Foreign Demand May Jeopardize Uranium Supply for U.S. Utilities

We discussed with Jeff Combs, the Ux Consulting president, from which countries future uranium supplies may come, and who is going after those supplies more aggressively. He warns about the risks and rewards of Kazakhstan and Mongolia, looks to Africa for supplies, and talks about Russia expansion.
uranium, energy, mining, nuclear energy, China, India, Canada, Australia, France, utilities, commodities, electricity, uranium mining, Athabasca Basin
We discussed with the Ux Consulting president from which countries future uranium supplies may come, and who is going after those supplies more aggressively. He warns about the risks and rewards of Kazakhstan and Mongolia, looks to Africa for supplies, and talks about Russia expansion.

StockInterview: How do domestic uranium prospects rate in the eyes of U.S. and foreign utilities?

Jeff Combs: I don’t think that utilities expect the U.S. to be a major supplier of uranium. What youe seeing with China and other countries, where nuclear power is growing, is that theye definitely looking to secure supplies. The Chinese are going to Kazakhstan and also Australia, where there are a lot of uranium reserves, a lot of potential for growth. I think there some potential for growth in the U.S. But if you had a fast growing nuclear power program, I don’t think the U.S. is the first place I’d look. I believe that you can look for some opportunities in the U.S. But in general, the U.S. utilities are basically in competition with some of these newer entrants into the market for available supplies. Those are primarily outside of the U.S., as U.S. utilities also depend on imports for most of their supplies.

StockInterview: It appears many countries are racing to secure uranium supplies outside their borders.

Jeff Combs: Even Russia, which was a major exporter of uranium in the 1990s, is looking to secure additional supply sources, first to Kazakhstan, Kyrgyzstan, and Uzbekistan, former republics of the of Soviet Union, but also to Africa. Russia has an extremely ambitious reactor expansion program, as well as a desire to greatly increase its exports of reactors to countries like China and India. As it stands now, most of the growth in nuclear power is expected to take place in China, India, Russia, as well as Korea and Japan to a certain extent. All these countries are really looking outside their borders for uranium supplies that are going to sustain them for quite a long period in the future. None of them are blessed with very rich and extensive uranium deposits.

StockInterview: Is Russian President Vladimir Putin trying to create something on the order of a Wal-Mart Super Center for the nuclear fuel cycle?

Jeff Combs: Well, you see them doing a joint venture in Kazakhstan. Theye trying to do something with Kyrgyzstan. Theye definitely looking at how they can shore up their supply through imports, in addition to investing a billion dollars in their own internal production. In this respect, they are trying to draw from their old supply chain arrangements. This is to meet their internal needs, as well as the needs of countries to which they have traditionally supplied reactors and the fuel to run these reactors. As Russia looks to expand its reactor sales to countries that don’t have established fuel cycles, they want to be able to supply them with fuel ?possibly even lease them the fuel. This means that they have to be prepared to take back the spent fuel. This is due at least in some measure to nonproliferation concerns, in that you don’t want these new entrants building enrichment or reprocessing plants. While Russia has enrichment capacity and the ability to expand this capacity, they also need uranium to be able to supply these countries with enriched uranium. This is why theye currently focusing on the uranium side of the equation.

StockInterview: Let talk about some of the target countries, where those with the more ambitious nuclear energy programs will want to secure uranium.

Jeff Combs: We have recently done a series of reports, looking at countries where major production is taking place, or could take place. Of course we’ve done them on Canada, Australia, Namibia, South Africa, Kazakhstan, and Uzbekistan. I think the next country might be Mongolia because of the exploration and development activity that is taking place there. Mongolia mining laws are very favorable to foreign companies. Mongolia is also located in that part of the world where the bulk of nuclear power expansion is taking place. The problem in Mongolia now is the lack of infrastructure ?the location of the exploration sites relative to roads and rail lines, and the ability to connect to the electricity grid and water lines.

StockInterview: There has been so much press and chatter about Kazakhstan. Is there substance in these commentaries, or is it mainly hype?

Jeff Combs: They’ve got a lot of uranium resources and reserves. They’ve also got a commitment to expanding production there and a pretty big customer in China. The hype might be related more as to whether they can do it as quickly as they say, as opposed to whether they can eventually get to the levels theye talking about. One of the things that will slow them down is the infrastructure, including the skilled work force, needed to expand at that rate. They have increased production. They definitely will continue to increase production, but perhaps not at the rates they are advertising. They’ve produced a lot in the past, in the old Soviet Union days. I think they can get back up to those production levels, but it going to take some time.

