China Nuclear Ambitions Pose Uranium Supply Questions
19 April 2007Dow Jones Commodities Service
China's plans to build up its civil nuclear sector are well known, but what is less clear is just where the world's second-largest energy consumer is going to find enough uranium to fuel its reactors.
China has been importing uranium from Kazakhstan and Canada to supplement domestic uranium for its existing nine reactors, and it plans to build another 30 over the next 13 years.
Global competition for uranium is tight, and is going to get tighter as other existing nuclear powerhouses like the U.S. and Japan build more plants and new nations go down the nuclear highway, and the price of the fuel has soared.
On Wednesday, the Commission of Science Technology and Industry for National Defense, China's supervisory agency for the nuclear industry, conceded that domestic uranium reserves and production are insufficient to fulfill China's blueprint for nuclear power generation.
It plans to boost annual nuclear generating capacity to 40 gigawatts by 2020 - equivalent to an addition of 2 GW each year on average.
But proven uranium reserves within China, even if it was possible to fully extract them, could only fuel 40 GW for 50-60 years, according to China Guangdong Nuclear Power Holding Co., the country's second-largest nuclear builder by assets.
Given China's long-term nuclear ambitions and lack of advanced uranium extraction technology, it is going to have to look beyond its frontiers.
In so doing, it will brush up against nuclear expansion plans of neighbors like Japan and India, those of nearby nuclear aspirants, like Indonesia and Thailand, and many other nations further afield.
In January, India's biggest power generator state-run NTPC Ltd. (532555.BY) said it wouldn't rule out acquiring overseas uranium mines to fuel nuclear reactors it plans to build.
Jostling For Supplies
Despite efforts by some uranium producers to ramp up output, not much new production has reached the market recently, and 2006 output levels were lower than in 2005.
Total global production of uranium is now about 100 million pounds a year, compared with global demand of 180 million pounds.
The Commission of Science Technology's five-year plan calls for some fast footwork by China, for it to both get involved in the international uranium trade and develop foreign uranium resources over the next three years.
China National Nuclear Corp., the country's largest nuclear power company, and the domestic uranium trading monopoly, set up a subsidiary at the end of last year to coordinate its acquisitions of overseas uranium assets.
As of 2005, China's known uranium reserves stood at 70,000 metric tons. Now it consumes 1,500 tons a year, and by 2020 this could soar fivefold.
One focus for overseas supply will be Australia, which holds 38% of known recoverable reserves of uranium and which now accounts for about 23% of global output from its three mines.
Other nations with large proven reserves include Kazakhstan, Canada, the U.S., South Africa and Namibia.
Earlier this month, Kazakhstan's government said it plans to conclude intergovernmental agreements on nuclear power with Japan and China, Russia's ITAR-TASS reported.
In November 2004, KazAtomProm, Kazakhstan's national atomic energy company signed a long-term uranium supply deal with China's CNNC, building on an earlier supply agreement.
Domestic Competition
The anticipated growth in the Chinese domestic and global market for uranium has encouraged other Chinese companies to join the hunt, including several that have hitherto had no direct links to the nuclear industry.
Steel maker Sinosteel Corp. and financial conglomerate Citic Group signed agreements with China National Nuclear earlier this year to invest jointly in overseas uranium assets.
Sinosteel has experience exploring for mineral resources in Australia, South Africa, India and Indonesia. On April 9, it signed an agreement with Australian uranium producer PepinNini Minerals Ltd. (PNN.AU) to buy a 60% stake in its South Australian projects.
These companies' overseas expansion is being backed strongly by Beijing. Last April, the Chinese and Australian governments signed a nuclear cooperation agreement under which Australian uranium producers are allowed to start exports to China in 2010.
However, China's overseas drive will likely be constrained by bullish uranium prices. In addition, China charges a 5.5% tariff on uranium imports.
The price of uranium has soared to $95 a pound, from less than $20 three years ago, triggered by recent disruptions at two of the world's largest uranium mines.
"Global uranium prices may go higher on strong demand. It's too expensive for China to purchase overseas (right now)," an official with China's CNNC told Dow Jones Newswires.
Strategic Uranium Reserves
The highly competitive uranium market and the growing significance of nuclear power in the country's energy mix are pushing China to create strategic reserves for uranium, following on from efforts to build crude oil reserves.
Under its uranium plan for 2006-2010, China will set up strategic reserves to supplement commercial stocks, in order to cushion against any sudden supply shortfall.
Foreign imports of uranium will be used alongside domestic deposits to bolster stockpiles, under the plan, although planned import volumes for stocking haven't been disclosed.
Building a strategic reserve may distort the global market for uranium, keeping prices high as sellers anticipate abnormal demand from China, especially if the volume and timetable for purchases are kept secret.
Booming demand from China as well as others may also spur spot trading in uranium.
London-based energy brokerage Tullett Prebon (TLPR.LN) in March announced the launch of a nuclear fuel derivatives desk, offering a selection of standardized contracts for U3O8 uranium.
-Renya Peng contributed to this story, Dow Jones Newswires