DOE/EIA-0619

Distribution Category UC-950

Commercial Nuclear Fuel from U.S. and

Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects

May 1998

Energy Information Administration

Office of Coal, Nuclear, Electric and Alternate Fuels

U.S. Department of Energy

Washington, DC 20585

This report was prepared by the Energy Information Administration, the independent statistical and

analytical agency within the Department of Energy. The information contained herein should not be

construed as advocating or reflecting any policy position of the Department of Energy or of any other

organization.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

ii Materials, Policies, and Market Effects

Contacts

This report was prepared in the Office of Coal, Nuclear,

Electric and Alternate Fuels by the Analysis and Systems

Division. General information regarding this publication

may be obtained from the National Energy Information Center (202/586-8800); or Dr. Z.D. Nikodem

(202/426- 1179), Chief of the Nuclear Fuel Cycle Branch.

Technical information about this report may be obtained

from William Szymanski (202/426-1177 or Internet:

william.szymanski@eia.doe.gov), project manager and

principal author.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects iii

Preface

Section 205(a)(2) of the Department of Energy Organization Act of 1977 (Public Law 95-91) requires the

Administrator of the Energy Information Administration

(EIA) to carry out a central, comprehensive, and unified

energy data information program that will collect, evaluate, assemble, analyze, and disseminate data and information on energy resources, reserves, production, demand, technology, and related economic and statistical

information. To meet these responsibilities in the area of

nuclear power, EIA has prepared this report entitled

Commercial Nuclear Fuel from U.S. and Russian Surplus

Defense Inventories: Materials, Policies, and Market Effects.

The legislation that created the EIA vested the organization with an element of statutory independence. The

EIA does not take positions on policy questions. Its

responsibilities are to provide timely, high-quality

information and to perform objective, credible analyses

in support of deliberations by both public and private

decisionmakers. Accordingly, this report does not

purport to represent the policy position of the U.S.

Department of Energy or the Administration. This

report should be of particular interest to Congress,

Federal regulators and policymakers, nuclear fuel

suppliers, utilities, policy and financial analysts, and

trade associations.

The purpose of this report is to analyze the effects on the

commercial nuclear fuel market that would likely result

from current plans to sell U.S. and Russian government

surplus inventories. Although governments, especially

in Russia, are substantially involved in civilian nuclear

power programs, this report considers only uranium

and plutonium that were produced and stockpiled for

defense purposes and subsequently declared as surplus.

Because current plans to commercialize U.S. and

Russian surplus defense inventories are expected to

displace principally uranium supplies, conversion, and

enrichment from traditional sources; only those stages of

the fuel cycle are considered in this report; however, the

analysis is focused on the uranium market.

The first five chapters of the report provide information

of the materials and policies that comprise U.S. and

Russian Government plans for commercializing surplus

nuclear materials. A brief historical perspective on the

evolution of government policies making it possible to

convert nuclear materials stockpiled for military

purposes to peaceful uses is presented in Chapter 1.

Chapter 2 provides a description of the military and

civilian nuclear fuel cycles in order to give the

reader background information about the similarities

between the two cycles. These similarities allow for the

conversion of surplus defense inventories to commercial

nuclear fuel for producing electricity. An overview of

the inventories built up by the United States and Russia

is presented in Chapter 3. Descriptions of the activities

related to the conversion of Russian highly enriched

uranium (HEU) from dismantled weapons to nuclear

fuel are provided in Chapter 4. A detailed chronology of

the commercialization of Russian HEU is presented in

Appendix A. U.S. plans for commercializing uranium

and plutonium are presented in Chapter 5. For

commercialization efforts by the U.S. Government,

detailed chronologies for both the overall activities and

the required regulatory procedures are provided in

Appendices B and C, respectively.

The last two chapters focus on the market effects of

current government commercialization plans. An assessment of the key market penetration issues that could

influence the availability of surplus defense inventories

is provided in Chapter 6. Chapter 7 provides an

analysis of the effects of U.S. and Russian government

inventories based on different scenarios of market penetration. As part of the analysis, three cases developed

with EIA’s Uranium Market Model are presented to

simulate the effects on spot-market prices and world

uranium production. A detailed description of the UMM

is provided in Appendix D. Also, Chapter 7 contains an

estimate of savings that could be realized by U.S.

nuclear power generating companies as a result of access

to competitively priced uranium from surplus defense

inventories.

The projections presented in this report represent expectations of what could occur given a set of assumptions.

Many of these assumptions are based on government

policies or historical demand and supply relationships,

which are subject to dynamic change. Because nuclear

nonproliferation and other political objectives are important determinants, the commercialization of U.S. and

Russian surplus defense inventories cannot be explained

solely in economic terms. In addition, official

information is not uniformly available for all the market

participants. Given the uncertainty inherent in forecasting, it is important that the projections presented in

this report be viewed in the proper context of the

assumptions.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects v

Contents Page

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

1. Introduction .................................................................................. 1

Materials and Policies ....................................................................... 3

2. Relationship Between Military and Civilian Nuclear Programs ...................................... 5

Government Role in Nuclear Energy ............................................................. 5

Relationship Between the Civilian and Military Nuclear Fuel Cycles ................................... 5

3. Building the Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Russian Highly Enriched Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Russian Plutonium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

U.S. Highly Enriched Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

U.S. Plutonium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

U.S. Government Commercial-Grade Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Other U.S. Government Inventories of Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4. Sale of Highly Enriched Uranium from Dismantled Russian Nuclear Weapons . . . . . . . . . . . . . . . . . . . . . . . 17

From Concept to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Delays in Implementing the Russian HEU Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

First Deliveries of Low-Enriched Uranium Derived from Russian HEU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Authorization for the Sale of the Russian Uranium Feed Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

5. Commercialization of U.S. Government Surplus Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Development of Disposition Policies and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Highly Enriched Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Commercial-Grade Uranium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Plutonium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Market Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

6. Analysis of Market Penetration Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Programmatic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Supply and Demand Constraints in the Western Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Availability of Russian Feed for Western Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

7. The Effects of Selling Government Surplus Defense Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Effects on the Uranium (U3O8) Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Enrichment Services Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Enriched Uranium Product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Projected Uranium Cost Savings to Nuclear Power Generating Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

vi Materials, Policies, and Market Effects

Contents (continued)

Appendices Page

A. Chronology of the Commercialization of Russian Highly Enriched Uranium, 1991-1997 . . . . . . . . . . . . . . 79

B. Key Milestones in the Disposition of U.S. Government Surplus Highly Enriched Uranium,

Commercial-Grade Uranium, and Plutonium, 1992%1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

