Kazakhstan’s Uranium Renaissance
The global economy’s need to replace conventional energy sources – coal, oil and natural gas – is becoming increasingly pressing. Nuclear power is definitely the most important alternative energy source today. Nuclear power plants account for about 16% of all globally generated electric power. Uranium, therefore, becomes one of the products that is in highest demand: a pound (0.453 kg) of uranium cost only $7 in 2000; today its price exceeds $57. And this is not the ceiling. Goldman Sachs, JBWere Pty andRio Tinto Group predict that by the end of 2008 the price of uranium will have grown by 58% and reach $90 per pound.
This process is boosted by an increase in the demand for uranium, which is spurred by record high oil prices. Moreover, there are now no factors that would be able to lower the price. This is because of the expected shortage of raw material as many countries, including Canada, China, the EU, India, Russia and Japan, plan to build new nuclear plants. China, for example, launched two plants in 2007 and intends to commission another three by 2011. By 2030, 455 reactors will be built worldwide. The cost of electric power produced by nuclear plants does not depend directly on the price of the energy sources. Even if the price of nuclear fuel doubled, the price of electric power would only rise by 9%.
The IAEA estimates that in order to meet increasing demand, the production of uranium should be increased by 300% over the next twenty years. It is in this setting that Kazakhstan, which boasts colossal uranium reserves (19% of known global reserves according to its own estimates, or 15% according to the estimates of foreign experts), is not only recovering its position on the nuclear market, but is also trying to approach a new orbit of nuclear advancement. In Kazakhstan, yellowcake is produced by the Kazatomprom national atomic company, both on its own (Taukentskoye, Stepnoye, RU-6, Stepnogorsk Mining and Chemical Plant) and in joint ventures with its foreign partners (Betpak Dala, Katco, Zarechnoye, Inkai).
Kazakhstan has 129 explored uranium deposits and ore occurrences. They are pooled in six uranium provinces (Balkhash, Caspian, Ili, North Kazakhstan, Syrdarya, and Shu-Sarysu). The reserves of these provinces total 1.69 million tonnes of uranium, including 1.2 million tonnes amenable to in-situ leaching – the cheapest and most environmentally friendly method of recovery. Today, uranium is mined from 11 deposits.
In 2004, a programme for the development of the uranium industry in Kazakhstan for the years 2004-2015 was adopted, under which the country is increasing its production (see Chart). The increase is occurring from both the production at old deposits and commissioning of new ones. This has helped Kazakhstan become the third largest producer of uranium in the world (after Canada and Australia). This year, more mines will be commissioned at the North Kharasan, South Inkai, Tortkuduk and Budenovskoye 2 deposits. The output is expected to reach about 9,600 tonnes (Ux Consulting forecasts 2008 global production to total 46,850 tonnes).
Rapid development allowed Kazatomprom to make optimistic forecasts. In March 2005, it adopted a programme that aimed for an increase in uranium output to 15,000 tonnes a year by 2010, which would make Kazakhstan the largest uranium producer in the world. “Kazakhstan aims to produce 30,000 tonnes of uranium annually by 2018”, says Kazatomprom’s president Mukhtar Jakishev.
According to FreshFUEL, the top five uranium producers (Cameco, AREVA, Rio Tinto, Kazatomprom and BHPBilliton) account for 70% of the global uranium output (approximately 80 million pounds). Yet, only three of them can expand their production by 2010: AREVA from 15.6 million to 26-31 million pounds, Cameco from 21 million to 30 million, and Kazatomprom from 10 million to 39 million. In other words, it is Kazakhstan that will determine, to a significant extent, the supply of the uranium market. Therefore, uranium could become an important geopolitical ‘trump’ for the country.
Today, Kazakhstan has only part of the processes associated with the production of nuclear fuel. These are: the extraction of naturally occurring uranium; initial refinery; and the production of fuel pellets. All other elements of fuel fabrication are outside the country – in Russia. However, projects are already underway to fully restore this cycle.
Taking advantage of global demand, Kazatomprom has focused on the three main areas – building up the domestic raw material base, accessing other markets, and approaching uranium enrichment technologies. Yet, the blue sky of Kazakhstan’s uranium ambitions faces a serious problem – the shortage of skilled labour and infrastructure – which could become an obstacle to expanding uranium production. The period to train one qualified specialist is about ten years: five years in university and a further five on the job.
