IAEA: SEMINAR ON GLOBAL NUCLEAR FUEL SUPPLY DEPICTS A

UNCLAS UNVIE VIENNA 000041

SENSITVE
SIPDIS

STATE FOR ISN/NESS, ISN/MNSA, IO/T
DOE FOR NA-24 SCHEINMANN, GOOREVICH, SYLVESTER; NE-6 MCGUINNESS
NRC FOR MDOANE, JSCHWARTZMAN

E.O. 12958: N/A
TAGS: ENRG ETTC PREL TRGY KNNP
SUBJECT: IAEA: SEMINAR ON GLOBAL NUCLEAR FUEL SUPPLY DEPICTS A
STRONG INDUSTRY AND THE COMPLEXITY OF NUCLEAR POWER

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SUMMARY
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1. (SBU) On January 26, the Permanent Mission of Japan in Vienna
held a Seminar on Global Nuclear Fuel Supply. The seminar was
attended by delegations from 63 countries including Canada, Germany,
South Africa, Brazil, Egypt, Pakistan and Australia, as well as
numerous NGOs, academic and industry representatives. Japan
elaborated on its proposal for an IAEA Standby Arrangements System
but acknowledged the proposal has not been adequately developed.
Ambassador Schulte highlighted the new Administration's commitment
(para. 14) to an international nuclear fuel bank and called on DG
ElBaradei to once again take the lead. The conference contributed
to a needed change in atmosphere surrounding the issue of reliable
access to nuclear fuel by focusing on the technical and financial
realities of nuclear power in the global market. Two overarching
themes highlighted by all experts were 1) the international market
is diverse and competitive and 2) there is plenty of current and
projected capacity for uranium enrichment even under the most
optimistic nuclear energy growth scenarios. END SUMMARY

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IAEA AND OECD
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2. (U) Hans Forsstroem, Director of IAEA's Division of Nuclear Fuel
Cycle and Waste Technology, provided an overview of the nuclear fuel
cycle and emphasized the different markets countries must consider
when entering into the nuclear energy arena. Forsstroem showed that
competitive markets exist for each step of the nuclear fuel cycle
and that utilities can take advantage of this by creating long-term
or spot contracts. He noted that while there has been some spot
price volatility, specifically in the natural uranium and light
enriched uranium (LEU) markets in recent years, the efficiency of
the markets will continue because of the prevalence of long term
contracts between utilities and suppliers. Forsstroem did not
comment on the IAEA's potential role in an international fuel bank.


3. (U) Robert Vance, Nuclear Development Division, Organization for
Economic Co-operation and Development (OECD) focused his
presentation on the current and future market trends in nuclear fuel
supply. Vance concluded that while conversion and enrichment
capacities are limited in the short term, vendors are poised to
expand with the appropriate market signals and support nuclear power
growth. One area of concern for the OECD is the development of new
uranium mines. Some barriers to new uranium mines include limited
market transparency, low public acceptance, regulatory requirements,
government initiatives, and market turmoil. However, Vance
illustrated that identified resources of natural uranium are
sufficient for 100 years of current consumption levels and that mine
production capability is expected to be adequate to meet even the
highest case of uranium requirements through 2030. He also
indicated that strong market conditions were necessary to ensure the
accuracy of his predictions.

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INDUSTRY VIEWS
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4. (U) Japan asked major nuclear industry companies to discuss their
roles in the markets and market projections. U.S. industry was
represented by Westinghouse.


5. (U) George Capus, VP of Front-End Marketing for AREVA, presented
"Primary and secondary sources in Global Nuclear Fuel Supply; focus
on Uranium." Capus emphasized the fact that while there are
sufficient identified resources of uranium, market conditions and
production costs will determine the degree to which they are
explored. There is, according to Capus, a lot of uncertainty
surrounding the projected uranium demand because of vastly different
predictions of how many operating nuclear reactors will be in place
in the future. He also pointed out that recent spot price
volatility may indicate that the uranium market may be entering a
period of instability. His recommendation was to de-commoditize
uranium in an attempt to smooth its market volatility. This, in his
opinion, would provide secure, long term sources of uranium.
Comment: AREVA has business interests in all parts of the fuel cycle
including uranium mining, conversion, and enrichment. The desire
for de-commoditizing uranium is a business position. Capus did not
present any reasons why the traditional supply and demand market for
uranium would not continue to work in the future. End Comment


