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    China Business
     Dec 15, 2011

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A new ARMZ race
By Peter Lee

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.

Journalist and Kazakhstan hand Hal Foster described ARMZ's strategy and ambition in 2010:
  • [AMRZ hopes to] produce between 25% and 30% of the world's supply [of uranium ore] by 2030;
  • ARMZ is already in the process of becoming a powerhouse, accounting for 40% of the world's enriched uranium;
  • Chief executive Sergei Kiriyenko has made no secret of ARMZ's desire to become one of the driving forces on the international uranium market;
  • That's because it gives ARMZ a much larger share of world reserves at a time when the price of uranium is expected to soar due to the increasing demand for reactors. "We're looking at a shortage-driven market, with an inflexible supply." [7]
  • Depending on how one keeps score, ARMZ is already perhaps the third- or fourth-largest producer of uranium ore, thanks to a recent overseas acquisition binge. But that doesn't take into account ARMZ's aggressive efforts to lock up supply from outside sources and the extra clout the Russian government brings to the table on its behalf.

    ARMZ's business approach can be seen in its most important move into the near-beyond of Kazakhstan, which has quickly become the world's leading supplier of uranium ore, with one-third of the global market. Although Kazakhstan controls only an estimated 12% of world reserves, it is most aggressive in exploiting them. In 2009, it increased output by 69% over the previous year, and has promised to double production by 2015.

    The primary production technique involves drenching the underground ore body with sulfuric acid to leach out the uranium. Environmentalists may not be reassured by Kazatomprom's declaration that "the natural hydrochemical environment of uranium deposits of South Kazakhstan has a unique capability for self-restoration". [8]

    This has not, however, slowed Russian advances into Kazakhstan. Russia has displayed an integrated commercial and governmental strategy toward Kazakhstan and its uranium industry. On the commercial side, beyond its direct investments in Kazakhstan, ARMZ purchased a controlling interest in Canada's Uranium One, thereby gaining control of the company's sizable interests inside Kazakhstan. ARMZ thereby became the owner of almost half of America's uranium output (US capacity constitutes just 3% of global output). [9]

    On the governmental side, the two nations have signed agreements for construction of nuclear reactors and uranium refining capacity.

    And there is this, as reported by Martin Sieff:
  • Russia's Rosatom nuclear agency and Kazatomprom, the national nuclear development corporation of Kazakhstan have reached agreement about setting up a joint venture to market uranium around the world.
  • Kazakhstan has ... joined Russia in a new customs union that became operative on July 1. Coordinating uranium exports and uranium production policy is the first concrete achievement of cooperation between the two nations under the CU [Customs Union] umbrella. [10]
  • The government-to-government angle may have also involved some combination of traditional Soviet heavy-handedness and new-style nomenklatura skullduggery against Mukhtar Dzakishev, the young technocrat credited with leading Kazatomprom's charge to the top of the uranium league table.

    In March 2010, Dzakishev was sentenced to 14 years for various crimes, including alleged collusion with a self-exiled opponent of Kazakhstan's president to illegally and profitably transfer control over uranium reserves or production rights to overseas companies. There are widespread allegations that Dzakishev's conviction is a political hatchet-job - or an effort to remove a potential stumbling block from Russia's uranium cooperation with Kazakhstan, as Joanne Lillis reported at Eurasianet. [11]
    ... suspicions have been aired that Dzhakishev's case was linked to a redistribution of lucrative uranium assets. Misgivings were compounded after interrogations of Dzhakishev, in which he suggested that Russian nuclear interests had benefited from his arrest, were leaked in a video that was posted on the YouTube video sharing site.
    With this background, we can turn to the Russian campaign in Mongolia, another sector of Russia's near-beyond with significant 

    Continued 1 2 3

    Mongolian core to Russia's nuclear bid (Oct 29, '11)

    Mongolia hands it to a cast of neighbors (Oct 01, '11)

    Iran boosts Mongolia ties (Mar 17, '11)

    Deep chill envelopes US-Pakistan ties

    2. US steps into a virtual Iranian world

    3. US outed, and far from drawn down

    4. US the loser in Asia push

    5. Blockade on NATO will last until rules change

    6. Derivatives and free trade

    7. Iran looks to its allies

    8. The fifth horseman of the apocalypse

    9. Winning and losing in Afghanistan

    10. China's toxic soup

    (24 hours to 11:59pm ET, Dec 13, 2011)


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