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An adequate supply of uranium is available today to fuel the world's reactors only because a secondary supply is filling the gap between usage and primary supply from mines. Most of that secondary supply involves Russia.
Figure 9.4 Current Uranium Enrichment Capacity
© Casey Research 2014.
When the USSR collapsed, Russia inherited over 2 million pounds of weapons-grade uranium and vast, underused facilities for handling and fabricating the material. Starting in 1993, the two were brought together under the Megatons to Megawatts agreement between Russia and the United States. Over the 20 years that followed, 1.1 million pounds of Russian warhead-grade uranium (90 percent U-235), equivalent to 20,000 nuclear warheads, was blended down to 33 million pounds of reactor-grade uranium (3 percent U-235) by diluting it with tails—enrichment in reverse. The resulting product was sold to the United States.
Megatons to Megawatts helped to fill the supply gap for two decades but now is history. Its expiration in November 2013 marked the end to 24 million pounds of annual uranium supply, 55 percent of what the United States had been using.
During the Megatons to Megawatts period, Russia operated a separate stream of secondary production. It put its excess enrichment capacity to work on other people's tails. In the 1990s and early 2000s, Russia accepted boatloads of ready-to-process tails from major players like Areva (Canadian) and Urenco (a European consortium). Today that sideline also is history.
The United States now contributes to secondary supply in a modest way. During the Megatons era, the United States also was converting unwanted warhead material to fuel. But only one American company,
Figure 9.5 Uranium Conversion Capacity
© Casey Research 2014.
WesDyne International, has facilities for downblending weapons-grade uranium to fuel grade, and its capacity is less than 18,000 pounds per year. (Russia's capacity is more than five times that.) (See Figure 9.5.)
So while the United States has plenty of warhead uranium to feed downblending plants, it doesn't have much plant capacity to feed it into. To speed things up, it would have to send the material to Russia for conversion to fuel. Imagine the screaming if any U.S. politician proposed handing nuclear warhead material to Mr. Putin.
Today Russia is producing enriched uranium from its own stockpile of tails, in addition to enriching the output from Russian mines. As a producer of uranium ore, Russia is in sixth place; however, when the former Soviet states combine their production, Kazakhstan, Uzbekistan, and Russia make up almost half the global uranium production. As a producer of enriched uranium, Russia is number one. It supplies over 40 percent of the world's enriched uranium, mostly to power plants.
Putin's Uranium Superstore
Russia now ranks sixth in the world for mine production of uranium. On top of that, Putin carries a lot of clout in neighboring Kazakhstan, a member of the Common Economic Space (CES) customs union and the world's top primary uranium producer, with 38 percent of the total.
So Russia already has its hands on 47 percent of the world's primary production.
Control over so much capacity for mining and enrichment makes Putin the go-to source for countries desperate to secure long-term supplies of reactor fuel. In 2012, for example, Russia signed an agreement with Japan—which, despite Fukushima, can't afford to give up on nuclear power—that guarantees the availability of uranium enrichment services for Japanese utilities.
Russia will continue supplying the United States as well, but this time on Russian terms. The Megatons agreement didn't let Russia sell directly to American utilities—only to the U.S. Enrichment Corporation (USEC), at a set, below-market price. And the only product eligible was downblended warhead uranium—nothing from new mine production. It was because of those and other restrictions that Russia made no effort to extend Megatons past 2013.
In 2012, Tenex, Russia's nuclear fuel exporter, reached six-year deals to supply more than $1 billion worth of reactor fuel to four American utilities. It has also contracted to provide enrichment services to USEC for nine years. Annual deliveries under the USEC contract should be about half of those under Megatons. There is no price ceiling, and there are no conditions on where the uranium comes from.
Putin has also captured long-term customers for Russian uranium in countries where Rosatom, Russia's state nuclear utility, is building reactors.
Rosatom is a giant in the global nuclear sector. The company builds more nuclear power plants worldwide than anyone else, with construction currently under way in China, Vietnam, India, and Turkey. The 21 projects now on Rosatom's order book are worth $50 billion. Iran plans to buy at least eight new nuclear reactors, and the Russians are ready to build and operate the projects and supply the fuel. While the United States dithers over Ukraine, Putin is cementing more long-term contracts into place.
Moreover, many of those new facilities come with a life-of-plant fuel supply contract, such as the one Rosatom recently signed with Bangladesh for its first nuclear power plant. Putin understands the meaning of "full-service provider."
Rosatom also handles $3 billion per year of Russian uranium exports to other customers. One-fifth of the material goes to the Asia-Pacific region, a market growing so quickly that Rosatom is building a new uranium products transportation hub at Vladivostok, Russia's largest Pacific port.
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