A new ARMZ race

The people who brought about Chernobyl are pressing to become the world’s leading source for nuclear power equipment, materials, and services.

Russia’s quasi-state nuclear power authority, Rosatom, has ambitions of becoming the world’s one-stop shop for nuclear plants, uranium fuel and spent fuel services. Currently accounting for 20% of the world’s nuclear power stations and 17% of global nuclear fuel fabrication, Rosatom wants to double in size and become the dominant player in uranium ore and spent fuel in the process.

The United States, which counts the Russian nuclear weapons reset as one of its few unambiguous geopolitical wins, thus far is apparently happy to turn a blind eye to Russia’s uranium ambitions, even when Russia’s quest for the strategic ore leads it into some strategic hotspots and when the implications for nuclear accidents grows.

In places like Kazakhstan, Canada, Niger, Australia, the United States and Mongolia, Rosatom’s (AtomRedMetZoloto) Uranium Holding Co, or ARMZ, is seeking to dominate worldwide uranium production.

Over the past two decades, Russia has aggressively leveraged the nuclear legacy of the Cold War competition between the United States and the Soviet Union. In the nuclear arms race with the United States, the USSR always opted for quantity and size rather than quality. As the US poured research and development into smaller, more efficient warheads, the Soviets made sure they had a lot of bombs.

When the USSR collapsed, Russia inherited over a thousand tonnes of weapons-grade fissile material and a sizable nuclear refining and fabricating infrastructure. As Russia lurched through its post-Soviet adjustment, its control over most of the USSR’s nuclear assets became one of the few effective bargaining chips in its dealings with the United States, and not only for negotiation of the Strategic Arms Reduction Treaty (START).

Russia’s holdings of weapons-grade highly enriched uranium (HEU) became a key currency in US-Russian diplomacy. Under the “Megatons for Megawatts” program, it was agreed that 500 tons of Russian HEU would be downblended and shipped to the United States for use in commercial nuclear reactors. Today, approximately half of the fuel in US nuclear power plants comes from ex-Soviet warheads. [1]

Russia also uses its various uranium stockpiles to help meet its commercial export obligations – which reportedly exceed its domestic production capabilities by 6,000 tons per year. Since the end of the Cold War, releases of material from Russian and US stocks have accounted for almost 60% of uranium demand, exerting significant downward pressure on uranium prices and mining activities.

Russia treats its nuclear industry as a national resource, and it is aware that the uranium cupboard – at least as it pertains to HEU and other legacy stocks – will be bare in 10 to 15 years. As a matter of prudence, economics, and national security, it is making plans for the future. [2]

The future includes an expected spike in uranium ore prices from US$55 to $70-$80 a pound as the price of commercially mined ore is no longer depressed by a steady stream of government-owned HEU downblends into the marketplace.

It also includes a spike in demand, even though much of Europe and Japan have bailed out on nuclear power (even in nuke-friendly France, denuclearization has muscled its way onto the political agenda). This spike assumes that South Korea, India, and China among others decide that a $64 billion nightmare like the cleanup after the earthquake and tsunami destruction of the Fukushima nuclear plant in Japan last March will never happen to them, and they continue with their programs to build nuclear power plants … with the encouragement of the senior nuclear states.

Energy-poor South Korea, despite post-Fukushima jitters, still maintains its c0mmitment to increase nuclear’s share of its power generation portfolio to 60% and to export nuclear reactors.

After suspending approvals of new plants, China has apparently decided that its nuclear power plant program will proceed, albeit with some safety-related modifications. According to the Wall Street Journal, some older reactors lacking passive safety features will be phased out more quickly than originally planned, and focus will be placed on the construction of more modern reactors based on a Westinghouse design licensed in 2007. [3]

India would like to triple the nuclear share of its power generation industry, and the central government seems firm in its post-Fukushima resolve despite heightened popular opposition to its nuclear program. India, in addition to serving as the poster child for selective enforcement of the Non-Proliferation Treaty by virtue of its perceived utility as an anti-China bulwark, is also the symbol of reckless nuclear diplomacy/commercial huckstering by the Western powers, as typified by Australia’s recent decision to cope with the post-Fukushima slowdown in its uranium business by overturning a ban on selling uranium ore to one NPT non-signatory, ie India.

Much of the developed world may have rejected nuclear power for its own use. However, in a recent Newsweek article, non-proliferation wonk Henry Sokolski pointed out that nuclear diplomacy – specifically making nuclear technology available to potential allies in the developing world, safety and environmental anxieties be damned – is an overriding preoccupation both of Russia (Iran, Bangladesh, Vietnam, Turkey, India) and the United States and its nuclear friends (Jordan, Vietnam, India, Saudi Arabia). This even remains true post-Fukushima. [4]

Banking on a shortfall of uranium reserves
If the nuclear power industry continues to grow as anticipated, there will be a shortfall of supply as existing uranium reserves worldwide experience accelerated depletion after the legacy feedstock kitty is gone. [5]

And the future will also probably see Russia and ARMZ at the heart of the global nuclear fuel industry. Indeed, Russia is exceptionally well positioned to become the prime player in the 21st century commercial nuclear industry, in large part because of its dominant role in refining uranium ore into usable fuel.

Russia has the world’s largest uranium refining capacity, inherited from the USSR’s oversized weapons program. Its estimated refining capacity is four to five times that of the United States and almost half of the world’s total. It is an advantage that Russia is likely to keep, thanks in part to American anxieties over proliferation and its policy of discouraging any new entrant – not just Iran – from developing refining capability.

One of the more utopian schemes to reassure nervous operators of nuclear power plants that they can have continued access to nuclear fuel even if they can’t refine it in country is the proposed “Nuclear Fuel Bank”. It is not surprising that Russia promptly agreed to host the fuel bank because, in the words of the International Atomic Energy Association (IAEA), “Russia has already produced the low-enriched uranium” needed to stock it. [6]

One thing Russia doesn’t have, however, is plenty of domestic uranium ore. Access to imported low-cost uranium ore is key to keeping the Russian refineries humming – and profitable. Therefore, ARMZ – which accounted for only 7% of the world’s uranium production when its sourcing was limited to Russia – has gone abroad to tie up sources of supply in the grand tradition of transnational energy companies.

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