that its electricity utilities could not buy on the world market. The Canadian government, as part of its natural resources policy, permits exports only after the needs of Canadian nuclear reactors have been provided for. Fortunately the very large deposits of uranium in Canada ensure that this provision, now and for many years to come, is unlikely to exert a major constraint on supplies to other countries. The Australian government, all through the 1970s, agonized over whether to allow uranium mining to restart; and when it did at last agree, it insisted on a slowly phased re-entry, which at the time of writing has so far not included Jabiluka, one of the largest uranium deposits in the world.

CONTROLS OVER NUCLEAR PROLIFERATION

There is one further reason for government control over exports; and even though it is not one which is likely to create any problems for the UK, it is worth mentioning in the context of Sizewell because of the anxieties which exist in the minds of some members of the public regarding nuclear proliferation. The fear is that the advent of nuclear power will open the door to easier bomb-making by unscrupulous governments. As the UK is already a nuclear-weapons state this is not an argument which can logically be advanced against a British PWR programme. Never- theless, since it is a source of some of the anxiety about nuclear power generally, it is as well to set down what this means in practice for the nuclear fuel industry.

This consideration is of course very much in the mind of supplier governments. With almost no exceptions, uranium today is traded under an umbrella of intergovernmental agreements, through which the supplier government seeks to constrain the purchasing governments as to the downstream uses of the uranium which is being 'safguarded', usually by means of inspections arranged by the International Atomic Energy Agency. The need for such safeguards was brought sharply home to the world nuclear community by the 1974 Indian explosion of a 'peaceful nuclear device' , created out of the plutonium derived from a Canadian-supplied re-


search reactor containing heavy water supplied by the USA. Both countries reacted. Canada im- mediately tightened her export controls. Indeed, for a time problems arose over the supply of uranium to Europe, owing to the fact that nuclear fuel can, under the Euratom Treaty, circulate freely within the European community, in which there are two nuclear weapons states. The Canadians regarded this as creating undesirable precedents - not because Canada feared proliferation in Western Europe, but because it wished to demonstrate conclusively that no nation or group of nations should be exempt from its new and exceptionally stringent non-proliferation rules. For a period of about a year, Canadian uranium supplies to Europe were halted. Subse- quent negotiation of an agreement between Canada and Euratom has resolved the difficulty. Australia, too, for similar reasons - including very strong internal political pressures from those who fear the possible misuse of Australian uranium - imposes stringent obligations on the recipients of her uranium.

The USA, under the Nuclear Non-Proliferation Act of 1978, established controls which in some senses are even more stringent. The result of provisions such as these is that non-proliferation controls are an integral part of the every-day life of the nuclear fuel industry. Far from objecting to the controls to which it has to conform, the industry regards the effective policy of nuclear trade as a necessary requirement. There cannot, of course, be complete guarantee that the ingenuity of a state wishing to indulge in proliferation can for ever be defeated; but a high degree of control already exists, and a would-be proliferator would find himself with no assistance from the world's uranium industry.

ACHIEVING SUPPLY SECURITY

The disruptions and uncertainties of supply resulting from the political reactions to the Indian explosion are fortunately now things of the past: as a result of intergovernmental agreements, producers and consumers now have a pattern of trading which, while not exactly tidy, is at least workable. Nevertheless, the consumer still owes it to himself to protect his security of supply, so far as he is able, by managerial means. The various disturbances to the market described above provide a ready-made spur for doing so. In practice, therefore, the consumer seeks diversity of supply, and relies on stocks to deal with any unforeseen interruptions. If supplies can be spread equally over four sources, and if stocks equal

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to two years' supply are held, then the consumer has something like eight years in which to deal with an unexpected failure of one of his supply sources. Even allowing for the fact that most uranium is traded on long-term contracts, so that mines may be fully committed for years ahead, an eight-year warning period is considered ample to arrange for a new source of supply - quite apart from any assistance which may be forthcoming from mutual aid swaps between utilities, or from the spot market.

While this is no more than one would expect from responsible managers, it is nevertheless worth noting in the context of a public inquiry. The objectors sometimes seem to speak as though they are the sole guardians of the public purse; as though the electrical utilities are naive unsophisticates, out of touch with reality. This truth is different. The nuclear fuel managers of the world's electrical utilities are constantly in touch with their suppliers, both directly and through industry organizations. Because they are able to ask searching and precise questions relating to future contract provisions, and to com- pare answers, they are in an unrivalled position to understand the market. Their detailed knowledge offers no reason why nuclear power installation should not proceed at a pace set by economic requirements. In a number of other countries a far greater proportion of electrical generation is already being carried out by nuclear means, compared with the UK (Table 5). If there were real grounds for anxiety, then those responsible in such countries would be guilty of grave dereliction of professional duty, and of hazarding the massive investments on which the future energy supplies of their own countries depend. However, for the reasons set out above, they are quite confident about the security of uranium supplies, for + at least as long as the economic lifetime (30 years or more) of the thermal reactors now under construction.

LONG-TERM URANIUM SUPPLIES

One final point remains to be made: how long uranium will continue to be available at prices which will still permit thermal reactors like the PWR to compete economically. With uranium at current average prices of around $30/lb of U30s, the raw uranium, depending a little on the assumptions made, accounts for only 6-10% of the total cost of the power sent out from the station. If we take at their face value the resource data assembled by the IAEA, making some plausible assumptions regarding the relationship between the Agency's 'forward

Table 5. Proportions of national electricity generation attributable to nuclear power, 1983(%).

Belgium 46 Bulgaria a 29 Canada 12 Finland a 41 France 48 DR Germany a 12 FR Germany 18 Japan 20 Sweden 37 Switzerland 28 Taiwan a 29 UK 18 U SA 13

Source: Nuclear Power and Fuel Cycle Data, Nuclear Energy Agency of OECD, Paris (1984); and IAEA Power Reactor Information System. aData for 1982.

cost' and the price a commercial operator would have to charge to cover the cost of investment, then it is possible to conclude that uranium is most unlikely to be the cause of thermal reactors becom- ing non-competitive over the next 40 years.

Indeed, one can extend the argument, and ask when uranium supplies are likely to be sufficiently strained, and therefore higher-priced, to justify the large-scale introduction of the fast breeder reactor, with its potential ability to achieve a 50-fold increase in the energy extracted from a given weight of uranium - albeit at a probably somewhat higher cost per kilowatt-hour. The short answer is that a switch to the breeder reactor on fuel-supply grounds alone is unlikely to be necessary before the second quarter of the next century. The reference to large-scale use is, however, important: there will certainly be a need for several prototypes to be built and operated to gain experience. Fortunately, for once there will be enough time to do this. The probability is that, once the breeder has been fully developed, there will then be a period, measured in decades, in which we shall witness a prolonged economic competition between the two families of reactor. Strong negative feedback factors will be at work: as the breeder gradually takes over it will release uranium for thermal reactors; and as the uranium price gradually rises owing to depletion this will both encourage exploration and (as explained above) automatically bring more ore bodies into the category of economically mineable reserves.

The overwhelming impression gained from study- ing the data relating to uranium supply is that they encourage, rather than discourage, a policy of committing further thermal reactors to nuclear electricity production; and if there are any residual doubts the existence of the alternative option of the breeder reactor should set them at rest. The figures in Table 5 bear witness to the fact that many countries have already given an affirmative verdict.

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uranium supplies and nuclear energy policy

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