The Effects of US and Russian Government Surplus Inventories

Transcription

1 The Effects of US and Russian Government Surplus Inventories William N Szymanski he United States and Russian governments Tsigned an agreement in 1993 that provided for the conversion of high enriched uranium (HEU) from dismantled Russian nuclear weapons into fuel for commercial nuclear reactors. The United States followed by announcing plans to dispose of HEU in a similar manner, along with other uranium inventories no longer required for national security purposes. The much anticipated introduction of uranium from these inventories into the marketplace was delayed while legal procedures were being developed for selling the uranium. With resolution of many of the outstanding issues during 1996 and 1997, US and Russian government surplus inventories are poised to play a key role in the world uranium market. The extent to which these inventories can provide a steady and secure source of supply is of great importance to the nuclear industry. The Energy Information Administration (EIA), an independent organisation within the US Department of Energy (DOE), develops projections of uranium prices and supply through to The projections are made available as part of EIA s responsibility for providing energy information and analysis. EIA does not propose or advocate policy or legislation. Because uranium market projections are subject to considerable uncertainty, three alternative cases were developed by EIA to analyse the effects of selling US and Russian government surplus inventories on the uranium market. The analysis presented in this paper focuses on the following government inventories declared as surplus: Russian HEU; US HEU; US natural uranium and low enriched uranium (LEU). While the US and Russian governments maintain varying degrees of control over the civilian nuclear fuel cycle in their countries, this paper considers only those inventories formerly held for national security purposes as government surplus. In addition to portions of US and Russian HEU to be released under current plans, it is likely that other inventories of HEU will made available by the US and Russian governments beyond the forecast period. Because the quantities and the timing of additional releases are not known at present, this analysis does not extend beyond The US government has also announced plans to dispose of surplus plutonium, including recycling it into fuel for nuclear power plants. Russia could follow a similar course. Because the plans are undergoing regulatory review and no firm schedules have been announced, US and Russian government surplus plutonium is not considered in this paper. However, it should be noted that the market effect of the maximum releasable amount of surplus plutonium would be small. The projections of uranium price and supply reported in this paper are generated from EIA s Uranium Market Model (UMM). The UMM is a microeconomic model in which uranium from available sources of supply is used to meet the The Uranium Institute

2 The Effects of US and Russian Government Surplus Inventories Szymanski demand for uranium from utilities nuclear power plants. The projections reflect known technology, uranium reserves, costs, procurement practices, and current laws and regulations. Supply and demand are considered for 16 regions worldwide, including Russia and the United States. Uranium supply is represented by an annual short-run supply curve consisting of increments of potential production and the supply of excess inventories. Increments of supply are assumed to be available to the market at different prices. Suppliers that are able to sell uranium most cheaply generally occupy the lower portions of the supply curve. Exceptions are those high cost suppliers that hold contract commitments. Demand is assumed to equal unfilled requirements of utilities. In determining unfilled requirements, the UMM takes into account reactor requirements, utility inventories, and contract commitments to purchase uranium. Annual projections of reactor requirements for the world come from EIA s International Nuclear Model. Contract commitments and inventory holdings are model inputs. Recent Developments Since mid 1996, comprehensive plans have been announced regarding the commercialisation of US and Russian government surplus inventories beginning in 1997 (see Appendix 1). Based on these plans, the natural uranium equivalent of tu (410 million pounds U 3 O 8 ) would be supplied to the uranium market through This quantity is equivalent to 2.5 times world uranium requirements projected for The blending down of Russian HEU to LEU is expected to account for tu (335 million pounds U 3 O 8 ), the largest share of uranium to be made available from government surplus inventories through This assumes that the annual quantity of Russian HEU to be blended down is maintained at 30 t after the end of the current five-year implementation contract described below. Russian HEU In November 1996 the US Enrichment Corporation (USEC) and Techsnabexport (Tenex), the executive agents for the US and Russian governments respectively, amended the US Russia HEU agreement to establish the price and quantities for the period 1997 through This agreement was an important breakthrough for ensuring a dependable supply of uranium from the Russian HEU. Previously the two parties signed one-year contracts. Also, the amended agreement provided for an additional 22 t of HEU to be blended down during the period Unlike the enrichment component, the natural uranium feed component of the LEU derived from Russian HEU has not been sold to end users prior to Before signing the amended agreement, USEC and Tenex settled their differences over payment for the Russian HEU feed. USEC will pay only for the enrichment component of the LEU. As directed by the USEC Privatization Act, passed by the US Congress, USEC will return to the Russian executive agent a quantity of uranium equivalent to the uranium feed component of the LEU delivered by Russia in 1997 and later years. USEC will obtain this uranium by substituting Russian LEU for natural uranium delivered to it by utilities contracting for enrichment services. Russia will receive payment for this feed by selling it to a third party which will market the uranium. As of mid 1997, the Russian executive agent had not concluded a contract to sell this uranium. Progress was also made regarding the placement in the market of the uranium feed contained in the LEU derived from 18 t of Russian HEU that was purchased by USEC during 1995 and Pursuant to the USEC Privatization Act, USEC transferred 5500 tu equivalent (14.2 million pounds U 3 O 8 ) of this material to the DOE in December DOE is authorised to sell this material: to the Russian executive agent for use in matched sales (with equivalent amounts of newly produced US uranium) to US end users pursuant to the Suspension Agreement between the United States and Russia; at any time in the United States for overfeeding enrichment plants; at any time for end use outside the United States; for consumption by US end users after 31 December 2001, at no more than 1200 tu (3 million pounds U 3 O 8 ) per year. In December 1996, DOE and Global Nuclear Services and Supply (GNSS), representing the Russian executive agent, signed a contract whereby GNSS would purchase from DOE up to 3000 tu (7.8 million pounds U 3 O 8 ) of this material from DOE for use in matched sales to US end users. 2 US HEU In September 1996 DOE issued its plans for disposing of HEU, including the commercialisation 2 Uranium Institute Annual Symposium 1997

