Uranium woes

Australia’s U-turn on uranium exports to India represents a serious setback to the Indian drive to open up international civil nuclear trade.

Brahma Chellaney

Asian Age, February 16, 2008

New Delhi has cited a pressing need to source natural uranium from overseas as a key driver of its nuclear deal with the United States. Yet, when the new Labour Party-led government in Australia conveyed its decision last month not to export uranium to India, New Delhi did not react. Indeed, even as Australian Prime Minister Kevin Rudd’s administration publicly defends its reversal of the previous Liberal-led government’s agreement to sell uranium to India, mum is the word from New Delhi.

The uranium deal was to involve a separate safeguards accord between Canberra and New Delhi, along with a civil nuclear cooperation agreement.

            How significant a setback for India this reversal constitutes can be seen from the fact that Australia, with 38 per cent of the world’s lowest-cost uranium reserves, currently accounts for 22 per cent of the global exports. “A doubling of uranium exports by 2015 is realistic,” according to an official Australian report released in late 2006, a decade after Canberra changed policy and approved new uranium-mining projects, two in South Australia state and a third in the Northern Territory.

Australia exports virtually all its production of processed uranium ore — also called U₃O₈, or yellowcake — because it has no real domestic needs in the absence of a single commercial nuclear power plant. Its U-turn eliminates a key potential supplier for India in a tight international uranium market, where demand is outstripping supply.

Global uranium demand now runs at about 80,000 metric tonnes per year, while mined output is roughly 60,000 tonnes, leaving a shortfall of around 20,000 tonnes, which has been met from utility stockpiles or from decommissioned nuclear warheads in Russia. Although Australia and Canada are the world’s main uranium producers, Russia became a major exporter by tapping the inventories it built up by down-blending highly enriched uranium extracted from retired Soviet-era weapons.

Today, in addition to the 439 nuclear power reactors operating around the world, a further 29 plants are under construction. France, a large uranium importer, has taken the lead to aggressively export power reactors, with President Nicolas Sarkozy turning into a nuclear salesman during a recent Middle Eastern tour, seeking to dispense reactors like charity.

Most commercial nuclear plants in operation or under construction are Light Water Reactors (LWRs), which are fuelled by low-enriched uranium (LEU), with a first fill normally demanding around 600 tonnes of natural uranium and each subsequent refuelling consuming about 200 tonnes.

The price for uranium ore in the world market has come under pressure due to several factors, including a drying up of the excess uranium supply from dismantled Soviet-era weapons, inventory constraints among power companies and rising international demand, which is projected to grow annually by about 5 per cent. Yellowcake sold for less than $12 a pound in 2003. Today its international price for immediate delivery — the so-called spot price — is $75 a pound. Uranium had actually raced to a record spot price of US$135 in 2007, on speculative pressure built up by hedge funds and other institutional investors. Although the price has fallen back, it is still far above long-term averages.

Add to this picture another element: The world’s proven uranium reserves are limited and unless breeder technology is embraced in a big way or the higher-grade ores reserved for military programmes are freed, the known uranium stocks are likely to last barely 85 years, according to estimates in the Red Book, jointly published by the Organization for Economic Cooperation and Development and International Atomic Energy Agency.

 

It is possible, however, as is happening in the oil-and-gas sector, that sustained high prices would spur more exploration, mining and supply. The IAEA believes high prices could help raise production by 10 per cent a year. But if the new supply takes years to enter the market, the price of uranium is bound to climb steeply, adding to the cost of nuclear-generated electricity, whose commercial attraction has already taken a beating through escalating equipment costs and manufacturing bottlenecks.

 

This has been highlighted by the Franco-German Areva’s time and cost overruns to complete Finland’s much-touted Olkiluoto 3 — the first nuclear plant to be built in Europe since 1991. With the $4 billion original price tag facing a $2.1 billion cost escalation, Olkiluoto 3 is set to become the most-expensive nuclear plant in history — a point missing from Sarkozy’s feverish sales pitch in India and elsewhere.

 

The significance of Australia’s withdrawal as an agreed supplier to India is also underscored by another fact: Uranium, unlike other commodities, does not trade on an open world market. Rather, in keeping with political controls, buyers and sellers negotiate contracts privately, with the spot price published every Friday by two market consultants, Ux Consulting and TradeTech. The spot market actually is very small, with most trading occurring through governmental intervention under long-term contracts, where prices typically are marked down. 

 

Nuclear trade indeed constitutes the world’s most politically-regulated and monopolized commerce, with a tiny cartel of state-guided firms controlling all reactor, fuel and component sales.

 

Against that background, the government-to-government deal that New Delhi had with the previous John Howard administration in Canberra was the only way to secure Indian access to the vast uranium resources of a country where BHP Billiton and Rio Tinto, two of the world’s largest and diversified mining companies, are involved in uranium extraction. A new Canadian-run project at Honeymoon, South Australia, is scheduled to start annually producing 400 tonnes of U₃O₈ later this year, while $81 million is being spent to assess the possible doubling of production at the BHP Billiton-owned Olympic Dam — the world’s largest-known uranium deposit.