6. (U) Mark Elliott, Director of Marketing and Sales at URENCO,

discussed "Enrichment: Present and Projected Future Supply and
Demand." He emphasized that long-term fuel cycle contracts will
provide reliable supply at predictable costs to both utilities and
uranium suppliers. He also highlighted the industry-wide
introduction of centrifuge technology and projected that by 2015 all
gas diffusion enrichment still in use today would be completely
de-commissioned, or nearly so. Elliott concluded that current
enrichment capacity and the planned expansion and/or update of
enrichment facilities would be more than enough to meet projected
demand for nuclear power plants. Following Elliot's presentation,
IAEA Secretariat Staffer Tariq Rauf asked about the possibility of
Kazakh or Australian investments in new enrichment projects.
Elliott did not believe that such investment would occur before

2020. German PermRep Luedeking questioned Elliot's assertion that
URENCO's share in world wide enrichment capacity would decrease
after 2015. Elliott clarified that URENCO only announced plans for
enrichment expansion and update through 2015 and that the flat
lining in his projection after that year would change with future
announcements. Answering questions about general market
fluctuations, Elliot emphasized that the market could respond to
fluctuations in supply and demand and that long term contracts are
preferable for keeping the market grounded. He also commented that
a nuclear fuel bank would provide some form of supply assurance to
new countries looking to develop nuclear power.


7. (U) Alexander Pavlov, Director of Advanced Technologies Analysis
for TENEX, presented "Enrichment: Recent and Projected Future,
Supply and Demand - TENEX View." He focused primarily on the
particularities of the market and the role of TENEX in the global
enrichment market. He said that historically, Russian products have
been subject to unjust trade restrictions, including the Amended
Suspension Agreement and Domenici Law in the United States and the
unofficial quotas in place within the European Union. He argued
that the restrictions on Russian imports show how the market for
uranium is not "real" because of interference from governments and
regulators. Echoing other industry reps, Pavlov also projected that
by 2015 at least 96 percent of all enrichment will be conducted
utilizing centrifuge technology. In the follow-on, South Korea
asked what Russia's position is vis a vis the U.S. and EU supply
restrictions. Pavlov responded that the U.S. restriction was making
U.S. utilities "nervous because they were unsure if they could sign
long term contracts with TENEX." Regarding the EU, Pavlov responded
that the rules in the EU are not strict and some companies violate
the 20 percent limit. Furthermore, he commented that the very
existence of discriminatory rules was detrimental to the entire idea
of a market for uranium products.


8. (U) Dr. Vincent Esposito, VP for Asia Fuel Business at
Westinghouse, presented "Fuel Fabrication: Today to Tomorrow". He
noted that fuel is seven percent of the operating costs of a nuclear
power plant, yet fuel fabrication, being reactor-specific, leverages
93 percent of other operations. The goal of fuel suppliers is to
get the maximum energy out of the uranium in the most safe and
reliable manner. Uranium is a commodity, because it is used in all
assemblages. But every supplier has its own proprietary assemblage,
and the analytical testing and compliance with regulatory structures
that differ from country to country entail the greatest part of the
cost and makes changing one's supplier of fabricated fuel very
costly and time-consuming. It is this discussion of analytical
engineering that is most often forgotten in discussion but is one of
the most critical pieces. A regulatory delay can cost as much as
USD 10 million a day in delays to utility suppliers. At this
moment, Esposito said, Asia is leading Europe and the U.S. in fuel
fabrication; however fuel fabrication far outpaces fuel demand.
Fuel enrichment is a global question where as fuel assembly,
license, design and transportation are all local problems. During
the Q&A, Laura Holgate, Nuclear Threat Initiative, asked whether
focusing on regulations from the beginning would shorten overall
timelines for new suppliers. Esposito estimated that it would take
an experienced supplier 3-5 years to get through the regulatory
process but that most utilities use several different fuels for fuel
security reasons. An IAEA representative asked for the advantages
and disadvantages of storage, what the shelf life of assemblies are
and whether utilities are stuck with certain designs. Esposito said
that few utilities store longer than 9 months but if chemistry is
monitored in the fuel pit, the shelf life is actually very long,
however disadvantages include expense and that if criteria changes
and the spent fuel is not "grandfathered in," then it may cause a
problem to use it down the line. South Korea asked that since
requirements are outpacing capacity and design is outpacing
requirements, what is the best form to stock uranium- in powder or
pellets? Esposito recommends looking further down the value chain
to see where the best investment is and noted that UO2 is easier to
keep than their assemblies, and that as a second option, tubing and