3 Szymanski The Effects of US and Russian Government Surplus Inventories of 90 t of HEU over the next 15 years. 3 In addition, the title for 13.2 t of HEU had already been transferred by DOE without cost to USEC to fund liabilities at the DOE-owned enrichment plants, pursuant to the Energy Policy Act of Because it is already in the form of uranium hexafluoride (UF 6 ), the 13.2 t of HEU can be blended down directly in the enrichment production stream. USEC anticipates that the blending of the high enriched UF 6 will take place over three years from 1997 to The USEC Privatization Act directed DOE to transfer to USEC without cost a further 50 t of HEU, along with up to 7000 t of natural uranium. Although held in various metal and oxide forms, USEC plans to complete the blending down of this HEU by USEC is not permitted to sell the equivalent uranium from these transfers before 1 January Sales in any year after 1997 are limited to less than 10% of the equivalent quantity of uranium, not to exceed 1500 tu (4 million pounds U 3 O 8 ) per year. The remaining 40 t of HEU contains quantities of U-236 above the level specified by the American Society for Testing and Materials as acceptable for use in producing commercial nuclear fuel. Because of the need for additional purification, DOE anticipates that this off-spec HEU will be available for commercial use beginning in Meanwhile, DOE and the Tennessee Valley Authority (TVA) have signed a memorandum of understanding whereby TVA will utilise off-spec material in fuel for its nuclear power plants. TVA will pay for the uranium feed and enrichment contained in the LEU blended down from HEU, while DOE will pay for the blending down of the HEU. DOE Sales of Natural Uranium and LEU In July 1996 DOE announced plans to sell 7800 tu equivalent (20.3 million pounds U 3 O 8 ) of natural uranium, and 460 tu equivalent (1.2 million pounds U 3 O 8 ) contained in 45 t of LEU over seven years. This inventory was previously held for US national security purposes. By law the Secretary of Energy was required to determine whether such sales would adversely impact the US uranium mining, conversion or enrichment industry. In March 1997 the DOE Secretary determined that the sale of 1200 tu (3.2 million pounds U 3 O 8 ), scheduled for the fiscal year ending 30 September 1997, could take place without causing adverse impact to US industry. 5 Meanwhile, a continuing decline in the uranium spot market price has caused DOE to re-evaluate its sales programme. On 31 July 1997, DOE issued a notice of plans to sell 400 tu (1 million pounds U 3 O 8 ) instead of the initial quantity considered. 6 The delivery of this uranium to customers is to be made between September 1997 and October Market Issues Because of non-proliferation policy and fiscal considerations, it is likely that both the US and Russian governments will support the commercialisation of government surplus inventories as scheduled. However, the market penetration of the uranium supplied from these inventories is not a mutually exclusive process. It is dependent on the interaction of many factors, including demand, national policies toward trade and security of supply, competing supplies, utility procurement practices, and supplier marketing strategies. In view of these factors, not all of the uranium made available from government surplus inventories is expected to be sold immediately over the next few years. Demand In developing the UMM price and supply projections presented in this paper, EIA used projections of reactor requirements from the reference case generated by EIA s International Nuclear Model. This case assumes that most reactors will operate to the end of their licence limits. Over the UMM forecast period of 1997 through 2010, the world s annual reactor requirements are projected to range from tu (158 million pounds U 3 O 8 ) to tu (167 million pounds U 3 O 8 ). 1 For the reference case, reactor requirements are anticipated to reach their highest level during the middle of the next decade, before declining slightly by 2010 (Table 1). Growth in East Asia is projected to offset most of the decline in demand in the United States and Western Europe. In addition, the UMM considers the displacement of uranium demand arising from the use of mixed oxide (MOX) fuel in Western Europe and Japan as projected by the Uranium Institute (Table 1). MOX fuel is projected to displace 1900 tu (4.9 million pounds U 3 O 8 ) in 2000, increasing to 3100 tu (8 million pounds U 3 O 8 ) in This analysis does not include the possible use of MOX fuel in Russia and the United States. Projections of uranium requirements are based on assumptions about nuclear power generation and fuel management practices. One of the most important assumptions, operable capacity, is particularly subject to uncertainty. Electricity The Uranium Institute