StockInterview: What will be required to get things going in Kazakhstan?

Jeff Combs: It appears they’ve been able to attract capital. A large part of it is just the time is takes to build the infrastructure, including training workers. You can have all of the investment in the world, but it still takes time to get things done, especially if the infrastructure isn’t well developed in the first place. If you look at Kazakhstan on the map, it is very close or adjacent to Russia, China, and India, where the major part of nuclear growth is occurring. I don’t think there will be any shortage of demand for their output.

StockInterview: Where does Japan fit into the current uranium bull market?

Jeff Combs: Japan is definitely a factor in the market. Their growth might not be as rapid as it once was, or once was expected to be. With Japan you have a country that does not really have any indigenous uranium resources to speak of. They really need to import uranium. To facilitate this and to secure future supplies, Japan has historically developed different supply relationships around the world, both by taking positions in uranium mines and by nurturing long-term relationships with producers. I think that it likely the case that this recent price rise caught them somewhat off guard, but recently Japanese utilities have put more effort into shoring up their supply options.

StockInterview: There are countries, which get little media coverage, such as Namibia. How does this country rate?

Jeff Combs: I think Namibia will definitely have an important role in supplying uranium. I don’t think it going to have the expansion potential of Canada, Australia, or Kazakhstan, but I think South Africa, Niger and Namibia are going to be an important component for uranium supply in the future.

StockInterview: You mentioned Niger, which was the world third largest uranium producer, and has now fallen to number four, behind Kazakhstan.

Jeff Combs: The funny thing about Niger is that in a way it sort of fallen off the radar screen. It produces, but it just doesn’t get the press as other places. If the price increases, it really changes how people look at all these different projects going forward and a lot of things, which might not have been looked at 20 years ago or so, are being reinvestigated. Obviously, there is uranium in Niger. It quite important to the economy there. As I said, they haven’t really been on the radar screen as much as a lot of other regions in the world. Perhaps this is because production there has been controlled by the French for a long time. There are some Canadian companies exploring in Niger now. Since this activity is fairly recent, it won’t likely bear any fruit for five to ten years down the road.

StockInterview: Do you foresee realistic nuclear energy expansion in other parts of the world, such as the Middle East?

Jeff Combs: Frankly, I haven’t focused on that very much. I know that Turkey is looking to do something. At some point, I think you would see more nuclear power in the Middle East just because the oil supplies aren’t going to last indefinitely. We do a headline news service, and it packed full of stories on different countries that are looking at nuclear power. It seems like there is a new country added to the list every day. I know, for instance, that Vietnam is looking pretty seriously at nuclear power. It would not be surprising there would be interest in the Middle East. There is a lot of focus on the problems associated with Iran. Overall, I’m a believer that if you have more nuclear power, then youe going to have fewer problems with energy and more economic development, higher standards of living, and that going to be a big positive that will outweigh the negatives in situations like Iran.

StockInterview: Speaking of Iran, what is Washington sentiment toward nuclear energy, aside from the Bush Administration endorsement?

Jeff Combs: I think there is a growing recognition, even among Democrats, that you need nuclear power as part of the energy mix. Youe not going to get there just by renewable energy sources. With the environmental and overall energy challenges wee facing now, with higher and higher natural gas and oil prices. From the U.S. standpoint the vulnerability with respect to secure energy supplies, I think there is a growing recognition that nuclear power is part of the solution, and this thinking extends outside of the Bush administration. I’ve talked to people, and they believe that even if a Democratic administration came in that you really wouldn’t necessarily put a damper on nuclear power.

StockInterview: What about the Hillary Clinton Factor, if she becomes the next U.S. President?

Jeff Combs: I haven’t really asked her for her views on nuclear power recently. I think the story for nuclear power is not so much what happens in the United States, which certainly could add more reactors. The rest of the world probably looks to what the U.S. does to a certain extent. I think the real growth in nuclear power, and what likely to drive the market in the future, is on the part of the developing countries in the eastern part of the world. These would be China, India, Korea and Russia, where economies are growing a lot more quickly, not the really mature economies like in the U.S. and Europe. Although I would expect to see some growth there as well. In this respect, having a Democratic president would not derail what happening in nuclear power or the uranium market. As mentioned earlier, I think that you see a more general acceptance of nuclear power across party lines, in Europe as well as the U.S., although there are still some factions that are virulently anti-nuclear.