C. Principal Documents Prepared by the U.S. Department of Energy for the Storage and/or Disposition

of U.S. Government Surplus Highly Enriched Uranium, Plutonium, Natural Uranium,

and Low-Enriched Uranium in Accordance with the National Environmental Policy Act,

June 1994%May 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

D. Description of Uranium Market Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

E. U.S. Customary Units of Measurement, International System of Units (SI), and Selected Tables and 

Figures in SI Metric Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects vii

Tables Page

1. U.S. and Russian Surplus Defense Inventories Considered in This Report ............................. 2

2. Commercial Nuclear Fuel Markets ............................................................. 7

3. U.S. and Russian Production and Inventories of Highly Enriched Uranium (HEU) and Plutonium for

National Defense Programs, December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4. U.S. Restrictions on Selling the Uranium Feed Component of Low-Enriched Uranium (LEU) Produced

from Blending Down Russian Highly Enriched Uranium (HEU) After January 1, 1997 . . . . . . . . . . . . . . . . . 21

 5. Characterization of Inventory in Relation to the U.S. Department of Energy’s Disposition Program for

Surplus Weapons-Usable Highly Enriched Uranium (HEU), as of February 28, 1998 . . . . . . . . . . . . . . . . . . . 30

6. Equivalent Natural Uranium Feed and SWU Components of Low-Enriched Uranium (LEU) Derived from

U.S. Highly Enriched Uranium (HEU) Based on the U.S. Department of Energy’s Plans to Transfer Surplus

HEU to the United States Enrichment Corporation (USEC) and the Tennessee Valley Authority (TVA) . . . 33

7. Status of U.S. Department of Energy (DOE) Plans to Dispose of Surplus Commercial-Grade Natural

Uranium and Low-Enriched Uranium (LEU), as of December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

 8. U.S. Department of Energy’s (DOE) Schedule for Implementing the Reactor Alternative to Dispose of

Surplus Weapons-Usable Plutonium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

9. Potential Commercial Availability of U.S. and Russian Surplus Defense Inventories, 1997-2010,

Based on Schedules Contained in Government Disposition Plans as of March 31, 1997 . . . . . . . . . . . . . . . . . 60

10. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

Market, 1997-2010, Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

11. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

Market, 1997-2010, Lower HEU Feed Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

12. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

Market, 1997-2010, Upper HEU Feed Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

13. Projected Uranium Requirements for 2000, 2005, and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

14. Projected Supply for Western Reactor Requirements in the Lower HEU Feed Case, 2000, 2005, and 2010 . . 66

15. Estimates of Potential Cumulative Savings in Uranium Procurement Costs for U.S. Nuclear Power 

Generating Companies from the Assumed Market Penetration of U.S. and Russian Surplus Defense

Inventories Based on Different Assumptions About Uranium Supply, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . 74

A1. Chronology of the Commercialization of Russian HEU, 1991-1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

B1. Key Milestones in the Disposition of U.S. Government Surplus Highly Enriched Uranium (HEU),

Commercial-Grade Uranium, and Plutonium, 1992-1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

C1. Principal Documents Prepared by the U.S. Department of Energy for the Storage and/or Disposition

of U.S. Government Surplus Highly Enriched Uranium (HEU), Plutonium, Natural Uranium, and

Low-Enriched Uranium (LEU) in Accordance with the National Environmental Policy Act,

June 1994%May 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

E1. U.S. Restrictions on Selling the Uranium Feed Component of Low-Enriched Uranium (LEU) Produced

from Blending Down Russian Highly Enriched Uranium (HEU) After January 1, 1997 . . . . . . . . . . . . . . . . 102

E2. Equivalent Natural Uranium Feed and SWU Components of Low-Enriched Uranium (LEU) Derived

from U.S. Highly Enriched Uranium (HEU) Based on the U.S. Department of Energy’s Plans to

Transfer Surplus HEU to the United States Enrichment Corporation (USEC) and the Tennessee Valley

Authority (TVA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

E3. Status of the U.S. Department of Energy’s (DOE) Plans to Dispose of Surplus Commercial-Grade

Natural Uranium and Low-Enriched Uranium (LEU), as of October 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . 104

E4. Potential Commercial Availability of U.S. and Russian Surplus Defense Inventories, 1997-2010,

Based on Schedules Contained in Government Disposition Plans as of March 31, 1997 . . . . . . . . . . . . . . . . 105

E5. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

Market, 1997-2010, Reference Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

E6. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

 Market, 1997-2010, Lower HEU Feed Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

E7. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the Uranium

Market, 1997-2010, Upper HEU Feed Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

viii Materials, Policies, and Market Effects

Tables (continued) Page

E8. Projected Uranium Requirements for 2000, 2005, and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

E9. Projected Supply for Western Reactor Requirements for Lower HEU Feed Case, 2000, 2005, and 2010 . . . 109

Figures

1. Relationship of Military and Civilian Nuclear Fuel Cycle ........................................... 6

2. Comparison Between the Original and Current Schedules for Blending Down Highly Enriched

Uranium (HEU) from Dismantled Russian Nuclear Weapons Pursuant to the Russian HEU Agreement,

1994-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3. Relationship of the U.S. Department of Energy’s (DOE) Surplus Highly Enriched Uranium (HEU) 

Disposition Program and the Civilian Nuclear Fuel Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4. Relationship of the U.S. Department of Energy’s Surplus Plutonium Disposition Alternatives and the

Civilian Nuclear Fuel Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

5. Comparison of the Uranium Reserves of Major Mining Projects and the Uranium Contained in U.S.

and Russian Surplus Defense Inventories Currently Scheduled for Commercialization . . . . . . . . . . . . . . . . . 47

6. Potential Market Availability of Uranium Derived from U.S. and Russian Surplus Defense Inventories

Currently Scheduled for Commercialization, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

7. Potential Market Availability of Enrichment Derived from U.S. and Russian Surplus Defense 

Inventories Currently Scheduled for Commercialization, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

8. Potential Availability of Uranium Feed from the Blending Down of Russian Highly Enriched Uranium

to Low-Enriched Uranium, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

9. Anticipated Uranium Market Requirements of U.S. Utilities, 1997-2006, as of December 31, 1996 . . . . . . . . 52

10. Quota for Deliveries to U.S. End Users of Uranium Feed from the Blending Down of Russian Highly

Enriched Uranium to Low-Enriched Uranium as a Share of Projected U.S. Uranium Requirements,

1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

11. Historical and Potential Annual Supply Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

12. Potential Sources of Supply to Fill Russian Requirements&Reference Scenario, 1997-2010 . . . . . . . . . . . . . . . 56

13. Potential Sources of Supply to Fill Russian Requirements&Mine Closure Scenario, 1997-2010 . . . . . . . . . . . 57

14. Potential Cumulative Drawdown of Russian Commercial Inventories, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . 57