grids have certain limitations so these are also strategic to keep
on hand. Mongolia, noting its interest in nuclear energy, asked if
it will be possible to have standard designs in the future.
Esposito quickly said this would not be feasible since it would take
away the competitive spirit of the market. The last question, from
Pakistan, focused on life time guarantees for fuel and how
fluctuations and/or disruptions would be compensated. Esposito
noted that there are contracts for lifetime supply and that as for
all commodities, price escalation would be built on different
contracting mechanism treating materials, labor and party agreement.


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JAPAN
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8. (U) Ms. Tomiko Ichikawa, Director for Nonproliferation, Science
and Nuclear Energy for the Japanese Ministry of Foreign Affairs, and
Mr. Yosuke Naoi, Senior Principal Engineer and General Manager for
the Japanese Atomic Energy Agency updated the seminar participants
on Japan's "IAEA Standby Arrangements Systems for the Assurance of
Nuclear Fuel Supply" proposal. The proposal, originally introduced
in September 2006, asks countries to voluntarily notify the IAEA of
their ability to participate in a fuel supplier's database by
registering their capacities in three areas: 1) providing products
and services domestically, 2) exporting on a commercial basis, and
3) ability to export on a short term notice. The IAEA would serve
as the administrator of the database and as intermediary should fuel
supply be disrupted. Japan sees their proposal as being
complimentary and compatible with the other known fuel bank or fuel
assurance initiatives some member states have put forward.


9. (SBU) Intended or not, Japan's outline of its databank concept
touched off a flurry of questions on the practicalities of assuring
reliable access to fuel. Mongolia asked what would happen to the
spent fuel. The Japanese noted this was not part of their proposal.
Russia focused on how the IAEA would assess market volatility and
what the criteria for participation would be. Japan reiterated that
the IAEA would only administer the database and that criteria would
have to be discussed among member states. Iran pressed for
clarification of the IAEA's role, but Japan stated that it only
wanted to illustrate front-end options and that the proposal calls
for registration of capabilities only. Chile questioned which
recipient states would be able to participate should an interruption
occur. Japan said the proposal would be open to more states than
just those who register. Turkey picked up on the Agency's role as a
potential supplier should a disruption occur and asked about the
feasibility of this. Japan deflected and referred the question to a
general discussion needed among IAEA member states on fuel
assurances. South Korea asked for updates on the German, Russian,
and NTI proposals for a fuel bank, however, no one spoke up in
response. Egypt ended the discussion noting that the Japanese
proposal seems to increase the number of steps between the supplier
and consumer and asked who will ensure transfers. Japan said this
would be between the supplier and recipient to determine.

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General Discussion
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10. (U) The Czech Republic, as the EU Presidency, spoke on behalf of
the EU. The EU statement noted great interest in the various
proposals for an international fuel bank. The Czechs recalled the
EU's decision to back the NTI proposal with 25 million Euros, as it
considers the safe development of nuclear energy as very important
to countries' development programs. In closing, the EU said it was
eager to move the discussion among member states and the Agency
forward toward making multilateral fuel supply a reality.


11. (U) Ambassador Schulte reiterated U.S. support of the
international fuel bank both financially and politically. He said
the creation of the international fuel bank would help those
countries looking to develop alternative energy sources while
minimizing the threat of nuclear proliferation. He implored the
Director General to be a vocal advocate of the establishment of the
fuel bank and encouraged member states to begin a detailed
discussion of specific concepts in the IAEA Board. Ambassador
Schulte's statement is in para 14.


