WHY NUCLEAR ENERGY WILL PREVAIL AND NOT MERELY SURVIVE1

• Jurisdiction: United States

Uranium Exploration and Development
(Apr 2006)
CHAPTER 1A
WHY NUCLEAR ENERGY WILL PREVAIL AND NOT MERELY SURVIVE1
Fletcher T. Newton
Byron Little
Power Resources, Inc.
Lakewood, Colorado

FLETCHER T. NEWTON

Fletcher T. Newton is the Chief Executive Officer of Power Resources, Inc. which operates the Smith Ranch-Highland Uranium Project in Wyoming, and Crow Butte Resources, Inc. which operates the Crow Butte Uranium Project in Nebraska. Both companies are owned by Cameco Corporation of Canada, the world's largest producer of uranium.

Mr. Newton has worked in the nuclear fuel industry for 14 years, having previously served as Special Counsel to the Chairman for the Concord/NUEXCO group of companies, where he was responsible for uranium-related activities in the former Soviet Union.

Mr. Newton, a native of Denver, Colorado, received his B.A. degree in Soviet Studies. magna cum laude, in 1978 from Harvard University and is a graduate of the CIEE (Council for International Educational Exchange) Program at the University of Leningrad (1976-77). He received his law degree from the University of Denver College of Law in 1983 after transferring from Georgetown University.

In addition to his responsibilities at Power Resources and Crow Butte Resources, Mr. Newton works extensively with the Russian Ministry of Atomic Energy for the implementation of the Russian-American HEU agreement, under which Cameco Corporation, together with Cogema Inc. and NUKEM Corp., markets the UF₆ feed component of the blended-down Russian HEU. Through Cameco's 60% ownership share of the Inkai uranium project in Kazakhstan, Mr. Newton is also responsible for overseeing the development of this joint venture with the National Atomic Company of Kazakhstan (KazAtomProm). Mr. Newton has lived and worked in the former Soviet Union for over three years and is fluent in Russian.

Summary

Uranium is an abundant and remarkably efficient source of energy. It is found everywhere in the earth's crust, even in seawater. Although there are many challenges associated with maintaining or expanding the world's output of electricity produced from nuclear energy, finding enough uranium to fuel the world's reactors isn't one of them. The only question is, "At what price?" The recent upsurge in the price of uranium may seem ominous, but when viewed from a historical perspective, today's spot market price of just over $41 a pound for U₃O₈ is nowhere near the high prices seen in the late 1970s. At the same time, the nuclear industry is more safety-conscious, more sensitive to environmental issues, and more understanding of public concerns than ever before. Leading environmentalists are now among the most vocal supporters of nuclear energy -- and one important reason for their support is the fact that the world's uranium reactors will never run out of fuel.

The uranium production industry follows the same economic principles of any other extractive industry (e.g., increased prices lead to increased production while excess production leads to decreased prices), with four critical distinctions:

(1) events in the uranium mining industry move at a snail's pace compared with other industries;

(2) because uranium's first use was to associated with the production of nuclear weapons, the uranium mining industry has always attracted significantly more political attention that other industries of the same size;

(3) the significant involvement of governments in uranium production and the subsequent government accumulation of large stockpiles of uranium have caused "secondary supplies" to have a major impact on the market price of uranium and, consequently, the level of primary production -- a trend that will continue for many years to come.

(4) the commercial uranium market is extraordinarily "opaque," compared to other industries. There is no established "exchange" for trading uranium and many

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transactions are consummated "off market." As a result, a very small number of transactions ends up "making" the market, and the mere perception of buyers and sellers has a much greater impact on setting prices than is the case with other commodities.

At a time when the world community is increasingly worried about the impact of industrial activities on our planet's climate, uranium's ability to provide significant amounts of electricity without generating any greenhouse gasses has created a resurgence of interest in nuclear energy and led to a renaissance of the nuclear energy industry. It is not an exaggeration to say that the foundation of this industry is uranium production. It is also not an exaggeration to say that nuclear energy will prevail precisely because it uses a fuel that has almost no impact on the environment and that is, for all practical purposes, inexhaustible.

