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URANIUM: Former DOE head questions help for USEC

07/10/12

Hannah Northey and Manuel Quinones

Energy & Environment Daily

Former Secretary of Energy Spencer Abraham is blasting the Obama administration and Congress for supporting the embattled U.S. Enrichment Corp., known as USEC, and warned that changes in uranium supplies could damage the country's uranium mining industry.

Abraham said the Energy Department used a flawed report to justify its decision to transfer federal uranium stockpiles to support USEC's operation of a federal facility in Kentucky in May.

DOE's plan allowed the Paducah Gaseous Diffusion Plant to enrich depleted uranium to provide fuel for Energy Northwest in Richland, Wash., and the Tennessee Valley Authority. DOE justified its decision using a report that analyzed the domestic uranium market, which found the transfers would have no "adverse material impact" on mining investment (E&ENews PM, May 15).

"Unfortunately, this latest analysis, like the previous ones, is fundamentally flawed and therefore does not support the Secretarial Determination," Abraham said in written comments last week. "I believe there are significant shortcomings with this study that raise serious questions about DOE's May 2012 determination of no market impact."

At issue is a long-standing debate over the impact of DOE uranium stockpile releases on new mining and processing activities. Companies want DOE to honor an agreement keeping any releases below 10 percent of the nuclear power industry's needs to protect the market.

DOE's study, conducted by Washington, D.C.-based Energy Resources International Inc., said that planned releases would not have a significant impact on uranium prices. The ERI report said the Obama administration's plans should provide the industry with needed certainty.

Further backing that point, DOE spokeswoman Jen Stutsman said in a statement yesterday that the agency is taking seriously its responsibility to ensure that its uranium sales or transfers do not adversely affect the domestic uranium market, including U.S. uranium mining and conversion industries.

"In deciding to move forward with the important national security effort at the Paducah Gaseous Diffusion Plant, the Energy Department conducted a thorough market analysis by a leading and respected market consultant," Stutsman said. "The study took a comprehensive view of any potential DOE uranium transfers and sales over multiple years, providing the U.S. uranium industries with additional certainty regarding the market over the next 20 years."

The ERI document said, "This more comprehensive DOE plan enables the industry to better understand the significance of transfers during the next five to seven years that may exceed the 10 percent guideline and to adjust industry expectations and plans as is believed necessary."

Energy Secretary Steven Chu has also repeatedly backed USEC's operation of the $5 billion American Centrifuge Plant in Piketon, Ohio, as well as its gaseous diffusion plant in Paducah, Ky. Key congressional leaders, like House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.), are also important backers of USEC's projects.

But many lawmakers, anti-nuclear groups, environmentalists and nonproliferation experts are joining the mining industry in calling the deal a politically expedient bailout for USEC at the expense of new extraction efforts (E&E Daily, June 26). And Abraham, a former Michigan senator who served at DOE during President George W. Bush's first term, said ERI overlooked less obvious effects on players in the uranium landscape.

Abraham touted a critique of the report by ConverDyn, a uranium conversion company that provides an important link in the nuclear fuel process. Abraham, head of public affairs firm the Abraham Group LLC, is an adviser to ConverDyn, which converts uranium oxide, or "yellowcake," at its facility in Metropolis, Ill.

ConverDyn said the ERI report failed to consider how the uranium mining sector is sensitive to even the smallest price changes. The company also chafed at the document's focus on prices rather than potential volume reductions at the conversion plant, were the mining sector to suffer.

"ERI's analysis refers to an increase in demand for conversion but fails to account for the fact that most of this increase will come from China and Russia," Abraham wrote, "two countries whose markets are not accessible to the U.S. converter even though both those countries sell in the U.S. market."

Jonathan Hinze, a uranium market expert and international operations vice president at Ux Consulting Co., which keeps track of uranium prices, also found problems with the ERI report. The spot price of uranium is hovering at around $50 per pound, much lower compared to a time when the markets were bullish on a nuclear renaissance.

"The bottom line is that nearly anytime the U.S. Government -- or any government -- adds uranium supplies to the market, it has the effect of suppressing prices and reducing incentives for investments in future mining production," he wrote in an email.

"While some of these uranium releases can be mitigated through proper price signals, the latest DOE releases are unlikely to provide such price signals," Hinze said. "Thus, both domestic and international uranium producers are justifiably upset at the latest DOE actions on this issue."

Abraham has waded into nuclear issues in the past and served as the nonexecutive chairman of Areva Inc., the American arm of French nuclear giant, before stepping down on Jan. 30. He also recommended the use of Yucca Mountain, Nev., for storage of spent nuclear fuel.