15. Comparison of Planned Commercial Availability of Uranium Derived from U.S. and Russian

Surplus Defense Inventories and Market Penetration Assumed for EIA Reference Case, 1997-2010 . . . . . . . 61

16. Assumed Market Penetration of Uranium Derived from U.S. and Russian Surplus Defense

Inventories, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

17. Production Capability Versus Price for U.S. Uranium Production Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

18. Projected Spot-Market Prices in the Restricted U.S. Uranium Market, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . 67

19. Worldwide Enrichment Supply Capability Under Different Capacity Assumptions, No Surplus

Defense Inventories Available, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

20. Worldwide Enrichment Supply Capability Under Different Capacity Assumptions, Availability of

Surplus Defense Inventories Based on Uranium Reference Case, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 69

21. Average Price of U.S.- and Foreign-Origin Uranium Delivered to U.S. Utilities from Domestic Suppliers

Versus Average Spot-Market Price, 1982-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

22. Results of Regression Analysis of the Relationship Between Contract Prices and Spot-Market Price, 

1982-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

23. Incremental Rise in Projected Uranium Spot-Market Price: Three No Surplus Defense Scenarios Versus

Reference Case, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

24. Estimate of Most Likely Potential Cumulative Savings in Uranium Procurement Costs for U.S.

Nuclear Power Generating Companies from the Assumed Market Penetration of U.S. and

Russian Surplus Defense Inventories, 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

E1. Potential Availability of Uranium Feed from the Blending Down of Russian Highly Enriched Uranium to

Low-Enriched Uranium During 1997-2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

E2. Projected Spot-Market Prices for the Restricted U.S. Uranium Market, 1997-2010 . . . . . . . . . . . . . . . . . . . . 110
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects ix

Executive Summary

Nuclear materials declared by the U.S. and Russian

governments as surplus to defense programs are being

converted into fuel for commercial nuclear reactors.

This report presents the results of an analysis estimating

the market effects that would likely result from current

plans to commercialize surplus defense inventories. The

analysis focuses on two key issues: (1) the extent by

which traditional sources of supply, such as production

from uranium mines and enrichment plants, would be

displaced by the commercialization of surplus defense

inventories or, conversely, would be required in the

event of disruptions to planned commercialization, and

(2) the future price of uranium considering the potential

availability of surplus defense inventories. Finally, the

report provides an estimate of the savings in uranium

procurement costs that could be realized by U.S. nuclear

power generating companies with access to

competitively priced uranium supplied from surplus

defense inventories.

Arms reduction initiatives and the end of the Cold War

have placed the governments of the United States and

Russia in a position to declare portions of their nuclear

weapons stockpiles as surplus. The two nations have

agreed to store or dispose of their surplus nuclear

materials in a safe and secure manner, so that they

cannot be used for the proliferation of weapons of mass

destruction.

The nuclear materials involved are principally highly

enriched uranium (HEU)&containing at least 20 percent 235U, a fissionable uranium isotope&and plutonium.

HEU can be “blended down” with uranium that contains

low concentrations of 235U to produce low-enriched uranium (LEU) containing up to 5 percent 235U. Plutonium

can be blended with uranium oxide to form mixed oxide

(MOX) fuel. Both LEU and MOX can be used as fuel in

commercial nuclear power reactors. After these fuels

have been burned in power reactors, they are discharged

as spent fuel, which is highly radioactive and difficult to

use for weapons manufacture.

In February 1993, the United States and Russia signed

The Agreement between the Government of the United States

and the Government of the Russian Federation Concerning the

Disposition of Highly Enriched Uranium Extracted from

Nuclear Weapons (the Russian HEU Agreement), which

provided for the United States to purchase 500 metric

tons of Russian HEU over a 20-year period. This

“megatons to megawatts” agreement is the world's first

program for converting weapons-grade nuclear

materials from dismantled nuclear warheads to commercial reactor fuel for the generation of electricity. The

United States Enrichment Corporation (USEC), a

Government-owned corporation, will pay Russia only

for the enrichment services component of the LEU

derived from HEU. USEC sells the enrichment services

component purchased from Russia in the commercial

marketplace. The natural uranium feed component of

the LEU can be sold separately by Russia.

On the U.S. side, an announcement by President Clinton

in March 1995 declared some 200 metric tons of HEU

and plutonium from U.S. defense programs as surplus.

Inventories of natural uranium and LEU, already in

commercially usable forms, also have been identified as

surplus to U.S. defense programs. The commercialization of U.S. surplus defense materials is governed

by a variety of laws and quotas, including the National

Environmental Policy Act of 1969, the Energy Policy Act of

1992, and the USEC Privatization Act.

In sum, according to currently approved commercialization plans, Russian surplus inventories of HEU

will provide the equivalent of about 398 million pounds

of “natural” uranium concentrate (U3O8) from mined ore

to the commercial Western marketplace (excluding

China and the Commonwealth of Independent States).

U.S. surplus HEU will provide the equivalent of about

37 million pounds U3O8; and U.S. surplus LEU and

natural uranium will provide the equivalent of about 40

million pounds U3O8 (Figure ES1). In addition, the

material contained in the surplus inventories will

introduce equivalent uranium enrichment services into

the commercial marketplace: 92 million separative work

units (SWU) represented by Russian surplus material

and 10 million SWU represented by U.S. surplus

material.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

x Materials, Policies, and Market Effects

398.0

39.5

36.9

Russian Highly

Enriched Uranium

U.S. Highly

Enriched Uranium

U.S. Natural and 

Low-Enriched Uranium

(83.9%)

(7.8%)

(8.3%)

Figure ES1. Commercialization of U.S. and

Russian Surplus Defense

Inventories Based on Approved

Plans: Shares of Potential Uranium

Supply by Inventory Type

(Million Pounds U3O8 Equivalent)

1998 2000 2002 2004 2006 2008 2010

0

20

40

60

Percent

Figure ES2. Legal Maximum Availability of Uranium

from the Commercialization of Russian

Highly Enriched Uranium as a Share of

Projected U.S. Uranium Requirements,

1997-2010

 Sources: Projected U.S. uranium requirements&Energy

Information Administration, Nuclear Power Generation and

Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table F1; U.S. quota&USEC Privatization

Act (April 26, 1996), Section 3112 (b).

 Sources: Russian HEU—Russian HEU Agreement. U.S.

HEU, natural uranium, and LEU—U.S. Department of Energy

disposition plans; United States Enrichment Corporation, 1996

Annual Report.