4 The Effects of US and Russian Government Surplus Inventories Szymanski Table 1. Projected uranium requirements for 2000, 2005 and 2010 (thousand tu). (Sources: References 7 and 18.) Note: Western World does not include China or the Commonwealth of Independent States. industry restructuring in the United States and other countries, and political opposition, especially in Europe, could result in early plant retirements. In East Asia, a region considered favourable for nuclear growth, growth rates could be tempered should Japan opt to install less new capacity than had been anticipated. Any of these situations would result in a decline in uranium demand. Trade Restrictions and Other Policies The sale of Russian HEU feed to US end users is restricted to the matched sales quotas of the Suspension Agreement with Russia, and the direct quotas authorised by the USEC Privatization Act (Table 2). 8 The pre-1997 Russian HEU feed purchased by GNSS from DOE is expected to enter the market over the next several years through matched sales contracts. Both US producers and utilities have already embraced matched sales of uranium from Russian mines and other commercial sources. In 1996, the equivalent of 1400 tu (3.7 million pounds U 3 O 8 ) of Russian origin uranium were delivered to US utilities as part of 24 matched sales transactions made in 1996 or prior years. 9 As of 31 December 1996, 14 matched sales contracts remained in effect for future deliveries of Russian origin uranium. In its uranium market projections, EIA assumes that 2700 tu (7 million pounds U 3 O 8 ) will be sold as part of matched sales contracts from 1997 through USEC is expected to make available 5500 tu (14.4 million pounds U 3 O 8 ) of Russian HEU feed to the Russian executive agent in Assuming that the matched sales quota will be used for the sale of pre-1997 Russian HEU feed, all of this uranium would have to be sold outside the United States in 1997 (Table 2). The direct quota for selling Russian HEU feed to US end users does not take effect until However, it is not until 2004 when more than half of the scheduled supply of Russian HEU feed will be permitted to be sold to US end users. The European Union (EU) and Japan are other major consumers of uranium that are likely to limit imports of Russian HEU feed. The Euratom Supply Agency (ESA) has enacted a policy designed to ensure security of supply for EU member countries through diversification. 10 To achieve this goal, ESA has sought to limit imports from the Commonwealth of Independent States (CIS), including Russia, to 25% of total purchasing contracts. This policy is considered flexible in that it does not apply strict quotas set by law. In addition, ESA has ruled that Russian HEU feed returned by USEC to the Russian executive agent for subsequent sale to EU end users would be considered a Russian import. Because CIS imports have exceeded 25% of total purchasing contracts over the last several years, ESA is planning to carefully monitor the situation. As a result, the penetration of the EU market by Russian HEU feed could be restricted in the short term. However, EIA anticipates that increasing quantities of Russian HEU feed will be sold to EU end users as existing contract commitments expire in the coming years. In past years, utilities in Japan generally have not purchased uranium from Russia. Political differences between the two countries played an important role in barring Russian uranium imports. In recent months, however, relations between Japan and Russia have begun to improve. The two countries have exchanged top defence officials and discussed arms sales, while trade and Japanese investments in Russia have been accelerated. 11 This change in the relationship of the two countries suggests that Japan could become a significant consumer of Russian origin uranium over the next few years. The possibility of Japan purchasing Russian HEU feed could be enhanced should the Russian executive agent sell the Russian HEU feed it receives from USEC to a supplier that has an established relationship with Japanese utilities. Unfilled Requirements and Other Issues Assuming that schedules are met, US and Russian government surplus inventories must compete in the world uranium market against other sources of supply. The extent to which utilities requirements are covered by existing contract commitments with suppliers will slow the introduction of new sources of uranium. Because utilities operate on long-range planning horizons, a large share of market transactions have been made for long term supply commitments 4 Uranium Institute Annual Symposium 1997