12. (U) Iran, immediately after the U.S. statement, noted it was
"unexpected" to have political statements from groups of countries
at a technical seminar. Japan countered that its intention was to
focus on various aspects and they hope the seminar has contributed
to a better understanding and commitment to the issues. South Korea

ended the discussion by underscoring the usefulness of the seminar
and encouraged Japan to continue their leadership in the dialogue.


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COMMENT
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13. (SBU) The seminar served to highlight a number of important
factors that speak both for and against a concerted effort to create
an international fuel bank and/or other mechanisms which guarantee
reliable access to nuclear fuel in case of disruption. Industry
experts, across the board, indicated that present enrichment
activities outpace energy demand and will continue to do so until at
least 2030. They urged member states to consider innovative
technologies in fuel fabrication, supply, transportation options and
market trends when discussing fuel assurances and stressed that it
is unnecessary for any country to be concerned with a lack of
enriched uranium, as such material is readily available on the open
market. On the other hand, many experts also pointed out how
diverse the market is, which could lead some to question the utility
of a mechanism of "last resort" to guarantee fuel supply. Keeping
technical issues in mind, the seminar provided a much needed
non-political atmosphere for IAEA member states to begin discussing
the international fuel bank. The non-confrontational and
conciliatory tone of the meeting lends itself well to further
multilateral discussions among IAEA member states. Mission will use
the momentum generated by the seminar and encourage Japan's further
leadership along with like-minded and G-77 countries that show signs
of interest in an INFB to move discussion forward prior to and at
the March Board.

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STATEMENT
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14. (U) BEGIN STATEMENT TEXT:

Mr. Chairman,

Thank you and thanks to your Mission for bringing us together today
to discuss global nuclear fuel supply. I would also like to thank
the experts from industry, countries, and NTI for helping us
understand the markets and issues.

Mr. Chairman,

President Obama and Secretary of State Clinton have expressed strong
support for the creation of an IAEA fuel bank. While in the
Senate, both supported legislation providing $50 million to the IAEA
for the creation of an international fuel bank. They believe the
United States should work with other countries and the IAEA to put
into place new mechanisms, including an international fuel bank that
would allow countries to benefit from the peaceful uses of nuclear
energy without increasing the risks of nuclear proliferation.

An international fuel bank could reassure countries embarking on or
expanding nuclear power programs that they could rely on the
international market for nuclear fuel with a safety net in place in
the event of a disruption. This would reduce any incentives a
country interested in nuclear energy might have for going to the
trouble and expense of building its own enrichment or reprocessing
facilities.

To help establish a fuel bank, the United States has contributed
nearly $50 million to the IAEA. Taken together with donations from
the European Union, the United Arab Emirates, Norway, and the
Nuclear Threat Initiative, a significant level of funding is now
available to create a Nuclear Fuel Bank under IAEA auspices.
Additional contributions would be welcome to offset exchange rate
fluctuations and help bring a good concept to practical reality.

Parallel to U.S. support for the fuel bank the U.S. engages in other
respects with states considering or preparing their entry into
nuclear power generation. One small example is an upcoming seminar
in Rabat on human resource needs for nuclear power, hosted by the
U.S. Department of Energy and a leading Moroccan institute, to which
delegates from Algeria, Egypt, Jordan and Tunisia are also being
invited.

To support those countries looking to develop alternative energy
sources while limiting the spread of bomb-making technologies,
moving forward on the IAEA's Fuel Bank is a priority that all member
states should share. We look to the Director General, who was an

early advocate of fuel banks, and to the IAEA Board of Governors to
act swiftly to create the necessary mechanisms that would make the
Agency's Fuel Bank a reality.

Many countries have said rightly that the details of a fuel bank
deserve careful consideration by the Board. The funding and
framework are now on the table, and the time has now arrived to
discuss the specific concepts.

We look forward to starting this discussion to achieve a result that
can enjoy broad support across the Board and between those countries
with established nuclear power programs and those just now
considering the benefits of nuclear power. Thank you.
END STATEMENT TEXT.

SCHULTE