According to proposed U.S. government plans, a portion

of U.S. surplus plutonium inventories would be

fabricated into MOX fuel and burned in commercial

power reactors. If approved, the utilization of this MOX

fuel would displace the equivalent of around 17 million

pounds U3O8. Because the plan is to make MOX

available over a 15 year-period, the commercialization of

plutonium would have only a marginal impact on the

commercial uranium market. 

At present, the legal maximum limit for deliveries of

uranium derived from Russian HEU is scheduled to

reach about 50 percent of projected U.S. commercial

uranium requirements by 2010 (Figure ES2), although

other policy and market factors are expected to limit

sales of uranium from both U.S. and Russian surplus

inventories to end users in the near term. In analyzing

this issue, three scenarios were examined: a Reference

Case, in which the quantity of uranium to be sold

approximates the scheduled availability by 2005; a

Lower HEU Feed Case, in which a portion of the

Russian-origin material is withdrawn from the Western

market for internal use; and an Upper HEU Feed Case,

in which additional Russian-origin material not sold

during 1997-2000 enters the Western market incrementally from 2002 through 2010. The three scenarios

are intended to illustrate different potential levels of

market penetration by introduction of Russian and U.S.

surplus defense inventories of nuclear materials.

However, the proposed utilization of U.S. plutonium in

MOX fuel was not considered in the scenarios.

The analysis results indicate that the spot-market price

of U3O8 is expected to rise in all the scenarios (Figure

ES3). Currently, Western requirements for uranium fuel

exceed mine production. The difference is supplied by

withdrawals from commercial inventories and imports

from the Commonwealth of Independent States (CIS),

including those from Russia. Because of restrictions

placed on imports of CIS-origin uranium delivered to

U.S. end users, there has been a price differential between the “restricted” and “unrestricted” markets since

1992. That differential is anticipated to diminish and,

possibly, to disappear altogether with the increased

availability of uranium derived from blending down

Russian HEU. The average spot-market price for U3O8

on the restricted U.S. market is projected to range between $14 and $17 per pound by the middle of the next

decade&higher than the lows seen in the mid-1990s but

much lower than the peak prices of the 1970s and 1980s.

Over the next several years, U.S. and Russian surplus

defense inventories are expected to become the second

most important source of uranium, behind mine production. Nevertheless, the rise in spot-market price is

projected to be sufficient to induce additional mine production. Mines in Australia and Canada with relatively
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects xi

1985 1990 1995 2000 2005 2010

5

10

15

20

25

1996 Dollars per Pound U3O8

Historical Projected

Lower HEU Feed

Reference

Case Upper

HEU

Feed

Figure ES3. Average Uranium Spot-Market Price,

for the Restricted U.S. Market,

1985-2010

low production costs are projected to supply at least 70

percent of the U3O8 used to fuel Western reactors from

1997 through 2010. In the Lower HEU Feed Case, prices

would be slightly higher than in the Reference Case (by

less than $2 per pound U3O8), and U.S. mine production

would increase from just under 6 million pounds U3O8

in 1997 to 11 million pounds U3O8 per year by the end

of the next decade.

Of course, market projections are subject to considerable

uncertainty, and the commercialization of U.S. and

Russian surplus inventories is especially sensitive to a

variety of political and other considerations. An interruption in the inventory commercialization schedule

could reduce the availability of natural uranium feed,

requiring more expensive mine production and higher

market prices to meet demand. Uncertainty with regard

to the availability of supplies from Russian HEU could

lead to volatile prices. Or, conversely, more aggressive

marketing of the inventory material could drive prices

down. On the demand side, construction deferrals and

early retirements of nuclear power plants could reduce

demand and, as a result, prices for nuclear fuel.

Retirements of nuclear power plants considered in the

analysis are based on assumptions made for the

reference case projections published in the Energy

Information Administration’s Nuclear Power Generation

and Fuel Cycle Report 1997.

The enrichment services market, with a current excess of

capacity, is less subject to the price volatility that has

been seen in the uranium market over the past decade.

Marketable enrichment service (SWUs) derived from

surplus defense inventories will largely be controlled by

USEC, which is expected to sell the excess through longterm contracts (rather than on the spot market) in order

to avoid price fluctuations that would affect its own

business. It is also possible that USEC could begin

marketing LEU as “enriched uranium product” (EUP)

directly to end users, as opposed to the typical practice

of just providing enrichment services for natural

uranium already owned by the end users. (Russia could

also become a major supplier of EUP, but current trade

restrictions limit the penetration of Russian-origin

uranium in the Western market.) In the United States, as

the deregulation of electricity markets progresses,

electricity generators with nuclear facilities could find

advantages in purchasing EUP, through greater flexibility and lower costs of inventory management.

The availability of competitively priced uranium derived

from U.S. and Russian surplus defense inventories is

expected to lower uranium procurement costs for U.S.

nuclear power generating companies below levels that

would prevail if the market were supplied entirely by

newly produced uranium. Assuming that commercialization of the surplus inventories proceeds on schedule,

and then considering the most likely of three scenarios

regarding potential uranium supply, the cumulative

savings in uranium procurement costs for U.S. electricity

producers in 1996 dollars are estimated to be between

$2.9 billion and $3.4 billion from 1997 through 2010

(Figure ES4). The estimate of potential cumulative

savings is considered the most likely from a broad range

projected between $2.1 billion and $5.3 billion dollars in

1996 dollars. Savings in the higher end of the range

would be realized if the development of known low-cost

reserves is restricted through government policy. On

the other hand, the savings could be less than the most

likely estimate if new low-cost reserves are discovered

and put into production during the forecast period.

The total effect of commercializing U.S. and Russian surplus defense inventories on nuclear power generating

companies’ fuel costs would also depend on the

behavior of the enrichment services market. Under the

current condition of worldwide production overcapacity, the price of SWU in constant dollars is not anticipated to rise appreciably. USEC is expected to sell the

SWU it receives as U.S. Executive Agent for the Russian

HEU Agreement in a market neutral manner. It is

assumed that most of the potential effect of commercializing surplus defense inventories on fuel procurement costs could be measured by changes in the price of

uranium. With access to U.S. and Russian SWU, USEC

 Sources: Historical spot-market price&annual average of

Exchange Value reported in TradeTech, The Nuclear Review

(October 1997); projected spot-market price&Energy

Information Administration, Uranium Market Model, runs

1997_60, 1997_73, and 1997_82 (July 1997).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

xii Materials, Policies, and Market Effects

Note: It is assumed that changes in all contract prices

are highly correlated to changes in the projected spotmarket price. The estimation of potential cumulative savings

is based on the projected decline in uranium spot-market

price as a result of the penetration into the marketpace of

U.S. and Russian surplus defense inventories assumed for

the three specific cases compared to a no surplus defense

scenario.