Jointly with Russia
Kazakhstan’s cooperation with Russia in the nuclear sector began in July 1998, when the countries signed an intergovernmental agreement on the integration of enterprises engaged in the nuclear fuel cycle. That was a logical step. Russia and Kazakhstan’s nuclear sectors supplement each other: Kazakh production – Russian enrichment – Kazakh pellets – Russian fuel elements.
A powerful impetus to cooperation between the two countries was added by the joint statement about cooperation in the sphere of peaceful nuclear energy signed on 25 January 2006. In the summer of 2006, the countries reached three joint venture agreements for uranium production and enrichment and new nuclear reactors.
All the joint ventures are to mutual benefit: Russia received access to production; Kazakhstan, a share in a Russian enrichment enterprise. In particular, Kazakh uranium produced by the Russian-Kazakh Zarechnoye (contract value exceeding $1bn) will be enriched at the Angarsk electrolysis and chemical plant, where, according to another agreement made in Astana on 10 May 2007, an international enrichment centre is being set up.
Kazatomprom and Russian Atomstroyexport’s cooperation in the nuclear reactor industry will result in the creation of a medium-sized reactor built on VBER-300 units. This reactor, which was initially designed for the navy, has proved itself in the Project 949A/Antey submarines, which included the Kursk. It is planned that the Aktau nuclear power plant (to replace the decommissioned BN-350) will be built using this reactor. The first unit is expected to be commissioned in 2016, the second one in 2017. It should be kept in mind that today there are no 300 MW nuclear plants used on an industrial scale globally. For this reason, the reactor has a good outlook for winning global market share, particularly with the markets of those countries that have vast territories and low population density. Joint design, production and construction of the VBER-300 reactors will be a logical conclusion to the technological chain of the vertical nuclear fuel cycle.
Vectors of uranium diversification
Kazatomprom tries to avoid dependence on one partner and does not limit itself to cooperation with Russia. The company actively interacts with other key market players as well. In particular, it has set up mining joint ventures with the Canadian Cameco (Inkai) and the French AREVA (Katco). Cooperation concerns not only mining, but also the later stages of uranium production. Kazatomprom strives to become a vertically integrated company, not simply a supplier of naturally occurring uranium. For this reason, the company signed new agreements with the two companies this June.
In particular, Kazatomprom and Cameco will set up a new joint venture – Ulba Conversion (Kazatomprom 51%, Cameco 49%) – on the basis of the Ulba Metallurgical Plant in Ust-Kamenogorsk (production of nuclear fuel and metals for fuel elements). The Canadian corporation will provide the uranium hexafluoride production technology, which will ensure a breakthrough to a further stage. The JV’s annual output will be 12,000 tonnes of uranium hexafluoride, or 17% of global capacity.
According to Sébastian Peyrouse from the French Institute for Central Asia Studies (IFEAC), the growing prices of oil and gas cause France to pay significant attention to the development of nuclear energy and the strengthening of cooperation with Kazakhstan in this area. On 11 June 2008, AREVA and Kazatomprom signed an agreement, under which Katco (Kazatomprom 49%, AREVA 51%) will annually produce 4,000 tonnes of uranium until 2039. The total output during this period will be 120,000 tonnes. In addition, AREVA is expected to provide technical assistance in building a 1,200 tonnes-a-year fuel fabrication plant at the Ulba Metallurgical Plant. The new joint venture (Kazatomprom 51%, AREVA 49%) will comprise a dedicated 400 tonnes-a-year line specifically for fuel for French-designed reactors (with the other 800 tonnes-a-year to be used as fuel for other reactors). Kazatomprom will supply fuel pellets for the fabrication.
Relationships with Japan, where a third of national demand for electric power is satisfied with nuclear energy, are also on the rise. In early June, a uranium mine was commissioned in the Zapadny area of the Mynkuduk deposit located in Suzak district of South Kazakhstan Oblast. This was the first mine launched in the framework of the agreement on nuclear energy cooperation between Kazakhstan and Japan. The mine is operated by the Appak joint venture (Kazatomprom 65%, Sumimoto Corporation 25%, and Kansai Electric Power Co., Inc. 10%). By 2010, the design capacity of the mine is expected to reach 1,000 tonnes of yellowcake a year.
