Uranium supply concerns associated with EEU

Russia, Belarus and Kazakhstan signed an agreement to form a Eurasian Economic Union (EEU) on May 29. Uranium market watchers should pay close attention and understand the potential implications of the alliance on the stability of the world’s uranium supply, even though the alliance has been dismissed as unimportant by some media pundits.

For example, a May 29, 2014 BusinessWeek article titled Putin’s Eurasian Union Looks Like a Bad Deal, Even for Russia includes the following quote.

Creation of the union “won’t really register on the radar of the global economy,” says Nicu Popescu, an analyst at the EU’s Institute for Security Studies in Paris.

Mr. Popescu appears blissfully unaware of the fact that the combination of Russia and Kazakhstan controls approximately 50% of the world’s uranium market.

Both countries have openly publicized plans to continue increasing production, even though the market has been weak since March of 2011.  (Ref: Russia to Triple Uranium Production in Next 2 Years – Rosatom and Kazakhstan tops uranium league)

As a result increased Eurasian production and lowered uranium demand from both Germany and Japan uranium prices continue falling to significantly less than $30/pound, a level not seen since the 1990s.

Russia and Kazakhstan seem determined to capture an increasing share of the market as other producers announce production cutbacks and exploration deferrals.

In many ways, the 2011-2014 uranium market includes echoes of 1973-1975, when a lengthy period of low uranium prices led to complacency among customers. Many buyers deferred physical purchases, expecting that they would always be able to purchase their product sometime in the future at a favorable price.

Those deferred purchases led to a continued slide in prices and a growing number of suppliers dropping out of the market due to mounting losses. A few well-capitalized suppliers bided their time. After enough competitors dropped out of the market, they coordinated a response.

In 1975, the trend line for uranium prices sharply reversed. Though they had remained below $10 per pound for several years, they reached $40 per pound by the middle of 1975.

Westinghouse, one of the companies with a large deferred need to purchase uranium in the early 1970s, cried foul and loudly complained about the uranium cartel. Robert Kirby, who had just become Westinghouse’s CEO, realized the financial risk to his company and began devoting the majority of his time to damage control.

In the end, responding to the uranium price increase consumed the better part of five years at a time when Westinghouse’s leaders should have been investing their valuable attention on more productive pursuits.

It would be a mistake for today’s uranium buyers to fail to learn lessons from history and assume that the prices will stabilize at today’s low level or to fall even further.

There is evidence supporting the notion that Kazakhstan has been engaging in a uranium price war specifically designed to drive out marginal suppliers and to capture a larger share of the market.

There is also some evidence suggesting that this action has been done with Russian assistance. The two countries, neither of which is known for their love of western-style capitalism, not only control about half of the raw uranium market, but also a growing portion of the market for separative work units and fabricated uranium dioxide fuel pellets.

Both countries can afford to squeeze the uranium market since both of them are substantial oil and gas suppliers. Demand for those fossil fuels would inevitably increase if there were a shortage of uranium that led to a reduction in nuclear power plant output.

Historical footnote: The early 1970s action by the uranium cartel also had a close tie to oil and gas producers. A 1977 article by the LA Times/Washington Post news service published in the Sarasota Herald-Tribune titled Uranium Cartel Threatens Carter’s Energy Plans: Prices Skyrocket, Squeeze Put on Westinghouse mentions the involvement of subsidiaries of the following oil companies – Gulf, Getty and Kerr-MeGee. It also includes the following perceptive quote that qualifies as a smoking gun.

Finally, in terms of current political sentiment, the yellowcake cartel may provoke more congressional interest in questions of who controls energy resources — the issue of the oil industry’s major acquisitions in uranium and coal and other fuel sources.

The cartel, by no stretch of the facts, could be blamed on Big Oil, but some in the industry fear that Gulf’s prominent role will become a cautionary tale of how oil domination of other resources threatens the future.

“It’s a perfect case,” said one oil industry source, “to prove you can’t trust the oil companies.”

End Historical footnote.

Neither Russia nor Kazakhstan is very worried about the possibility of being accused of cartel behavior.

At a time when many people in Europe worry about the potential impact of a decision by the Russian leadership to restrict gas exports, few mainstream observers are talking about the related threat to uranium supplies.

Fortunately, uranium buyers have a much more straightforward response available than natural gas consumers. They do not need to invest in long-term projects like new exploration or new pipelines. Uranium, unlike natural gas, is not difficult to stockpile.

When uranium customers notice what is happening on the world stage, they should take advantage of current low prices to add physical inventory. That action will firm up prices and probably result in a gradual price increase.

That would be good for customers over the long-term by encouraging more diversity among suppliers and less concentrated market power in the hands of countries that do not share the same goals as their customers.

You might be skeptical about this risk. If so, it is not difficult to learn more about the behavior and motives of Vladimir Putin, Russia’s current leader and one of the key players in this potentially important drama.