Source: Projected spot-market price&Energy Information

Administration, Uranium Market Model, runs 1997_60,

1997_73, 1997_82, and 1997A_21.

1997 1999 2001 2003 2005 2007 2009

0

1

2

3

4

Billion 1996 Dollars

Lower HEU Feed Case

Reference Case

Upper HEU Feed Case

Figure ES4. Potential Cumulative Savings in U.S.

Uranium Procurement Costs Based

on the Availability of U.S. and

Russian Surplus Defense

Inventories, 1997-2010

could elect to close one of its enrichment plants. Under

a plant closure scenario, the price of SWU could rise in

response to a decline in excess capacity. However, any

increase in the cost of enrichment services is expected

only to offset partially the impact of lower uranium price

on reducing total fuel procurement costs.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 1

1 Uranium Institute, The Global Nuclear Fuel Market: Supply and Demand 1995-2015 (London, 1996), pp. 67-70. 2 Address by Dwight D. Eisenhower, President of the United States of America, to the 470th Plenary Meeting of the United Nations

General Assembly (December 8, 1953). 3 At the time of the dissolution of the Soviet Union, nuclear weapons were also stationed in the newly independent republics of Belarus,

Kazakhstan, and Ukraine. All have since been removed. The Governments of Kazakhstan and Ukraine required that the nuclear weapons

removed from their territories be dismantled. 4 Proliferation refers to the spread of nuclear weapons capability outside countries that currently possess nuclear weapons. 5 The White House, Office of the Press Secretary, Nonproliferation and Export Control Policy Fact Sheet (Washington, DC, September 27,

1993). 6 United States Enrichment Corporation, Megatons to Megawatts Program Progress Status (Bethesda, MD, December 1997).

1. Introduction

The atomic age was created out of an urgency in wartime to harness the energy of atomic fission for use in

producing weapons of mass destruction. The scientists

who succeeded in making the first atomic bomb in 1945

also envisioned that atomic power would provide many

peaceful benefits to mankind. One such benefit would

be the generation of electricity. However, nearly a

decade passed before construction was begun on the

first commercial-scale nuclear power plants. Meanwhile, the United States and the Soviet Union, the

world’s superpowers, had become engaged in an arms

race, leading to the buildup of large stockpiles of nuclear

weapons.

National defense programs are thought to have used

over half of the 4.7 billion pounds of uranium oxide

(U3O8) estimated to have been extracted from the earth

since 1945.1

 In addition to its use in the manufacture of

weapons-grade fissile materials, especially highly

enriched uranium (HEU) and plutonium, uranium also

has been used to produce fuel to propel naval vessels

and in various research applications. Nevertheless,

large quantities of uranium and plutonium produced for

national defense purposes remain in inventory.

In his address to the United Nations General Assembly

in December 1953, President Dwight D. Eisenhower

proposed “Atoms for Peace” a program in which governments would make “joint contributions from their

stockpiles of normal uranium and fissionable materials

to an international atomic energy agency.”2

 This bank of

nuclear materials would serve the “peaceful pursuits of

mankind,” especially to provide electrical energy.

Although President Eisenhower recognized that the

initial contributions would be small, Atoms for Peace

was the first serious proposal for converting uranium

and plutonium that were stockpiled for defense

purposes into fuel for generating electricity.

Four decades later, the vision advanced in Atoms for

Peace became reality. The precursor for such an achievement was met when the United States and the Soviet

Union agreed in 1991 to substantially reduce their

nuclear armaments. The dissolution of the Soviet Union

later in that year all but ended the cold war between the

two nuclear superpowers. After the dissolution, the

Russian Federation (Russia) had assumed control of the

former Soviet nuclear weapons stockpiles as well as the

responsibility to abide by existing arms reduction

agreements.3

 As additional arms reduction initiatives

were undertaken, it became apparent that the HEU and

plutonium contained in the tens of thousands of nuclear

weapons being dismantled would require safe storage

and disposition. Of particular concern was the proliferation of nuclear weapons that could arise from the

unauthorized use of these fissile materials.4

 As a result,

the conversion of surplus fissile materials from dismantled nuclear weapons into fuel for commercial nuclear

power plants was included as a strategy in President

Clinton’s Nonproliferation and Export Control Policy.

5

A government-to-government agreement signed by the

United States and Russia in 1993 established the terms

for the world’s first conversion of fissile materials

contained in weapons to commercial nuclear fuel

(Table 1). As a result, the first fuel derived from HEU

taken from dismantled Russian nuclear warheads was

delivered to a U.S. electric power utility in November

1995. By the end of 1997, the HEU that had been

converted in Russia for use in reactor fuel was

equivalent to over 1,600 nuclear warheads.6

 Required to
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

2 Materials, Policies, and Market Effects

7 EIA projects annual world requirements to be 483 million pounds U3O8 over the 3-year period, 1997-1999. See Energy Information

Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC, September 1997), Table F2. 8 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table D1. 9 Final Report of the U.S.-Russian Independent Scientific Commission on Disposition of Excess Weapons Plutonium, June 1, 1997, released by

The White House Office of Science and Technology (Washington, DC, September 10, 1997), p. 9. 10 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), p. ix.

Table 1. U.S. and Russian Surplus Defense Inventories Considered in This Report

Country Inventory Source

Russia Highly Enriched Uranium (HEU) Russian HEU Agreement 1993; implementation contract

1994, amended 1996

United States Highly Enriched Uranium (HEU) U.S. Department of Energy, Record of Decision for the

Disposition of Surplus HEU, July 1996

Natural uranium and low-enriched

uranium (LEU)

U.S. Department of Energy, Environmental

Assessment of the Proposed Sale of DOE Surplus Natural

and Low Enriched Uranium, October 1996

Plutonium (see note) U.S. Department of Energy, Record of Decision for the

Storage and Disposition of Weapons-Usable Fissile

Materials, December 1996

 Note: U.S. Government surplus plutonium was not considered for the three analysis cases presented in this report.

conform to stringent regulations, U.S. disposition activities have lagged behind the conversion of Russian HEU.

Nevertheless, the U.S. Government announced plans in

1996 for the commercialization of U.S.-origin HEU and

plutonium, as well as natural uranium already in forms

that can be used without further conversion to produce

fuel for commercial reactors (Table 1). Russia announced

plans in 1996 for the disposition of weapons-grade

plutonium.