The mined uranium will be mainly supplied to the Japanese market for the fabrication of fuel assemblies by Japanese Nuclear Fuel, which will be then supplied to Kansai’s nuclear power plants in Japan. Together with other measures such as the processing of spent nuclear fuel and off-specs Japanese uranium at the Ulba plant, this project will help Kazatomprom ensure gradual consolidation of its positions in one of the leading uranium markets. In the future, Kazakh exports may reach up to 40% of the Japanese uranium market, which totals 8,600 tonnes. Japan, in its turn, will help Kazakhstan modernise the Ulba Metallurgical Plant.
Kazakhstan aims not only to become a global leader in uranium mining, but also to approach the Western reactor engineering market. In autumn 2007, Kazatomprom purchased a 10% stake in Westinghouse Electric, the leading manufacturer of nuclear reactors, for $540m from the Japanese corporation Toshiba. Toshiba, in return, got an opportunity to enter the Kazakh market in uranium mining. Technically, this was arranged by a purchase of a 22.5% stake in a uranium deposit in the south of the country from Marubeni Corp.
Analysts say the deal pursued several key objectives, in particular supplying Kazakh uranium to Japan and raising the competitiveness of Japanese mechanical engineering in the market in nuclear power plants. The Japanese newspaper Nikkei also said, “the deal reflects the intention to restrain Russia”.
Cooperation, not rivalry
The West’s increasing influence on the domestic nuclear industry in recent years produces a principally new situation. This is especially important if one is to take into account that Kazakhstan’s uranium reserves exceed Russian reserves fourfold. So, if earlier Kazakhstan was somewhat of a Russian patrimony, now Russia will have to face competition with Western companies.
However, Russian experts believe that although the decisive factor for the Russian nuclear energy development programme is not so much financing as resources, the strengthening of Kazakhstan’s technological independence does not yet threaten Russian interests. In their opinion, “the main deficit in the global nuclear energy today is uranium enrichment facilities and natural reserves, while there is an excess of fuel fabrication facilities, which will remain underloaded even in the case of the most optimistic scenarios of building new nuclear power plants”. Russian experts say that Kazakhstan, which does not have its own separation facilities, can enrich uranium only in Russia – at the International Enrichment Centre in Angarsk. Because of having no enrichment cycle, Kazakhstan will need – for example, to fully recover Japanese uranium – to use Russian enterprises.
The total value of orders related to nuclear engineering in Russia will exceed 1.3 trillion roubles by 2020 and will require manufacture of at least 30 packages of nuclear plant equipment, of which a half will be used to build power units abroad. The existing capacity of Russian or, all the more so, domestic mechanical engineering plants cannot cope with this demand (Russian plants, for instance, can manufacture only two packages a year). This issue can only be resolved through cooperation of the global leaders in nuclear mechanical engineering (the US, Russia, France, Japan, Great Britain, and Canada).
Payment for leadership
Kazakhstan has many opportunities to become a serious player in the global uranium market. However, there is another side to the coin, which they would prefer not to advertise.
As it is known that in the early 2000s Kazatomprom – a state-owned company engaged in trading in uranium and nuclear fuel – began to promote a large-scale plan of the commercial import of low- and medium-level nuclear waste from developed countries. The imported waste was expected to be stored in old mines sealed with concrete. The lobbyists of this plan explained it was necessary because incomes from commercial imports could help Kazakhstan finance its own problems with nuclear waste.
In mid-November 2002, in an interview with EurasiaNet, Kazatomprom’s president Mukhtar Jakishev said that the storage of nuclear waste from Europe and other countries could earn about $4,000 per barrel of waste. He estimated that the proceeds could reach $20bn, which would help Kazakhstan put in order its own huge amounts of nuclear waste and radioactive substances. However, the company faced strong public resistance and did not raise this question again.
The planned large-scale supplies of fuel assemblies abroad will allow Kazatomprom to return to the nuclear waste burial project, which Kazakhstan originally seemed to refuse. The reason is that, according to existing rules, a supplier of nuclear fuel is obliged to accept its waste back. In other words, by expanding the geography of its nuclear supplies, Kazatomprom makes new commitments to accept the waste. Japan, for example, after using Kazakh fuel will return its hazardous residues. So, tens of thousands of tonnes of nuclear fuel supplied from Kazakhstan will come back as radioactive waste in almost the same volumes.
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