5 Szymanski The Effects of US and Russian Government Surplus Inventories Table 2. Potential market availability of uranium feed from Russian high enriched uranium (HEU) converted to low enriched uranium during well in advance of actual deliveries. For example, US utilities reported at the beginning of 1997 that 82% of their anticipated 1998 requirements were covered by purchase contracts concluded prior to the end of In future years progressively smaller shares of requirements are covered by current contract commitments (Figure 1). Those countries whose utilities have more conservative procurement policies than US utilities would be expected to have a greater share of their future requirements covered by existing commitments. Thus, the opportunities for selling competitively priced uranium, including that from government surplus inventories, through longer term contracts will increase in later years. Utilities have traditionally favoured procurement from diversified suppliers. By the end of the next decade the quantity of Russian HEU feed that is permitted by law to be sold to US end users will reach half of US reactor requirements. 1 Because of diversification policies, sales of Russian HEU feed to US utilities might not reach the maximum level permitted by law. Nevertheless, Russian HEU feed could gain wide acceptance if it is marketed by a supplier that can offer a proven record of reliability and excess production capacity to cover unanticipated disruptions. Strategies for Marketing Uranium Western suppliers are expected to acquire a large share of the uranium derived from US and Russian government surplus inventories for resale. Under current plans to transfer HEU and natural uranium, USEC would receive the equivalent of tu (38.7 million pounds U 3 O 8 ) from DOE. The ownership of this material would allow USEC to become a major producer of enriched uranium product. Several firms have been reported as indicating an interest in purchasing Russian HEU feed. 13 The firms can be considered to fall into two groups: producers and traders. Each group could pursue different marketing strategies. USEC and producers that might acquire Russian HEU feed could be expected to sell most if not all of their acquired uranium through long term contracts. Producers would also have the flexibility to modify mine production plans to accommodate these acquisitions. The strategies are likely to ensure more stable uranium prices that would support the costs of produced uranium. Traders, on the other hand, could sell a much greater share of uranium on the spot market than the producer group. Since they do not own uranium mines, a marketing strategy could be directed The Uranium Institute

6 The Effects of US and Russian Government Surplus Inventories Szymanski Figure 1. Anticipated uranium market requirements of US utitilities, , as of 31 December (Source: Reference 12.) toward gaining market share at the expense of producers and decreasing inventory holding costs. This would be accomplished in part by offering uranium at competitive prices on the spot market. Selling in the spot market, however, has become increasingly unattractive due to the recent decline in price. The average uranium spot market price had declined from US$42.90/kgU (US$16.50/pound U 3 O 8 ) in June 1996 to below US$29/kgU (US$11/ pound U 3 O 8 ) by June More likely, a firm engaged in trading would conclude a significant amount of long term contracts to establish itself as a reliable supplier. Excess Commercial Inventories Since the early 1980s excess inventories held by suppliers and utilities have filled a gap between uranium production and demand in Western countries. CIS imports have contributed to this supply. For example, Euratom reports that tu equivalent (43.2 million pounds U 3 O 8 ) was imported to the EU from the CIS in Of this, 6800 tu (17.7 million pounds U 3 O 8 ) were under purchase contracts for EU utilities. The remaining quantity of uranium was held in inventory for later delivery to customers both in and outside the EU. In comparison, Kazakstan, Russia and Uzbekistan produced 4800 tu (12 million pounds U 3 O 8 ) from mines during From these data, it is evident that the CIS has been exporting uranium from inventories. In the United States, inventories held by utilities and suppliers, excluding DOE and USEC, increased from tu equivalent (72.5 million pounds U 3 O 8 ) at the end of 1995 to tu (81.2 million pounds U 3 O 8 ) at the end of 1996, a gain of 12%. 16 This increase, the first for the United States since the early 1980s, is attributed to discretionary purchases made by utilities during 1995 and Because of the uncertainty regarding the 6 Uranium Institute Annual Symposium 1997

