Publications

Survey of Energy Resources 2007

Uranium - Overview

With headlines of licence extensions instead of early retirements of nuclear power plants, and the prospect of dwindling cheap and reliable fossil fuel supplies, burgeoning energy demand and increasing environmental constraints, the world is witnessing a resurgent interest in nuclear power as a clean, abundant and economically competitive electricity supply option. After almost two decades of decline or, at best, stagnation, numerous countries or utilities, until recently oblivious or opposed to the technology, have begun to reassess nuclear power as a secure and economically competitive base-load electricity generating technology.

Populous countries with rapidly developing economies such as China and India pursue aggressive expansion of all electricity generating options, including nuclear power. Russia has announced that it wishes to increase its nuclear generating capacity from the current level of 21.7 GWe to 44 GWe by 2020. In the Republic of Korea a nuclear share in the national electricity mix of close to 60% is seen as a desirable medium-term target (up from the current 40%).

After more than 20 years without a single new order, utilities in the United States are positioning themselves for an initial round of plant orders, in part stimulated by government incentives, in part by economic and environmental considerations. Finland and France are building or have decided to build third-generation nuclear power plants. The United Kingdom Energy White Paper of May 2007 keeps open the option of constructing new nuclear power plants in the future. Energy policy in Belarus, Poland and Turkey has moved in favour of building nuclear power stations. The World Energy Technology Outlook - 2050 of the European Commission (EC, 2006) projects a significant increase in nuclear power after 2020 worldwide. Such projections are consistent with the growing number of countries expressing an interest in nuclear energy for electricity production. A meeting organised by the International Atomic Energy Agency (IAEA) in December 2006 to examine Issues for the Introduction of Nuclear Power was attended by 28 (predominantly developing) countries that currently do not operate nuclear power plants.

This upbeat outlook on nuclear power is in stark contrast to the not-so-distant past, with years of suppressed growth prospects, including nuclear phase-out policies in several countries, with the consequent impact on uranium exploration activities and production capacities. Nuclear technology and fuel cycle infrastructures are complex and capital-intensive, with long lead times. Without clear long-term demand signals from the market place, the uranium industry has been reluctant to invest in new mine capacities or to pursue large-scale uranium exploration.

In addition to the uncertain outlook for nuclear power, the uranium market has been characterised by a large disparity between global reactor requirements and mine production (Fig. 6-1 ) since the early 1990s when, after decades of production exceeding requirements by an unusually wide margin, mine output slipped below annual reactor requirements. The appearance of so-called secondary supplies (i.e. reactor fuel derived from warheads, military and commercial inventories, re-enrichment of depleted uranium tails, as well as enriching at lower tail assays, reprocessed uranium and mixed oxide fuel) reduced demand for fresh uranium. In addition, new entrants to the world uranium market, e.g., Kazakhstan, Uzbekistan and the Russian Federation, further exerted competitive pressures. As a result of uncertain and low demand plus excess capacity, uranium prices (except for short-term aberrations) fell.

Usually low prices suggest plentiful supplies. Utilities therefore began to hold lower inventories, which suppressed production and prices even further and overall operational mine capacity dropped below reactor requirements. A fair share of the market apparently turned a blind eye to the fact that requirements were increasingly met by accumulated past production and not from operating capacities. In late 2000, uranium prices reached an historical low of US$ 7.10/lbU3O8 or US$ 18.45/kgU, threatening the economic survival of many mines. At the same time, global production had progressively declined to less than 60% of reactor requirements. In short, uranium prices no longer reflected longer-term production capacities.

Shortly after prices hit the historical low, a series of events uncovered the long-ignored demand/supply imbalance and caused prices to rise. Among the triggering factors were a fire in Australia's Olympic Dam mill and the flooding of the world's largest and highest-grade uranium mine, McArthur River in Canada. Both mines were among the top global producers and the drop in output resulted in market prices rising immediately. On the demand side, since 1990 rising plant factors of the world's nuclear fleet added incrementally to annual reactor fuel requirements the equivalent of more than 30 GWe. A series of licence renewals for existing reactors that began around the turn of the century sent plant operators out to secure fuel for another 20 years or so. Another change was the growth of nuclear power in the developing economies of China and India, countries that had either not participated in the market to a great extent or had not participated at all. While demand was picking up momentum, supply from mine output continued to be underprovided.