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How Soon Will Saudi Arabia Turn to Nuclear Energy?

How soon will Saudi Arabia join the nuclear club? You might be surprised with our investigation. How will this change the world energy picture? Water desalination will be the driving force behind Saudi entry into nuclear energy.
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While a growing number of countries have announced their civilian nuclear energy ambitions over the past twelve months, no other country is likely to have more of a psychological impact on the nuclear energy picture than Saudi Arabia. We believe the Kingdom natural gas and water problems will lead them to nuclear, sooner rather than later, probably as early as this year.

After our interview with Kevin Bambrough, which resulted in the widely read article, ‘Explosion in Nuclear Energy Demand Coming,?we began more deeply researching Bambrough conclusion. He believes the overwhelming growth in nuclear energy will continue to drive the uranium bull market much higher than is suspected. He believes the uranium renaissance has gone beyond the envelope of just a mining inventory shortage. We researched this further during the course of our investigation into uranium and geopolitics. We were surprised by what we discovered, and continue to be stunned by how accurate Mr. Bambrough forecast is likely to play out. We included the special sub-section, which follows, in our soon-to-be-published, A Practical Investor Guide to Uranium Stocks. Below is a sneak preview.

An April 2006 UPI news item confirmed what many have long believed. It won’t be long before Saudi Arabia launches a nuclear project. Kuwaiti researcher Abdullah al-Nufaisi told seminar attendees in Qatar that Saudi Arabia is preparing a nuclear program. He said the government was being urged to launch a nuclear project by Saudi scientists, but had not yet received the blessing by the royal family. Social, not energy, issues could help the Saudi royals embark on a large-scale nuclear program.

Of the Kingdom of Saudi Arabia 24 million subjects, more than 40 percent are under 18 years of age. While still manageable, the country infrastructure is not prepared to deal with its explosive population growth. The two biggest problems facing Saudi Arabia are potential water and electricity shortages. True, its super oilfields may also have peaked in production and might move into tertiary recovery, but that is unknown. An Islamic revolution, similar to what Iran suffered in the 1970s is probably foremost in the King mind. Civil unrest might come about should his subjects suffer from insufficient electricity and inadequate water supplies. One need only look at the widespread electricity shortages Syria experienced in the 1980s and early 1990s.

As reported in the October 14, 2004 issue of Arab Oil and Gas, the Saudis lag well behind Bahrain, Kuwait, Qatar, and the United Arab Emirates in per capita energy consumption. The rate of natural gas consumption, which produces Saudi electricity, increased less than Egypt and Syria. Total energy consumption dropped by 3.5 percent in 1999 and 2000.

The internationally heralded “Gas Initiative?of 1998 was the Kingdom attempt to lure major western oil companies back into the country to help develop its natural gas reserves. After major oil companies spent $100 million in due diligence to evaluate the Saudi natural gas reserves, the initiative quietly dropped off the world radar screen. A Shell Oil executive, whose company is exploring for gas in the country Empty Quarter, told Bloomberg Daily Energy News that this was a high-risk venture with a low probability of finding sizeable reserves. In Matthew Simmons?Twilight of the Desert, he repeated what he was told by an anonymous senior oil executive, “The reservoirs are crummy.?
The Saudis need water and electricity to match their population growth. Nuclear energy is likely to be the solution to both those problems. Continued dependence upon natural gas may prove a fatal economic and social error for the royal family. Our research forecasts the Saudis should announce a large-scale civilian nuclear energy program in the near future.

Let discuss the water problem first. In a 2002 story reported in the Oil & Gas Journal, Saudi Arabia 30 desalination plants produce about 21 percent of the world total desalinated water production. Nearly 70 percent of the local water drunk in cities comes from desalinated sea water. As the population grows, Saudi Arabia may spend another $40 billion to build more desalination plants.

Half of the world desalination plants are in the Middle East. Most are powered by fossil fuels, especially natural gas. Converting sea water to potable water is energy intensive. The commonly used desalination method of multi-stage flash (MSF) distillation with steam requires heat at 70 to 130 degrees centigrade and consumes up to 200 kilowatt hours of electricity for every cubic meter of water (about 264 gallons). MSF is the most popular technology, but some are turning to reverse osmosis (RO). RO consumes about 6 kilowatt hours of electricity for every cubic meter of water.