7 Szymanski The Effects of US and Russian Government Surplus Inventories availability of material imported from the CIS, it is difficult to assess the level of excess inventories in the future. EIA anticipates that commercial inventories will continue to be an important source of supply over the next several years. By 2000, CIS exports are expected to decrease to levels matching production. With less available CIS supply, commercial inventories could be drawn down to levels no longer considered as excess. At the same time, US and Russian government surplus inventories are expected to fill the role held by traditional commercial inventories in filling the gap between uranium demand and production. HEU Feed for Russian Internal Use The availability of Russian HEU feed for Western consumption could be reduced at the discretion of the Russian executive agent. The agent could opt to use some of the uranium feed returned to it by USEC to fill Russian reactor requirements or to meet long-standing commitments by Russia to provide fuel for reactors in neighbouring countries. EIA anticipates that Russia will have a strong incentive to sell HEU feed to Western buyers, as an important source of foreign exchange. However, Russia may consider taking back HEU feed to meet internal requirements if its inventories of natural and enriched uranium decline below the level it considers adequate for strategic purposes. Because no official information is available on the size of Russian inventories or sources of uranium supply, it is difficult to assess Russia s potential needs. Recent analysis concluded that inventories of natural and enriched uranium held by Russia may be in the order of tu equivalent (195 million pounds U 3 O 8 ). 17 With Russian production exported to Western countries, internal requirements are believed to be filled largely from these inventories and by enriching depleted uranium contained in enrichment tails. Besides its own reactor requirements, Russia has long term fuel export commitments to neighbouring countries including Armenia, Bulgaria, Lithuania and Ukraine. Russia and these four importing countries are projected to require tu (262 million pounds U 3 O 8 ) to operate reactors between 1997 and Although depleted uranium and uranium production from Ukraine are expected to be available, a substantial reduction of Russian inventories of natural and enriched uranium will be necessary to meet these requirements. To allow Russia to directly take back HEU feed, the United States is required by the Atomic Energy Act of 1954 to enter into an agreement for peaceful nuclear cooperation with Russia. The US and Russian governments have not as yet entered into such an agreement. However, the USEC Privatization Act permits USEC to deliver Russian HEU feed to a North American facility designated by the Russian executive agent. Once delivered to Canada, the Russian executive agent could contract a Canadian producer to swap an equivalent amount of uranium mined in Canada for export to Russia. This would be possible because an agreement for peaceful nuclear cooperation exists between Canada and Russia. UMM Analysis Cases In developing projections of spot market price and supply, EIA assumes that certain quantities of uranium derived from US and Russian government surplus inventories will be sold in the uranium market to meet demand. Based on the market factors presented in the previous section, EIA anticipates that the penetration into the uranium market by US and Russian government surplus inventories will be constrained over the next few years. In the reference case, the quantity of uranium assumed to be sold annually in the market will approximate the scheduled availability by 2005 (see Appendices 1 and 2). Sales of uranium contained in Russian HEU feed, the largest component of government surplus inventories, is assumed to reach 9200 tu (24 million pounds U 3 O 8 ) in 2001 and remain at that level through The lower HEU feed case, using the reference case as a base, was developed to analyse the potential effects on the world market of the withdrawal of Russian HEU feed at about 3000 tu (8 million pounds U 3 O 8 ) per year for internal Russian use beginning in 2002 (Appendix 2). This amount is equivalent to one-third of the uranium feed contained in the LEU blended down from 30 t of HEU. Because not all the available Russian HEU feed is projected to be sold during the period , the supply from stockpiles is expected to maintain the availability of Russian HEU feed at 9200 tu (24 million pounds U 3 O 8 ) per year from 2002 through 2005 (Table 3). By 2007, the availability of Russian HEU feed would be reduced to 6200 tu (16 million pounds U 3 O 8 ) per year. In the upper HEU feed case, also based on the reference case, Russian HEU feed that was not sold during is assumed to enter the The Uranium Institute

