VZCZCXYZ0000
RR RUEHWEB

DE RUEHUNV #0041/01 0341150
ZNR UUUUU ZZH
R 031150Z FEB 09
FM USMISSION UNVIE VIENNA
TO RUEHC/SECSTATE WASHDC 8954
INFO RUEHII/VIENNA IAEA POSTS COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEANFA/NRC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

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 
------------- 
 
¶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. 
 
-------------- 
INDUSTRY VIEWS 
-------------- 
 
¶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. 
 
 
----- 
JAPAN 
----- 
 
¶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. 
 
------------------ 
General Discussion 
------------------ 
 
¶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. 
 
 
------- 
COMMENT 
------- 
 
¶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. 
 
--------- 
STATEMENT 
--------- 
 
¶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