Under currently approved plans for the disposal of U.S.

and Russian surplus defense HEU and natural uranium,

the equivalent of nearly 500 million pounds U3O8 would

be made available over the next 15 to 20 years for use in

producing commercial nuclear fuel. The total quantity

corresponds to the uranium projected to be required for

all the world’s reactors over the period 1997-1999 (442

commercial nuclear power reactors were operable in the

world as of December 31, 1996).7, 8

 Proposed plans for

using surplus plutonium in fuel for U.S. and Russian

reactors could displace some uranium by the middle of

the next decade. The quantity of plutonium declared as

surplus by the U.S. and Russian governments

corresponds to fuel for 100 reactor-years of operation

with current technologies,9

 equivalent to less than 1 year

of fuel requirements for the 110 U.S. reactors operable as

of December 31, 1996.10 However, not all surplus

plutonium is intended for use in commercial nuclear

power plants. Some of it will be immobilized in

combination with other materials and placed in a

geologic repository. Because Russian commercial

nuclear fuel requirements are filled only from internal

sources, the effects on the world nuclear fuel market of

the decision by the Russian government to burn surplus

plutonium in commercial reactors is not considered in

this report.

This report is divided into two sections: (1) materials

and policies, and (2) market effects. Background

information about the nuclear materials and the policies

involved in U.S. and Russian government commercialization plans is provided in Chapters 1 through 5.

The last two chapters focus on the potential market

effects of commercialization. An assessment of the key

market penetration factors is presented in Chapter 6.

Chapter 7 provides an analysis of the effects of U.S. and

Russian surplus defense inventories based on different

scenarios of market penetration.
Materials and Policies
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 5

11 Two gaseous diffusion enrichment plants, owned by the U.S. Government, will be leased to the privatized company. 12 Nuclear weapons states are countries which have manufactured and exploded a nuclear device prior to January 1, 1967.

2. Relationship Between Military and

Civilian Nuclear Programs

Government Role in Nuclear Energy

With the advent of the atomic age in the 1940s, largescale industries were built by the governments of the

United States and the Soviet Union to develop and

manufacture nuclear weapons, produce fuel for

submarines and surface vessels, and conduct research on

various nuclear applications. The Atomic Energy Act of

1946 created the U.S. Atomic Energy Commission (AEC)

and placed nuclear weapons production in the United

States under civilian-government management. The

management of nuclear materials stockpiled for national

security purposes, a function formerly held by the AEC,

is currently carried out by the U.S. Department of

Energy (DOE).

By the mid-1950s, government programs were in place

to demonstrate peaceful uses for nuclear energy,

including the generation of electricity. Nuclear power

was first used to supply electricity for a civilian

population in 1954, with the startup of a reactor in

Obninsk, Russia. Calder Hall in the United Kingdom

(1956) and Shippingport in the United States (1957)

became the first commercial-scale reactors to be

connected to electricity grids in the Western world. The

ownership of nuclear materials and the facilities used to

produce fuel for the first civilian reactors remained

under government control. In the United States, privatesector utilities purchased or leased nuclear fuel directly

from the AEC.

The United States was the first country to relax its policy

of government control over the production of nuclear

fuel for civilian uses. In 1964, the Private Ownership of

Nuclear Materials Act was passed to give private

individuals the right to own nuclear materials. As a

result, companies that mined uranium and produced

fuel for civilian nuclear reactors under contract to the

AEC could enter into commercial contracts directly with

utilities. However, the U.S. Government continued its

ownership of domestic enrichment services facilities,

which were used to produce both low-enriched uranium

(LEU) for civilian use and HEU for defense purposes. In

1970, the U.S. Government ended its uranium procurement program, giving rise to the present-day wholly

commercial nuclear fuel market. As described in the box

on page 18, legislation passed in 1992 authorized the

U.S. Government to privatize its enrichment activities.

When this privatization becomes fully implemented, the

U.S. Government will no longer have a management role

in the production of commercial nuclear fuel.11

With the breakup of the Soviet Union in 1991, Russia

gained control of most the former Soviet nuclear

industry. In Russia, the civilian and military nuclear

programs remain integrated. The Ministry of Atomic

Energy for the Russian Federation (MINATOM) controls

all aspects of the nuclear fuel cycle along with nuclear

power generation for civilian use. MINATOM has no

plans to privatize the Russian civilian nuclear program.

Other countries¬ably, China, France, and the United

Kingdom&also have developed nuclear weapons;

however, their inventories of HEU and plutonium are

much smaller than those held by the United States and

Russia. Of the world’s nuclear weapons states, only the

United States and Russia have announced plans to

dispose of surplus inventories of HEU and plutonium.12

Relationship Between the Civilian

and Military Nuclear Fuel Cycles

Naturally occurring uranium is transformed into

weapons materials and fuel through a series of steps

referred to as the nuclear fuel cycle (Figure 1). The

“front end” of the nuclear fuel cycle encompasses the

steps necessary for producing nuclear fuel from

naturally occurring uranium. The storage and processing

of spent fuel is the “back end” of the cycle. Spent fuel

removed from reactors is typically stored for a period of
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

6 Materials, Policies, and Market Effects

Military Fuel Cycle

Civilian Fuel Cycle With Reprocessing

Uranium Mining and 

Milling

Uranium Conversion

Uranium Enrichment

Fuel Fabrication

Spent Fuel 

Reprocessing

d

Uranium

a

c

b

Irradiation 

in Reactor

Front End of Fuel Cycle

Depleted

Uranium

Stages of Nuclear 

Fuel Cycle Recycled Materials Process or Product Flows Waste Flows

Electricity

Final Disposal

Interim Storage

Plutonium

HEU

to

Defense needs

Plutonium

to

Principle

End Uses Back End of Fuel Cycle

Figure 1. Relationship of Military and Civilian Nuclear Fuel Cycles

a

The portion of the uranium product stream that becomes depleted in 235U during enrichment, generally considered as waste

in Western countries, is recycled in the Russian Federation. b

Plutonium-production reactors for military use and some civilian reactors, notably CANDU reactors, are operated with fuel

fabricated from natural uranium. c

Certain reactors have been operated for the sole purpose of producing weapons-grade plutonium without filling civilian power

needs. d

Spent fuel is no longer reprocessed in the United States.

 HEU = Highly enriched uranium.

Notes: HEU is no longer produced in the United States or Russia; weapons-grade plutonium is no longer produced in the

United States.

Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 7

Table 2. Commercial Nuclear Fuel Markets

Fuel Cycle Step

Marketable

Product or Service

235U Content of

Product Technical Comments

Uranium mining and

milling or processing

Uranium oxide (U3O8);

also called uranium

concentrate, or yellowcake

Natural uranium:

0.7 percent

Milling involves crushing, grinding, and separation

to extract U3O8 from ore. Processing is used to

denote the method of recovering U3O8 from

uranium-bearing solutions or concentrates

produced primarily from the ores of other

commodities.

Conversion Conversion Service, not product Converter provides service whereby utility-owned

U3O8 is chemically converted into UF6, the

feedstock (when heated to a gas) required for

enrichment.