8 The Effects of US and Russian Government Surplus Inventories Szymanski uranium market, starting with 800 tu (2 million pounds U 3 O 8 ) in 2002, increasing to 1600 tu (4 million pounds U 3 O 8 ) per year in 2003 through 2010 (Appendix 2). The total amount of Russian HEU feed (not including pre-1997 feed) assumed sold to meet demand would peak at tu (28.0 million pounds U 3 O 8 ) per year in 2003 and subsequent years. Uranium Price and Supply Trends Because the uranium reactor requirements of China and the CIS are supplied internally, the following discussion of uranium price and supply will focus on the so-called Western World market. In this paper, uranium price refers to the spot market price for the US market, in which CIS imports are restricted. With increasingly larger quantities of Russian origin uranium to be supplied from HEU, the distinction between the restricted and unrestricted prices is expected to diminish, possibly disappearing altogether. The projections of price and supply presented in this paper represent broad trends that do not reflect short term market volatility. Western demand for uranium over the forecast period is anticipated to be met by Western production, CIS imports, commercial inventories, MOX fuel, and US and Russian government surplus inventories. The relative importance of these sources is expected to change by early in the next decade. Excess commercial inventories, built up largely through the accumulation of CIS imports, have contributed to the uranium price falling below US$30/kgU (US$11/pound U 3 O 8 ) during 1997 (Figure 2). Excess inventories and CIS imports are projected to supply the Western market with about tu (52 million pounds U 3 O 8 ) in 1997, or about 35% of projected 1997 Western requirements. The CIS is not expected to continue exporting uranium at levels higher than its annual production. This level is assumed to be between 4000 and 5000 tu per year (10 and 13 million pounds U 3 O 8 ). With fewer imports from the CIS, commercial inventories (excluding uranium supplied from government surplus inventories) in Western countries are likely to decline by early in the next decade, to levels no longer considered as excess. The decline in CIS imports and excess commercial inventories will be offset in part by the introduction of US and Russian government inventories. Nevertheless, EIA projects the uranium price to rise as increments of higher cost production will be required to meet demand. For the reference and lower HEU feed cases, prices are projected to rise to about US$40/kgU (US$15/pound U 3 O 8 ) in Western production is projected to reach tu (95.4 million pounds U 3 O 8 ) by 2005, up from tu (82.2 million pounds U 3 O 8 ) in 2000 (Table 3). Relatively low cost production from mines in Canada and Australia is expected to contribute tu (68 million pounds U 3 O 8 ), or 72% of Western production projected for The price for the reference case is projected to remain in a relatively narrow range through The effects of slightly lower demand on supply near the end of the forecast period will be offset by a decline in uranium supplied from US government surplus inventories. For the lower HEU feed case, Western production is projected to rise to tu (102.6 million pounds U 3 O 8 ) in 2010 (Table 3) as the supply of Russian HEU feed is reduced. The uranium price is projected to rise to between US$43 and US$45/kgU (US$16.50 to US$17/pound U 3 O 8 ) between 2007 and Higher cost capacity in the United States, South Africa and other countries would be utilised at this level of price (Table 3). For example, US production is projected to increase from 3200 tu (8.4 million pounds U 3 O 8 ) to 4200 tu (11 million pounds U 3 O 8 ). With a higher assumed Russian HEU feed supply, the price for the upper HEU feed case is projected to fall to between US$37 and US$39/ kgu (US$14 to US$15/pound U 3 O 8 ) from 2003 through In this case, this increased supply of Russian HEU feed would displace 1600 tu (4 million pounds U 3 O 8 ) of Western production. Conclusions Non-proliferation objectives and financial considerations are expected to provide the US and Russian governments with ample incentives to meet schedules for making surplus inventories available to the commercial nuclear fuel market. Trade restrictions and certain market factors will limit sales to end users in the near term. Over the five years to 2002, government surplus inventories are expected to become a more important supply of uranium than CIS exports and excess commercial inventories. By 2002, government surplus inventories are anticipated to supply around 25% of the Western World s reactor requirements. This share drops to just under 20% toward 2010 as most of the US government inventories currently considered for commercialisation would have been sold in the market by that time. Supply from US and Russian government 8 Uranium Institute Annual Symposium 1997

