Uranium politics are becoming interesting (again)

One of the free articles available today from the Wall Street Journal is titled Nuclear Power Revival Could Encounter Hurdles: Tight Uranium Supplies, Scarce Processing Facilities May Hurt Bush Energy Plan.

The article paints an interesting picture where there is plenty of room to read between the lines, especially if you are an experienced negotiator, an amused observer of human behavior and posturing, or an English literature major always interested in the underlying motives behind the written words. (I consider myself at least partially all of the above.)

Here is the gist. There is apparently a meeting happening in Washington today. There are a number of participants, each trying to sell their own version of reality about the availability of uranium and uranium enrichment facilities.

(I am going to simplify a complicated situation by focusing on just the enrichment portion – raw uranium supplies are a separate and even more confusing subject.)

One group is something called the “Ad Hoc Utility Group”; they are described as a group that represents 85% of the utilities that operate nuclear power plants in the US. They are concerned that there are not adequate suppliers of processed uranium in the US and they want the government to reduce the barriers that limit the amount of enriched uranium that can be imported, especially from Russia. Obviously, for buyers increasing the number of suppliers is good since it puts competitive pressure on prices and services.

Another participant is USEC formerly known as the U. S. Enrichment Corporation.That company was originally a part of the US Atomic Energy Commission and was later transfered to the US Department of Energy via the Energy Research and Development Agency. It has an exclusive privilege to import, blend down and market Russian former nuclear weapons material. That source currently supplies about half of the US demands for enriched uranium. USEC is also in the midst of financing a proposed enrichment plant; that will be much easier to complete if the ultimate product prices are supported by trade barriers.

The Russians are, of course, interested in selling more enriched uranium to the US. They position themselves as simply helping us out, but the fact of the matter is that the business is extremely lucrative under current market conditions. They would love a situation where the world supply of enrichment services is reduced by a failure of USEC to secure adequate financing for their proposed centrifuge facility. Even a few years delay is money in their pockets.

One group that is not mentioned in the article is the ownership group for LES (also known as Louisiana Energy Services). LES is currently building the National Enrichment Facility in Lea County, New Mexico, near Eunice. The US Nuclear Regulatory Commission awarded their license in June 2006 and construction began almost immediately. LES is a consortium that includes URENCO (a European consortium that operates at three uranium centrifuge enrichment facilities – located in England, Netherlands, and Germany) and several US utility companies (Duke Power, Entergy and Exelon). Obviously, this group is also interested in any discussions that would affect the eventual supply of uranium enrichment services in the United States since that supply level will definitely affect the profitability of their investment.

As you read articles about how supply concerns are going to limit the growth of nuclear power, just remember how many organizations stand to benefit from various responses to the situation. Suppliers want tighter supplies – it helps them keep prices at profitable levels. Buyers want an excess of supply – it gives them greater negotiating power.

When it comes to uranium enrichment, the stakes are very similar to those associated with microprocessors or memory chips. The plants are multi-billion dollar investments that need plenty of steady customers over a long period of time in order to pay off as profitable investments.

One major difference, however, is the ease with which customers can stockpile inventory that does not become obsolete – enriched uranium can always be fabricated into useful fuel and plants that are well managed should never run short – there is great predictability in nuclear plant refueling needs. Of course, buyers do have to worry about paying too much for their supplies by mistakes in market timing, but that should be less of a concern than running out.

One final note: when you read the article, think about the UN Security Council permanent members attitude about allowing other participants to enter the market for enrichment services. Perhaps there is more to it than “security” concerns.