Analysis: Demand to stress uranium supply

WASHINGTON, March 2 (UPI) -- The high price of oil and natural gas, and the emissions of both -- plus coal -- sparking new mainstream concerns about climate change, has fueled a global nuclear power renaissance. Whether there's enough uranium to fuel the reactors, however, isn't guaranteed.

  About 435 nuclear reactors operate in 30 countries. The International Atomic Energy Agency expects another 30 in the next 15 years. Those reactors -- including 103 in the United States -- consume about 180 million pounds of uranium a year; worldwide production of uranium is about 100 million pounds.

The global uranium market began with the buildup of nuclear weapons, from which the nuclear energy industry sprang. But the enrichment process operated under a market controlled by governments because of proliferation concerns.

  "Prices went up quite high in the mid-70s, during the previous energy crisis, and the government enrichment contracts artificially inflated demand and you had a pretty big build up of inventories," said Jeff Combs, president of The Ux Consulting Co., a Roswell, Ga.-based uranium analyst.

  Since the 1970s, the nuclear industry has worked off the inventory, which was increased beginning in the middle of last decade when weapons-grade uranium was blended down, Combs said. "The net effect of that is it really depressed prices for quite a long period of time. We're talking about 20 years."

 High inventories and low prices, in turn, stymied exploration and production. "People were acting like there was an infinite supply...prices were below $10 and people were thinking it was going to stay there," Combs noted.

"Then in relatively short order you had a couple things happen this decade -- you have inventories running out and then you had the growth in nuclear power, especially in the Eastern part of the world led by Russia and China," Combs said. "And since past prices really didn't reflect the future scarcity of supply, price has shot up quite a bit. And you have a situation now where production is sort of struggling to catch up with world demand," which could lead to a supply problem.

  "The price even this decade has gone up from under $10 a pound to now we're at $85 a pound. In the 90s it would fluctuate around $10 a pound and in the 80s it was somewhat higher than that, in the teens," Combs said.

  "Over the next 20 years, I think a lot of what happens to price has to do with how much nuclear expands. We see prices going up more over the next several years just because supply is so tight. Once some of these new production centers come on line it should take some of the pressure off, and prices will go back down," Combs said.

The U.S. nuclear industry's trade arm, the Nuclear Energy Institute, wrote in a January policy brief that there are enough uranium deposits to fuel current and future nuclear power needs. High prices will spur new investment and a stronger market, the report said.

  "I think one of the wild cards is if you had a major disruption in one of the major sources of uranium production," such as the flood in October of the Cigar Lake mine in Saskatchewan, Canada, which delayed for at least this year delivery of uranium of one of the world's largest deposits. 

  "That's taken 18 million pounds out of the equation for awhile," Combs said.  "If there are problems with expanding production, this will mean that certain rates of nuclear power growth can't be sustained, at least not initially.  Ultimately, there's enough uranium in the ground to support a considerable growth in nuclear power, the issue now is how quickly production can be ramped up."

The United States, once the global uranium mining leader, produced only 2.7 million pounds in 2005, according to the Energy Information Administration, the data arm of the U.S. Energy Department. U.S. utilities purchased about 65.5 million pounds of foreign uranium.

  Most uranium production comes from "a handful of mega production centers," the vast majority in Canada, Australia and Kazakhstan (the latter "might end up being the largest uranium producer in the world," Combs said, because of "a very ambitious expansion program" that has China, Russia, Japan and Indian markets excited.)

The U.S. Congress and President Bush have been pushing for more nuclear plants to be built, offering incentives in major energy legislation two years ago. Energy demand is increasing while nuclear plants currently make up only 20 percent of the current energy mix.

A new reactor in the United States hasn't been licensed since 1978 and the last one came online in 1996. The U.S. Nuclear Regulatory Commission expects applications for more than 30 reactors in the next half decade.

But if they're built -- and that's a big if, considering historic opposition and the $3 billion to $4 billion price tag -- they'll be competing with even more nuclear plants around the world for a uranium supply that's currently tight to handle the demand.

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