9 Szymanski The Effects of US and Russian Government Surplus Inventories Table 3. Projected uranium supply for Western World requirements, lower HEU feed case (thousand tu). surplus inventories is not expected to close the gap between current levels of primary uranium production and longer term demand projections. In all three analytical cases developed by EIA, the uranium spot market price is projected to rise to a level of at least US$37/kgU (US$14/ pound U 3 O 8 ) to support increased primary production. Based on assumptions regarding the rate at which Russian HEU is sold in Western markets, the overall levels of uranium spot market price are projected to vary by about US$5/kgU (US$2/pound U 3 O 8 ). Projections of the uranium market are subject to considerable uncertainty. With regards to government surplus inventories, the quantity of Russian HEU feed that could become unavailable for use by Western consumers is not known at this time. If Russia takes back a large share of the HEU feed for internal use, prices would be expected to rise to support additional primary uranium production. In another scenario, larger than anticipated sales of uranium from government surplus inventories over the next few years could convince Western producers to postpone developing new mines. This could result in a substantial price increases in later years. Other, as yet unspecified, quantities of US and Russian HEU could be released to the commercial market later in the forecast period resulting in a displacement of primary production. A key demand factor is the uncertainty over unanticipated early retirements of nuclear power plants. A reduction in operable nuclear power capacity would result in a decline in demand for uranium. Assuming that government surplus inventories are still made available, less primary uranium production would be required. Notes and References 1. Nuclear Power Generation and Fuel Cycle Report DOE\EIA-0436(97), Table F1. USDOE Energy Information Administration (in press). 2. George RM, Status report on DOE s surplus uranium sales program. Speech presented at the Nuclear Energy Institute Nuclear Fuel Supply Forum, Washington, January Highly Enriched Uranium Disposition Plan, US Department of Energy, September United States Enrichment Corporation, Annual Report 1996, p Determination Pursuant to the United States Enrichment Corporation Privatization Act for the Sale of Excess Department of Energy Uranium During Fiscal Year 1997, US Department of Energy, 12 March Commerce Business Daily, 31 July The Global Nuclear Fuel Market: Supply and Demand , Table 8.3. The Uranium Institute, London, Annual quotas established by the Amendment to the Agreement Suspending the Anti-Dumping Investigation on Uranium from the Russian Federation, of 11 March The Uranium Institute

10 The Effects of US and Russian Government Surplus Inventories Szymanski Figure 2. Projected spot market prices for the restricted uranium market, (Source: Energy Information Administration, Uranium Market Model Runs 1997_60, 1997_73 and 1997_82). 1994, range from 1000 tu to 1900 tu for the period 1997 through 2003, for a cumulative total of tu. 9. Uranium Industry Annual Survey Form EIA-858, USDOE Energy Information Administration. 10.Euratom Supply Agency, Annual Report 1996, p Tokyo and Moscow show warming relations, The Washington Post, p A14, 31 May Uranium Industry Annual 1996, DOE\EIA-0478(96), Table D11. USDOE Energy Information Administration, April The HEU feed question, Ux Weekly, p1, 17 February TradeTech monthly Exchange Value for the restricted US market. 15.World uranium production and nuclear share, The Uranium Institute, London, 4 July Uranium Industry Annual 1996, DOE\EIA-0478(96), Table D17. USDOE Energy Information Administration, April Bukharin O, Analysis of the size and quality of uranium inventories in Russia. Paper presented at the Nuclear Energy Institute International Uranium Fuel Seminar, October International Nuclear Model, Reference Case 1997, USDOE Energy Information Administration. 10 Uranium Institute Annual Symposium 1997

11 Szymanski The Effects of US and Russian Government Surplus Inventories Appendix 1. Potential availability of US and Russian government surplus inventories based on schedules in place as of 31 March 1997 (thousand tu equivalent). The Uranium Institute

12 The Effects of US and Russian Government Surplus Inventories Szymanski Appendix 2. Assumed market penetration of US and Russian government surplus inventories, Energy Information Administration s reference, lower HEU feed and upper HEU feed cases (thousand tu equivalent). 12 Uranium Institute Annual Symposium 1997