Uranium hexaflouride

(UF6)

Natural uranium:

0.7 percent

Utilities can purchase UF6 in the market, thereby

reducing costs for holding inventories of U3O8.

Enrichment Separative Work Units

(SWU)

Service, not product Enricher provides service whereby the 235U

content of utility-owned natural UF6 is increased to

low-enriched uranium (as UF6) that will support

nuclear fission in a reactor.

Enriched uranium product

(EUP)

Low-enriched

uranium (LEU):

typically 3.0-5.0

percent for reactor

fuel

Utilities can purchase EUP in the market, thereby

reducing costs for holding inventories of U3O8 and

natural UF6.

Fuel fabrication Fuel assemblies%uranium Low-enriched

uranium (LEU),

typically 3.0-5.0

percent, for lightwater reactors, or

natural uranium, 0.7

percent, for

Canadian

deuterium-uranium

(CANDU) reactors.

Typically, a utility delivers LEU in the form of UF6

to fabricator. Fabricators have also developed the

capability of using other uranium compounds,

including uranyl nitrate hexahydrate (UNH), as a

feedstock. Fabricator converts UF6 or UNH into

uranium oxide (UO2) pellets for loading into fuel

rods, and bundles fuel rods into assemblies for

loading into reactor core. Fabricator also provides

engineering and warranty services.

Fuel assemblies%mixed

oxide (MOX)

See comments MOX fuel contains around 5 percent plutonium

oxide. The remainder is uranium oxide typically

having a 235U content of 0.7 percent or less. The

plutonium comes from reprocessing spent nuclear

fuel. Reprocessing of spent fuel or the use of

MOX fuel is not currently being undertaken in the

United States. Fabricator also provides

engineering and warranty services.

 Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.

time to allow for cooling through radioactive decay.

After this “interim storage” phase, spent fuel can be

prepared for final disposal in a managed, safe, and

secured repository, or it can be reprocessed to recover

uranium and plutonium for recycling.

A commercial market has been established for the

various products and services representing each frontend step of the civilian nuclear fuel cycle (Table 2).

Utilities in the Western world have traditionally filled a

large share of their reactor requirements by purchasing
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

8 Materials, Policies, and Market Effects

13 The Western world does not include China or the Commonwealth of Independent States. 14 International Atomic Energy Agency, World Uranium Production and Nuclear Share, Fact Sheet (October 16, 1997). 15 Because natural uranium is converted to nuclear fuel through the various nuclear fuel cycle steps, most U3O8 purchases in 1996 will

be used to fill requirements in succeeding years. Projected world requirements for 1997 come from Energy Information Administration,

Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC, September 1997), Table F1. 16 The International Atomic Energy Agency, founded in 1957, is an independent intergovernmental organization within the United

Nations. Its mission includes promoting the peaceful use of atomic energy and ensuring that the processes employed in the civilian nuclear

industry are not used to further military purposes. 17 U.S. Department of Energy, “Pena Doubles Amount of U.S. Plutonium and Highly Enriched Uranium Available for International

Inspection,” press release (Washington, DC, September 29, 1997). 18 See glossary for definition of light-water reactor. 19 A notable exception is the Canadian deuterium-uranium (CANDU) reactor, which uses fuel made from natural uranium. 20 Fissile isotopes are capable of sustaining a nuclear chain reaction.

U3O8, then contracting for services to convert, enrich,

and fabricate the uranium to fuel that meets reactor

specifications, with contracts structured to ensure

deliveries for up to 10 years.13 Because of the considerable variation in reactor designs and licensing

requirements, nuclear power plant operators and fuel

fabricators have often entered into long-term relationships that include the designing, engineering, and

performance enhancement of fuel.

Utilities had entered into long-term contracts with

suppliers to cover the uranium requirements anticipated

for planned nuclear power plants. With the cancellation

of some reactor construction programs, beginning in the

1970s, a buildup of excess inventories occurred as

utilities were forced to accept delivery of uranium that

was no longer required. The excess supplies were sold

in a secondary market. Purchases of excess inventories

continue to meet a large share of demand. For example,

around 90 million pounds of U3O8 were produced from

the world’s mines during 1996,14 compared to 1997

world requirements projected at about 165 million

pounds U3O8.

15 The shortfall between primary production and requirements is expected to be made up

largely through the liquidation of excess inventories.

Since the late 1980s, China and the republics of the

former Soviet Union have sold UF6 and enriched

uranium product (EUP) to the West, giving consumers

the opportunity to acquire uranium at different steps of

the fuel cycle, thereby reducing holding costs and

providing greater flexibility to manage fuel costs. 

In contrast to Western countries, all nuclear fuel cycle

requirements of China and Russia are met from fully

integrated domestic industries wholly controlled by the

respective national governments. Present policies for

energy self-sufficiency have precluded China or Russia

from making import transactions in the commercial

market. Besides exports to the West, Russia also has

longstanding commitments to provide integrated

nuclear fuel cycle services for countries in Eastern

Europe that operate Russian-built reactors.

The production of HEU and plutonium for use in

weapons and other national defense purposes requires

many of the same steps involved in the civilian nuclear

fuel cycle. Thus, many of the same government facilities

constructed for military programs have been used to

produce fuel for civilian nuclear power reactors. The

relationship between the civilian and military fuel cycles

has prompted international concerns that nuclear

materials in the civilian sector could be used for manufacturing nuclear weapons. To counter the threat of

nuclear weapons proliferation, 185 countries have

agreed to implement nuclear materials safeguards

developed and monitored by the International Atomic

Energy Agency (IAEA).16 IAEA’s safeguards involve

accounting and verification procedures designed to

detect unauthorized diversions of nuclear materials that

could occur in the commercial fuel cycle. To further

expand nuclear safeguards, the United States has

voluntarily agreed to allow the IAEA to inspect certain

inventories of U.S. HEU and plutonium no longer

needed for national defense purposes.17

Most of the world’s commercial nuclear power plants

operate light-water reactors that use LEU as fuel.18, 19

LEU is produced by increasing the relative concentration

of 235U, the fissile isotope of uranium, from 0.7 percent

contained in natural uranium recovered from the earth

to between 3 and 5 percent.20 This process of increasing

the relative content of 235U in uranium is referred to as

enrichment. HEU is produced by further enriching uranium to 20 percent or higher 235U content in the same

type of plant used to produce LEU. HEU differs from

LEU in that it can sustain fast-neutron chain reactions at

the level required for a nuclear explosion. HEU with a

235U content of 90 percent or greater is considered to be

“weapons grade.”
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 9

21 During enrichment, the natural UF6 feedstock is separated into two streams having different concentrations of 235U. One stream is

LEU, the desired commercial product. The other stream is depleted in 235U relative to either the natural uranium feedstock or the LEU.

