Early next month the Commerce Department will decide whether to recommend trade relief for the domestic uranium mining industry under Section 232 of the Trade Expansion Act of 1962. The petition for relief was filed by the only active U.S. mining firm last year in the wake of a precipitous drop in the domestic production of raw uranium due to competition from abroad and weak global demand. As the decision timeline approaches, it is worthwhile to review the arguments for and against granting some relief.
Worldwide uranium extraction is now dominated by Russia and its allies in Kazakhstan, with China planning to enter the global market by buying large Namibian mines. Just over 40 percent of the raw uranium purchased in the U.S. last year came from unfriendly countries in the Russian orbit, and this proportion certainly will grow in the future. While the rest is secured largely from Canada and Australia, these countries are reducing their output because of low prices resulting from large increases in production from Kazakhstan. A shady purchase of Canada’s Uranium One has put additional pressure on domestic supplies. Uranium One is now owned by a subsidiary of Rosatom and is expanding Kazakh production while keeping its U.S. mines closed. U.S. mines supplied only two percent of domestic use in 2018 from new production.
U.S. law requires that any uranium used for national defense purposes, including in nuclear-powered naval vessels, be mined, refined and processed domestically. Most defense supplies are now drawn from stockpiled material built up over the Cold War years. U.S. conversion and enrichment facilities, needed to make raw ore usable, are mothballed or closed so nothing can be added to the existing defense resource base. The defense nuclear stockpile is shrinking and technologically out of date.
Given the low level of new production, the most important reason for providing some relief for the U.S. industry, which employs fewer than 500 workers at this point, is maintaining the vital nuclear supply chain and workforce for national security needs. The miners have suggested reserving 25 percent of total U.S. demand for domestic producers.
The American commercial nuclear electric industry supplies about 20 percent of total electricity generation in the U.S. It meets baseload demand, meaning it runs without interruption, and produces no greenhouse gases. The commercial producers, through the Ad Hoc Utilities Group (AHUG), have objected forcefully to the 232 petition. They claim that the proposed quota remedy would seriously endanger the financial health of the industry and put at risk over 500,000 jobs. They argue the quota system would raise prices for an industry operating on thin profit margins. They also suggest that Russia and its satellites can be relied on to meet demand as North American and Australian producers are driven out of business. One could perhaps point to Russia’s cutoff of natural gas and squeezing nuclear fuel supplies to Ukraine to provide perspective on this argument.
Kazakhstan has increased its production of raw uranium by about 400 percent since 2005 while the value of its currency, the Tenge, has declined against the dollar from 145 to 380, or some 260 percent in the last decade. China has purchased much of its production increase, which is equal to about one-third of current annual world demand. China, in turn, has built a strategic inventory of about 1.6 times annual world demand, which has largely been stable in recent years despite increasing Chinese construction of new nuclear plants. Total world uranium reserves stand at 2.5 times world demand. This helps explain the low prices for uranium which have driven North American miners out of business.
Even though world uranium supplies are robust, they are increasingly controlled by unreliable competitors who have used export controls or supply interruptions to their strategic advantage and to drive competitors out of business. With growing stockpiles and newly acquired mining capacity in Africa, China could soon enter world markets for uranium as part of its push to build nuclear plants around the world through its “Belt and Road Initiative.” We should recall that in the past decade China too cut off supplies of important minerals, the so-called “rare earths,” which seriously affected defense production in the U.S. for certain strategic components in navigation equipment, cruise missiles and other high technology.
The AHUG asserts, “A domestic purchase quota would jeopardize nuclear plants in more than 30 states, threatening nearly 100,000 direct jobs and 475,000 indirect jobs.” Translated this suggests that the nuclear electric industry could disappear due to the quota system proposed by the mining industry. This is not a credible argument.
First, the major cost for electricity generated from nuclear plants stems from its exceptionally high capital burdens. Security concerns and regulatory strictures contribute to boosting the cost of building nuclear plants to levels two or three times those of either fossil fuel or some renewable plants, with the exception of offshore wind and fuel cell facilities, according to the Energy Information Administration (EIA).
The average fuel costs per unit of production for nuclear plants are much lower than for any fossil fuel, including natural gas. Unprocessed uranium cost represents only about 6 percent of total costs per unit of production for nuclear electric power, whereas that for fossil fuels is well over 70 percent. The consultant report provided by the AHUG estimates that the increase in fuel costs attributable to the proposed quota system would raise total fuel costs by two to three percent. This incorporates the price for the 75 percent of uranium that could still come from foreign sources and is likely to stay low relative to U.S. prices due to supply conditions described above. This estimate also assumes that the half or more of the domestic utilities whose prices are regulated by state public utility commissions could not convince their regulators to allow the higher price for uranium to be passed through to consumers.
Exelon is the biggest nuclear power producer in the U.S., with total revenues of some $36 billion in 2018 and net profits of $3.8 billion in 2017 and $2.1 billion in 2018. It projects capital expenditures of $23 billion over the next four years. The firm reported total fuel costs of $16.7 billion in 2018 for its plants, which include a sizable proportion of fossil fuel and some renewable capacity. The increase in nuclear fuel costs for Exelon, using the estimates of the AHUG’s consultant and its own reporting of total nuclear power generation for 2018, sums to around $159 million, or slightly less than one percent of total fuel costs. Such a number hardly seems sufficient to cause it to consider exiting the business. Exelon did not do so in the years around 2010 when average uranium prices were higher than those likely to be under any quota system.
There are certainly other factors pressuring the profit margins of electric power companies, including not only the cost of building and maintaining safe nuclear facilities but also being required to purchase all electricity produced by renewable sources. Much of the renewable power necessarily comes at times in the day when it is not usable, requiring the firms to maintain base power from nuclear or fossil fuel generating stations.
The two remaining domestic uranium miners have annual revenues less than $40 million each and both operated at or near break-even levels last year. They are competing against state-owned enterprises in authoritarian countries determined to dominate the nuclear industry. Given the commercial importance of the entire supply chain for the global nuclear energy sector and the national security requirements in U.S. law and security doctrine, a quota system or other relief is a small price to pay for the U.S. to remain a viable player in this industry.