Saturday, May 1, 2010

Studies on the Price of Uranium, Present and Future

So many mechanisms affect Uranium pricing that deconstruction of the complex should be a task reserved for a string of Saturdays, not just this one.  Please check in for updates as time allows.

For Clarity in Reading

U3O8, also called yellowcake, is the refined but not enriched Uranium that mills produce from mined Uranium ore.  Typically yellowcake is 60 to 70% pure and is radioactive.  For purposes of macro economic study, I will refer to world demand in millions of pounds of U3O8, a common baseline assumption.

U3O8 indicates a chemical compound consisting of three Uranium atoms and eight Oxygen atoms.  Therefore, note that the "O" is in fact not a zero.  Note:  Some may be familiar with the terms Uranium-238 or U-235, these designations are the atomic weight of the Uranium atoms themselves.  U-238 is the most commonly found form of natural Uranium, while the latter is the fissionable isotope used in nuclear weapons.  Wikipedia on Uranium

Major Factors in Uranium Pricing
  • Secondary Supply
    • Government sales of down-blending supplies of highly enriched uranium (also called HEU);
    • Government sales of low enriched uranium (LEU) and natural uranium (NU);
    • Government sales of depleted uranium fluoride (DUF);
  • Irregular Supply/Demand Cycles
    • Commissioning a new reactor requires a one time supply of Uranium that is more than the [typically] consistent annual demand;
    • Considerable backlog of ongoing, planned, and pre-planning stage new construction;
    • Utilities sometimes exhibit tendencies to "school," this results in spikes of forward purchasing;
    • Company shut-ins to wait out price compression;
  • Costs to Produce
    • Bureaucratic inefficiencies due to:
      • Ongoing fear related to Chernobyl, Three Mile Island;
      • A generation-wide gap in procedures;
      • Apprehension about controlling supply to limit proliferation of weaponized material;
      • Concerns about what to do with the waste;
    • Uranium's entire structure is highly regulated, ie:  permitting, mining, milling, enriching, transport;
    • Exploration is time consuming, highly prospective, and expensive;
    • Large deposits are not frequently located in areas with well developed infrastructure;
    • The type of extraction method, this factor depends on many other factors:
      • Deposit concentration (typically communicated as a percentage of U3O8);
      • Size of deposit;
      • Depth of deposit;
      • Regional tendencies;
    • Large deposits are not always in "friendly nations," ie:  Kazakhstan, Mongolia, African nations:
      • Bribes;
      • Civil unrest;
      • Organized crime;
      • Ineffective worker pools;
  • Forex
    • Uranium prices are quoted in US$, a weak and volatile American currency can hurt foreign producers' margins and models;
  • Expanding Demand
    • Growth in reactor construction due to:
      • Ability to transport concentrated electrical potential;
      • Ability to generate power in almost any exogenous climate;
      • Ability to throttle power supply onto the grid;
      • Low ongoing cost per unit of electricity;
      • Low ongoing Carbon emissions;
      • Third World development;
      • Population growth;
  • Success or Failure of other "Green Energy Initiatives"
    • Biofuels;
    • Wind farms;
    • Liquefied coal, natural gas, combined-cycle power plants;
    • Thorium seeding;
    • Others.
    Secondary Supply

    President Obama has continued with great interest an aggressive campaign of nuclear disarmament.  The secondary supplies of HEU, LEU, DUF, and various forms of natural uranium in each government's care can never be known with certainty, but I was able to locate a declassified Department of Energy paper from 2008, Excess Uranium Inventory Management Plan, indicating America's holdings (click to enlarge):

    Various agencies estimate that secondary supply accounts for anywhere between 25 to 35% of annual supply against reactor demand world wide.  See below from Uranium Resources's 2009 Annual Report:
    Based on reports by Ux Consulting Company, LLC, or Ux, the preliminary estimate for worldwide production of uranium in 2009 is 120 million pounds.  [Existing plant] annual consumption [accounts for] about 162 million pounds of uranium.  Ux reported that the gap between production and demand was filled by secondary supplies, such as inventories held by governments, utilities and others in the fuel cycle...
    The referenced DOE paper outlines the government's plan to continue the sales of these types of materials for a period of 10 years, though it estimates total time to work through all excess inventories at up to 25 years.  Details are located on page ES-2.

    Irregular Supply/Demand Cycles

    Once a plant has been commissioned its fuel demand remains approximately constant throughout the life of the reactor.  However, to commission a newly constructed plant requires a factor more than the typical annual demand.  (LOCATE DEFINITIVE VALUES)  The growing strength of the nuclear renaissance means that as plants are brought online, the demand curve could be lumpy.

    Below is another excerpt taken from Uranium Resources's 2009 Annual Report:
    According to the World Nuclear Association (WNA), as of February 2010 there were 436 nuclear power plants operating in the world ... In addition, the WNA lists 53 reactors under construction, 142 being planned, and 327 being proposed.
    Depending on a myriad of factors this pipeline could also inject large, irregular supply gaps if plants are constructed, and therefore commissioned, in groups as a part of governmental or corporate initiatives.