Will technology derail the uranium boom? (April 16, 2008)

Emerging from a long slump, uranium has consistently proven itself as a hot commodity over the last decade, with a price performance nothing short of stellar. According to Ux Consulting Company of Roswell, Georgia, the spot price of uranium oxide has risen from a low of US$7 per lb. in 2000 to a high of US$136 in 2007 before dropping to the current price of US$71. However, technological advances in nuclear power generation are relentless. Will technology stop the uranium bull in its tracks? The evidence does not seem to support this contention.

The nuclear revival is a rapidly approaching reality, and we have the potential to see a surge in nuclear activity before our very eyes. For example, let us look at the situation in North America. The province of Ontario has invited bids for nuclear reactors from Atomic Energy of Canada Ltd and three foreign reactor makers. Bruce Power, operator of the Bruce nuclear power complex near Kincardine, Ont., is proposing to build a nuclear plant in Alberta. The website of the Nuclear Regulatory Commission (NRC) in Rockville, Maryland, is showing nine applications to construct nuclear plants totaling 15 reactors, some of which are additional units in existing plants. The NRC is aware of more applications that are coming, and if these are counted as well, the total will be 22 applications for 33 reactors for the years 2007 to 2010.

It was Eric Webb, senior vice-president of Ux Consulting, who has been quoted over these pages as saying that 2007 was potentially the start of a nuclear renaissance. He added that a potential 86 countries were planning to either start or expand on nuclear power programs by 2050, concluding that the prospects for uranium over the long term were strong. (See “The Uranium Bottleneck”, T.N.M. March 24-30, 2008).

But it is also vitally important to consider the impact that rapidly progressing nuclear power generation technology will have on uranium demand. Scientists around the world are working to find ways to enhance reactor performance. They would like to increase power output and decrease uranium consumption. To the extent they are successful, they will decrease uranium consumption and this could moderate uranium demand.

Paris-based Areva is active in all phases of the nuclear power cycle, from uranium exploration to mining, conversion, enrichment, nuclear power plant design and construction, and spent fuel reprocessing and recycling. This makes Philippe Garderet, scientific vice-president of Areva, particularly well-placed to comment on progress in nuclear reactor technology.

Garderet points out that all technological advances must be approved by the nuclear regulatory authorities before they can be implemented. He identifies three broad areas of technology with potential impact: fuel and reactor design, spent fuel reprocessing and recycling, and the breeder reactor.Referring to fuel and reactor design, Garderet expects research in this area to reduce uranium consumption per megawatt-hour by about 10% over the next ten years. Research concentrates on factors such as fuel pellet design, fuel rod design and reactor design.

One example of fuel research is a project at Purdue University in West Lafayette, Indiana. Professor Shripad Revankar, who participated in the project, is with Purdue’s department of nuclear engineering. The project has developed a new fuel pellet which includes beryllium oxide in addition to uranium oxide. The result is a pellet with superior heat conductivity and longer service life. The new pellet is not specifically aimed at reducing uranium consumption, but rather at increasing power output, reducing pellet degradation and lengthening the time period between fuel recharge cycles. The new pellet can be used with existing fuel rod and reactor designs. Revankar estimates the timeline to commercialization at a minimum of three to five years, assuming all testing and regulatory approvals are successful.

Turning to the area of spent fuel reprocessing and recycling, Garderet estimates that this area has a substantial potential payoff, in the range of 20% to 25% of uranium consumption per megawatt-hour. To get these kind of savings, reactors will have to use MOX fuel in addition to the uranium fuel commonly used. MOX stands for mixed oxide, a mixture of uranium and plutonium oxides. Plutonium is one of the products found in spent fuel rods, which can be reprocessed to produce MOX. Not all reactors are suited to operate with MOX. Currently one reactor in the USA is using MOX fuel on an experimental basis. The latest version of Areva’s reactor is designed so that is can run entirely on MOX if desired.

The third area of technological progress is the most ambitious: the breeder reactor, also called fourth-generation reactor. (The newest reactors entering service now are known as third-generation reactors). The breeder reactor also uses MOX fuel, but it is different from the MOX used currently in that it uses far higher concentrations of plutonium, 20% to 30%, as opposed to a maximum of 10% plutonium used in conventional MOX.

Garderet points out that natural uranium is made up of approximately 99% uranium₂₃₈, and 1% uranium₂₃₅. As the breeder reactor operates, it converts uranium₂₃₈ into plutonium, so it produces fissile material from raw material (uranium₂₃₈) which is relatively abundant.

Garderet states that the breeder reactor is already technically feasible, but is uncompetitive economically with conventional reactors at current uranium prices. He expects prototype breeders to start operating some time between 2030 and 2040, with commercial breeder reactors starting operations some time between 2060 and 2070.

So over the next few decades the uranium market will be affected by a possible nuclear renaissance on the one hand, which will increase uranium demand, while on the other hand progress in reactor technology will decrease uranium consumption per megawatt-hour. What is the net influence on uranium demand from these two opposing forces?

It is not easy to formulate a definite answer to this question, because there are so many unknowns. Ux Consulting’s Webb says that the uranium market is driven not only by supply and demand , but also by inventory. He expects the uranium price to go lower over the next five to ten years, followed by a period of rising prices. We can assume that Webb’s uranium demand projections are evidence that uranium demand will be sufficiently robust despite progress in reactor technology.

It is also interesting to watch the actions of the major uranium companies. In a speech to BMO Global Metal and Mining Conference in February, Jerry Grandey, CEO of Saskatoon-based Cameco (CCO-T, CCJ-N), the world’s largest uranium miner, stated that Cameco intended to spend $50 million to $55 million on exploration in 2008, an increase of 10% to 20% over 2007. And last August, Cameco invested $21 million in a private placement to acquire a 10% interest in Western Uranium (WUC-V), a junior uranium explorer. Evidently the folks at Cameco are prepared to put their money where their mouth is.

Areva is also not sitting still. In March the company has announced a partnership agreement with TSU Project, a joint venture that brings together its subsidiary SGN with Technip. The objective is to double its annual uranium production from the current 6,000 tonnes over the next five years, by mining ten new deposits at an investment of 3 billion euros.

With these kinds of investments, the majors clearly are not unduly concerned about progress in reactor technology causing uranium demand to evaporate. Technological progress is simply one more factor which influences the market, and participants must take it into account together with the other forces driving the uranium market.