* * * * * * *

When Ernest Rutherford was asked whether he thought nuclear fusion would ever be used to produce electricity on a commercial scale, he replied that the idea was "moonshine."² At least part of Rutherford's skepticism was the result of his belief that uranium was relatively scarce and could not be found in sufficient quantities to be used as a reliable source of energy. Years later, the director of the Manhattan Project, J. Robert Oppenheimer, expressed similar doubts about the viability of a commercial nuclear energy program, partly because of the engineering challenges associated with building and operating a nuclear reactor and partly because of the difficulty of finding enough uranium fuel.³ After the United States had produced its first nuclear weapon, Oppenheimer's boss at the Manhattan Project, General Leslie Groves, advised President Truman that the Soviet Union was still many years away from producing a nuclear weapon, mainly because "there is no uranium in Russia."⁴ The United States itself had expended significant effort to find enough uranium to produce its first atomic bombs and given the difficulty of this project, there was every reason for people like Oppenheimer and General Groves to believe that uranium was always going to be in very short supply.

Sixty years later we have learned that uranium is a common mineral -- in fact, "Uranium is ubiquitous on the earth. It is a metal approximately as common as tin or zinc."⁵ Small concentrations of uranium can be found nearly everywhere on earth, even in seawater. At the same time, the "engineering" challenges that so worried people like Rutherford and Oppenheimer have been overcome. There are now 440 nuclear reactors operating around the world, with another 24 currently under construction (see figures 1 and 2). The United States has the largest fleet, with 103 reactors located in 31 states, producing

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20% of the country's total electricity (figure 3). On a worldwide basis, nuclear energy accounts for about 16% of total electricity production.⁶ Moreover, these reactors are now operated more efficiently than ever. Capacity factors (i.e., the percentage of time that a reactor is operated at its full capacity) have increased in the United States to over 90%, with a similar trend occurring throughout the rest of the world. (See figure 4, showing the increase in U.S. reactor capacity factors during the period 1980-2005, and figure 5 showing U.S. capacity factors by fuel type in 2005.) In the early days of nuclear power, some of the brightest minds in the industry believed that a capacity factor of 60% for commercial reactors was acceptable, especially when compared with other sources of electricity.⁷ Today's nuclear reactor operators are not satisfied unless they can sustain a capacity factor of at least 90%, while some units have achieved a 100% capacity factors during certain 12-month periods.⁸

These increased capacity factors have not only increased the amount of electricity produced from nuclear power (without increasing the number of reactors) but it has also significantly reduced operating costs for nuclear produced electricity. (See figures 6, showing the increase in electricity produced from nuclear power in the United States between 1993 and 2003, and figure 7, showing U.S. electricity generating costs for 2004.) Today the United States produces more electricity from nuclear power than ever before, even though there are fewer reactors operating today than fifteen years ago -- 103 reactors in 2005 versus 111 reactors in 1990 (see figure 8).

While no one has yet developed a cost-efficient way to "mine" the uranium contained in our oceans, it is accurate to say that the production of uranium is simply a matter of cost. The issue for today's uranium producers is not finding uranium; the issue is finding it in deposits that are commercial viable, i.e., where the costs of production are lower than the current market price. The relative abundance of uranium and its efficiency as a source of clean energy⁹ have captured the imagination of government leaders, public policy advisors, and even environmentalists.¹⁰ More than ever before, nuclear energy is increasingly recognized as an essential component in the world's energy supply. Indeed, if current projections regarding the increase in the world's demand for electricity are even close to being correct, we will need many new reactors just to ensure that nuclear energy's share of total energy

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production remains the same as today. U.S. energy consumption alone is expected to increase dramatically over the next two decades (see figure 9). The good news is that none of these new reactors will ever have to be shut down because there wasn't enough fuel.

The uranium mining industry has followed the same basic economic principles that...