 

The Australian deal was also important because the world’s other major uranium producer, Canada, while agreeing to “pursue further opportunities for the development of the peaceful uses of atomic energy” with New Delhi, has yet to decide whether it would allow its mining firms to export yellowcake to India. Ottawa may be leaning toward a position to not come in the way of a Nuclear Suppliers’ Group exemption for India. The opening of its uranium exports, however, is a separate matter demanding a Cabinet decision to lift a 33-year-old ban on nuclear trade with India. Canada’s Cameco Corporation alone holds almost 20 per cent of the global uranium market.

 

Another supplier-state, Russia, is committed to meeting the LEU needs of reactors it is building or intends to construct in India. But beyond such fuel arrangements to underpin reactor exports, Moscow has little capacity to meet the supply needs of India’s indigenous, natural uranium-fuelled Pressurized Heavy Water Reactors (PHWRs). In fact, with its own nuclear-power industry beset with problems, Russia’s first two reactors in India are running far behind the agreed construction schedule.

 

Owing to its rising domestic demand, Russia’s uranium exports are set to peter out. Moscow is seeking not only to expand its nuclear-power programme, but also to build a new generation of nuclear warheads in response to the U.S. pressing ahead with a missile defence system in Eastern Europe and designing a new warhead for the D5 missiles, carried on Trident submarines. Two decades after the Berlin Wall’s fall, Russia and the U.S. together still retain some 25,000 nuclear weapons, including 6,000 long-range weapons deployed on hair-trigger alert.

 

Outgoing President Vladimir Putin last week vowed that Russia would field new strategic weapons because “a new arms race has been unleashed in the world.” Putin declared: “We didn’t start it … funnelling multibillions of dollars into developing weapon systems.” With rearmament looking certain, Russia has been aggressively seeking uranium imports.

 

Last September, Canberra signed an agreement with Moscow allowing Australian mining companies to export uranium ore for use in Russian power reactors. Moscow is also tapping the uranium resources of Kazakhstan, which has larger recoverable reserves than Canada but lags significantly in production and export. Foreign investment and technical assistance, however, helped expand uranium production in Kazakhstan by 25.3 per cent last year.

 

Kazakhstan’s state-owned agency, Kazatomprom, which controls all uranium exploration and mining, has roped in several foreign partners, including companies from Russia, France, Canada, China, the US, Japan and South Korea. Two joint mining ventures with Kazatomprom are to give Moscow access to 6,000 tonnes of U₃O₈ every year. Kazatomprom is also set to become the main uranium supplier to China, having agreed to export 2,000 tonnes per year from two mines in which Chinese state companies hold a 49 per cent stake. India, in contrast, figures nowhere in the Kazakh picture.

 

While America, France and Japan will remain the world’s three largest uranium importers, the yellowcake needs of China, Russia and India are set to expand.

 

India’s uranium crunch is self-made. Despite new deposits having been discovered in Andhra Pradesh, Meghalaya and elsewhere, the central governments between 1991 and 1998 starved the nuclear programme of necessary funds, crippling uranium projects and other expansion plans. As nuclear chief Anil Kakodkar publicly admitted last October, “The present fuel demand and supply mismatch would not have arisen had these projects been pursued in the same spirit with which Dr. Homi Bhabha started activities at Jaduguda” — the site of India’s first uranium mine and mill.

According to the Red Book, India has 64,000 tonnes of reasonably assured uranium reserves and an estimated additional 30,000 tonnes in situ — sufficient to meet the current modest demand for long.  At present, all mining and milling is done in Jharkhand state, at Jaduguda and Bhatin (since 1967), Narwapahar (since 1995) and Turamdih (since 2002).  Last year, India’s first open-cut mine was commissioned at Banduhurang (Jharkhand), along with a new mill at Turamdih. Two new Jharkhand mines are coming up at Bagjata and Mohuldih.

Despite environmental clearances, however, the opening of new mines in Andhra Pradesh and Meghalaya has been held up by grassroots activism over land-acquisition and rehabilitation issues and other concerns. In Andhra, the Lambapur-Peddagattu project in Nalgonda district is building one open-cut and three small underground mines, while an underground mine and a mill are to be developed at Tummalapalle in Kadapa district. In Meghalaya, uranium is to be mined at Domiasiat-Mawthabah and Nongstin.

Australia, unlike distant Canada or landlocked Kazakhstan with no freight corridor to India, would have been New Delhi’s preferred uranium supplier.

Canberra’s policy reversal leaves India on shaky ground. In the absence of a single committed long-term supplier of yellowcake, can New Delhi proceed to permanently place eight indigenous power reactors under external inspection or begin to import plants of a type that are going to be perpetually dependent on foreign fuel? And will it still be ready to assume international obligations of a kind that no nuclear-weapons state has accepted thus far?

 

© Asian Age, 2008