Desalination is very expensive. The cost to generate this electricity through natural gas explains why Saudi Arabia spends about $4 billion in operating and annual maintenance costs.

There are numerous precedents in combining water desalination with nuclear energy for electrical generation. The World Nuclear Association highlights the BN-350 fast reactor in Kazakhstan, which has produced 135 MWe of electricity and 80,000 cubic meters per day of potable water for nearly 30 years. In Japan, ten desalination facilities are linked to pressurized water reactors producing electricity. The International Atomic Energy Agency is working closely with about 20 countries to implement dual-use nuclear reactors, which would also desalinate water.

According to the World Nuclear Association website, “Small and medium sized nuclear reactors are suitable for desalination, often with cogeneration of electricity using low-pressure steam from the turbine and hot sea water feed from the final cooling system. The main opportunities for nuclear plants have been identified as the 80-100,000 m3/day and 200-500,000 m3/day ranges.?
There are numerous examples of nuclear desalination being considered. In 1977, Iran Bushehr nuclear facility was to also have a 200,000 cubic meter/day MSF desalination plant. Construction delays, and the subsequent Islamic revolution, prevented this from occurring. Perhaps when Iran commences its civilian nuclear program, the desalination plant will be revived. China is reviewing the feasibility of a nuclear seawater desalination plant in the Yantai area. Russia has advanced a nuclear desalination project with barge-mounted marine reactors using Canadian reverse-osmosis technology. India has begun operating a nuclear desalination demonstration plant at the Madras Atomic Power Station in southeast India. Another one may soon follow in the southern Indian state of Tamil Nadu, which perpetually suffers from water shortages. Pakistan continues its efforts to set up a demonstration desalination plant. South Korea has developed a small nuclear reactor design for cogeneration of electricity and water. It may first be tested on Madura Island in Indonesia. Argentina has also developed a small nuclear reactor design for electricity cogeneration or solely for desalination.

The Saudis have investigated dual use for nearly thirty years. Since 1978, Saudi scientists have studied nuclear desalination plants in Kazakhstan and Japan. Both studies positively assessed the feasibility of bringing the first dual-use nuclear reactor in Saudi Arabia. Since the mid 1980s, scientists and researchers at the Saudi Nuclear Engineering Department at King Abdulaziz University, the College of Engineering at the University of Riyadh, the Chemical Engineering Department of King Saud University, and the Atomic Energy Research Institute have researched and evaluated nuclear desalination. Saudi scientists presented their paper, entitled, ‘Role of Nuclear Desalination in the Kingdom of Saudi Arabia,?at the First International Conference on Nuclear Desalination in Morocco in October 2002.

The country possesses a tandetron accelerator and a cyclotron capable of isotope production for medical purposes. Saudi nuclear scientists have been involved with many countries to help their country develop a bonafide nuclear energy program. In late March 2006, a German magazine reported Saudi Arabia has been secretly working on a nuclear program with help from Pakistani scientists. Ironically, many believe Saudi Arabia helped finance Pakistan nuclear program. Because Saudi scientists lack the proven experience of the entire nuclear fuel cycle, Pakistan expertise, over the past decade, could help accelerate the Kingdom pursuit of a civilian nuclear program.

While lacking proven uranium deposits, the country Tabuk region has low-grade amounts of uranium and thorium. However, Saudi Arabia has significant phosphate deposits, which some believe could be exploited. The country two largest deposits reportedly measure about 750 million metric tons, averaging between 19 and 21 percent P2O5. Mined by the Saudi Arabian Mining Company and the Saudi Basic Industrial Corporation, fertilizer plants at the Al Jubail Industrial City produce about 4.5 metric tons of P2O5 annually. While extraction of uranium from phosphates can be an expensive proposition, the phosphates could provide a ready supply of uranium for the country nuclear desalination plants. Then, it would be a matter of uranium enrichment, of which both the Russians and the French would be scrambling to provide the Kingdom.

While the Saudi program many not directly impact world uranium prices, the Kingdom decision to advance its nuclear program, beyond the research and medical stage, would signal the entire world that nuclear energy programs will be a primary growth sector for the next fifty to one hundred years. Should the Saudis also commence desalination projects using dual-use nuclear reactors, this could change the entire landscape of the water situation for the Middle East as well as Africa. And it would most likely spark a significant stampede of the Kingdom neighbors into the global nuclear renaissance.

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