Concerns surfaced with regard to the global industry's ability to meet a potential surge in demand for uranium and with short-run supplies from mines capped and rising demand expectations, uranium prices began to climb (Fig. 6-2 ). Higher prices were seen by most market participants as a necessary prerequisite to correct past market anomalies and to stimulate investment in direly-needed new production capacity (Combs, 2006). Despite some uncertainty on the precise future availability of fissile materials from military arsenals that still exists, it became clear that the bulk of future uranium supply must come from mine output, i.e., investment in exploration and development of new mines and mills. In the short run, however, because there is no ready-to-produce project on the shelf, the production cannot increase rapidly despite rising demand. As a result, in six years the uranium spot price has been multiplied by a factor of ten.

The market reacted as expected and mine re-opening and the expansion of existing facilities increased global mine production capacity from about 45 000 tU in 2001 to more than 52 000 tU in 2006 - still well below current annual reactor requirements. Numerous new mine openings are planned or under preparation, but given the long lead times of up to ten years and more between an investment decision and first mine output, the markets will have to continue to rely on secondary sources for another decade or so. One important source, the agreement to downblend highly enriched uranium (HEU) from the Russian weapons programme, will however be stopped after 2013, when the agreement expires.

Planned new mine capacities, especially in Australia, Canada and Kazakhstan, are considered essential for re-aligning uranium production and reactor requirements for the post-2015 period. Prices and demand prospects are now at levels that warrant additional investments in exploration and production. However, the market remains tight - the 2006 rockfall and water inflow at the Cigar Lake mine in Canada, which will delay the opening of the mine, with an estimated annual output of close to 7 000 tU, by one to two years, sent uranium spot-market prices to US$ 75/lbU3O8 or US$ 194.80/kgU in February 2007.

Another development since 2004 has been the emergence of investment funds in the uranium market - in part prompted by the lasting demand and production imbalance and a view that secondary sources eventually need to be replaced by primary production. These funds hold uranium entirely for speculative reasons, confident in the knowledge that prices will continue to increase and that uranium will sell at a profit. Although the volumes involved are a small portion of the total market, investment funds helped raise spot prices in 2005 and 2006.

Soaring spot-market prices and the wide gap between uranium production and reactor requirements have questioned the ability of the uranium and nuclear fuel-cycle industry to respond to a nuclear renaissance. Indeed it would be the 'ultimate irony if fuel became the Achilles heel in the nuclear turnaround instead of one of nuclear's greatest advantages' (Melbye, 2006). The issue of long-term uranium supply has especially been at the centre of debates about the role of nuclear power in sustainable energy development. Statements like 'the reserve-to-production ratio of uranium amounts to only some 60 years' (essentially implying to the uninitiated that new-build nuclear power plants, with an anticipated economic life time of 60 years, will run out of nuclear fuel before their date of decommissioning) are not only misleading but irrelevant.

Uranium supply is usually framed within a short-term market perspective that focuses on prices, on who is producing and with what resources, where might spare capacity exist to meet short-term demand peaks and how does this balance with demand? In essence, the skill is in the understanding of supply/demand/price interdependencies and dynamics for known uranium resources. In contrast, long-term supply (given sufficient demand) is a question of the replenishment of known resources with new resources presently unknown or from known deposits presently not producible for techno-economic reasons. Here the development of advanced exploration and production technologies is an essential prerequisite for the long-term availability of uranium. Demand prospects and competitive markets are the essential drivers for technology change and investment to ensure sufficient long-term supply, both through the discovery of new resources and the exploitation of known resources that were previously not accessible (Rogner, 2000). There is no doubt that production capacity will catch up with demand again. But the current challenge before the uranium industry is to shift from a mode of merely responding to short-term market changes to a mode of anticipation of the true longer-term uranium demand and supply balances.