It takes a little more digging to find informative coverage of President Nursultan Nazarbayev’s of Kazakhstan. Not too long ago, the Guardian ran an article titled Kazakhstan is an abusive dictatorship – the UK should not court it that should be required reading for people interested in the uranium market.

The article is about the five-year imprisonment of Mukhtar Dzhakishev, the former head of Kazatomprom as told by his daughter. It is a cautionary tale about a regime that has assumed an outsized importance in the uranium market.

If history is any guide, it is time to take action to reduce the market power of Putin and Nazarbayev. The potential cost of inaction is worth taking a modest paper loss in the event that uranium prices fall a few more dollars in coming months.

Buyers might miss the opportunity to buy at the absolute bottom of the market but that beats trying to find needed supplies in a rapidly tightening market or during a possible embargo.

Mark Cooper is wrong about SMRs and nuclear energy

Mark Cooper of the Vermont Law School has published another paper in a series critiquing the economics of nuclear energy; this one is titled The Economic Failure of Nuclear Power and the Development of a Low Carbon Electricity Future: Why Small Modular Reactors are Part of the Problem and Not the Solution. It is not […]

Read more »

Existing nuclear plants are valuable and worth saving

Many currently operating nuclear plants are in danger of being permanently shut down due to temporary conditions including low, but volatile natural gas prices, improperly designed markets that fail to recognize the value of reliable generating capacity, quotas and mandates that result in certain types of electrical generators receiving direct monetary payments in addition to […]

Read more »

Vermont Yankee and B&W mPower – Victims of Wall Street Greed

Though it has been a little quiet here on Atomic Insights in the past few days, I have been working on some stories documenting financial maneuvers in the US energy industry — especially as it related to nuclear energy. You might be interested in reading Save Vermont Yankee. If not you, who? If not now, […]

Read more »

Should anti-fossil expansion movement align with pro nuclear movement?

On April 11, 2014, Roger Annis, a member of the Vancouver Ecosocialist Group, gave a talk at the University of California Santa Barbara. The talk was titled Oil, tar sands, coal, natural gas: What’s behind the expansion drive of Canada’s and North America’s fossil fuel industries? It is a fascinating talk with some excellent slides […]

Read more »

SMRs – Why Not Now? Then When?

I have shamelessly borrowed the title of one of the talks given during the first day of the Nuclear Energy Insider 4th Annual Small Modular Reactor (SMR) Conference as being representative of both the rest of the agenda and the conversations that I had in the hallways during the breaks. For the past five years, […]

Read more »

SUNY Maritime Student Advocates Commercial Nuclear Ship Propulsion

Stimulated by early atomic optimism, naval successes and Eisenhower’s Atoms for Peace initiative, four nations built ocean going ships with nuclear propulsion plants. The US built the NS Savannah, Germany built the Otto Hahn, Japan built the Mutsu, and Russia built a series of nuclear powered icebreakers. For reasons that are beyond the scope of […]

Read more »

Energy versus Power – Energy delivered rapidly equals power

A BusinessWeek article titled Putin $14 Billion Nuclear Deal Wins Over Russia Critic Orban recognizes the importance of recent Russian power deals to supply gas, oil, and nuclear energy facilities. There is widespread confusion about energy versus power. Conversations about the business of selling hydrocarbons or electricity are described as being about energy, but the […]

Read more »

Professional antinuclear greens resist; greens concerned about climate change embrace

Fissures related to nuclear energy are developing in the monolithic movement known as Environmentalism. The Breakthrough Institute has published a good introduction to the schism titled The Great Green Meltdown: How Economic Arguments Against Nuclear Highlight Environmentalist Delusions. Though this is a simplification, it is generally accurate to describe two sides of the movement that […]

Read more »

Greg Jaczko claims nuclear is too expensive and that unreliables will take its place

The above clip is titled Nuclear power for the future. It describes the industry leading example of the construction project at Plant Vogtle in northeastern Georgia and it includes some opining on America’s energy future by Greg Jaczko the former Chairman of the US Nuclear Regulatory Commission. The video correctly points to the fact that […]

Read more »

I want a nuclear plant in my backyard. So do some of my neighbors

  Watch more video from the CNN channel on Frequency   Though I sometimes suffer from the blues, I am not crazy — I swear. Even though I am just a guy who often blogs in my PJs, I’m also pretty sure that I am not a nobody. In fact, none of us are nobodies, […]

Read more »

Open letter to Ralph Nader from Timothy Maloney – Atomic energy is much better than you think

By Timothy Maloney, PhD Editor’s note: Timothy Maloney has written a number of text books about electrical circuits, electricity, and industrial electronics. The below is a copy of a letter that he wrote to Ralph Nader in response to an opinion piece published by CounterPunch under the headline Why Atomic Energy Stinks Worse Than You […]

Read more »