It typically contains between 0.20 percent and 0.30 percent 235U and is referred to as “enrichment tails.” 22 N. Harms, and P. Rodriguez, “Safeguards at Light-Water Reactors: Current Practices, Future Directions,” IAEA Bulletin, Quarterly

Journal of the International Atomic Energy Agency, Vol. 38, No. 4 (December 1996), p. 16 23 U.S. Department of Energy, Plutonium: The First 50 Years (Washington, DC, February 1996), pp. 25-30. 24 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), p. 51 and Table B6. 25 Final Report of the U.S.-Russian Independent Scientific Commission on Disposition of Excess Weapons Plutonium, June 1, 1997, released by

The White House Office of Science and Technology (Washington, DC, September 10, 1997), p. 9. 26 H. Blix, “Opening Address,” in Nuclear Fuel Cycle and Reactor Strategies, Contributed papers from International Symposium held in

Vienna, June 3-6, 1997, International Atomic Energy Agency IAEA-TECDOC-990 (Vienna, Austria, December 1997), p. 12. 27 N. Harms, and P. Rodriguez, “Safeguards at Light-Water Reactors: Current Practices, Future Directions,” IAEA Bulletin, Quarterly

Journal of the International Atomic Energy Agency, Vol. 38, No. 4 (December 1996), p. 16

HEU can be diluted by blending it with uranium that

has a very low 235U content. The blendstock, also referred to as diluent, can be made up of natural uranium,

slightly enriched uranium, or uranium depleted in 235U

as a consequence of the enrichment process.21 The

resulting product, commercial-grade LEU, is categorized

as “indirect-use material” by the IAEA.22 Expensive,

time-consuming processes would be required to produce HEU from LEU.

Plutonium is a byproduct of uranium that has been

irradiated in nuclear reactors. It has been produced both

in civilian reactors used to generate electricity and in

government reactors operated specifically to produce

plutonium for weapons. Before plutonium can be

utilized, it must be recovered through the reprocessing

of spent fuel removed from nuclear reactors. Plutonium

separated from civilian spent fuel is classified as reactor

grade, containing between 55 and 80 percent fissile

isotopes, principally 239Pu. In contrast, weapons-grade

plutonium contains more than 93 percent fissile

plutonium. To produce weapons-grade plutonium,

plutonium-production reactors typically were operated

at burnups of less than 5,000 megawattdays thermal per

metric ton of initial heavy metal (MWDT/MTIHM).23 In

contrast, civilian nuclear power reactors operate at

burnup rates of between 30,000 and 50,000 MWDT/

MTIHM.24 Because of the less complete burnup,

plutonium-production reactors have generated a

relatively greater amount of spent fuel per fuel load than

civilian nuclear power reactors.

The world’s civilian nuclear power reactors produce

about 70 metric tons of reactor-grade plutonium per

year, adding to the more than 1,000 metric tons already

produced.25 Most of this plutonium remains in spent

fuel assemblies. The IAEA estimates, that at the end of

1996, civilian stockpiles contained 160 metric tons of

reactor-grade plutonium separated from reprocessed

spent fuel.26 The separated plutonium is used in the

manufacture of mixed-oxide fuel for commercial use (see

text box, page 10). Although less preferable than

weapons-grade plutonium for manufacturing nuclear

weapons, reactor-grade plutonium is considered by the

IAEA as a direct-use material.27
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

10 Materials, Policies, and Market Effects

Commercial Recycling of Uranium and Plutonium from Spent Fuel

In most of the world’s nuclear power plants, a “once-through” use of uranium fuel is followed by either storage or

direct disposal of spent fuel. However, some countries during the past 30 years have been recycling the uranium

and plutonium contained in spent fuel discharged from civilian nuclear power reactors. The main reason for

recycling is to reduce the growing accumulations of discharged spent fuel. In addition, a fully integrated domestic

recycling program serves to reduce a country’s reliance on uranium imports.

Spent fuel discharged from civilian reactors contains approximately 96 percent uranium and 1 percent plutonium.

Uranium and plutonium are separated from spent fuel through reprocessing. Reprocessing is currently being

undertaken in France and the United Kingdom. Also, a pilot-scale reprocessing plant is operating in Japan. During

reprocessing, rods containing the spent fuel are physically broken apart. Uranium and plutonium are then

chemically separated from each other and associated waste products. The separated uranium contains less than

1 percent 235U. It can be recycled for use in preparing fresh nuclear fuel in the following ways: (1) direct use in

combination with plutonium or (2) conversion to UF6 and subsequent enrichment to LEU. Recycled uranium differs

in isotopic composition from natural uranium. Because of the presence of 232U, 234U, and 236U, recycled uranium

must undergo special radioactive protection measures and additional processing to make it amenable for nuclear

fuel.

The fissile isotopes 239Pu and 241Pu, contained in plutonium separated from spent fuel, can be used as a partial

substitute for LEU fuel in light-water reactors. For this purpose, typically up to 5 percent fissile plutonium in oxide

form is fabricated with around 95 percent uranium oxide to produce a mixed-oxide (MOX) fuel. The uranium oxide

used in MOX fuel generally comes from natural uranium, recycled uranium, or depleted uranium from enrichment

tails. MOX fuel fabricating plants are currently operating in Belgium, France, and the United Kingdom. A MOX fuel

fabrication plant is planned for commercial operation in Japan after 2000.

When utilized, MOX fuel typically makes up around 30 percent of the fuel loaded into a light-water reactor, the

remainder being LEU. This mix provides reactors with the same operating and energy output characteristics as

fuel comprised wholly of LEU. Since MOX fuel contains plutonium, less overall uranium is required by reactors.

Based on expected increases in demand and supply capability, EIA projects that the use of MOX fuel will reduce

the world’s average annual uranium requirements by around 8 percent through 2015 (see note).

MOX fuel is currently being used in commercial nuclear power reactors in Belgium, France, Germany, Japan,

Switzerland, and the United Kingdom. In the United States, however, government policy on nonproliferation has

resulted in the indefinite deferral of commercial reprocessing and recycling of plutonium since 1977. President

Clinton’s Nonproliferation and Export Control Policy, announced in September 1993, reaffirms this policy. It states

that “the United States does not encourage the civil use of plutonium and, accordingly, does not itself engage in

plutonium reprocessing for either nuclear power or nuclear explosive devices.” However, the United States has

not opposed reprocessing in Europe and Japan. 

________________________

 Note: Projections of MOX fuel utilization by EIA were made under the following assumptions: (1) countries using MOX fuel

will continue to do so and will gradually incorporate the use of MOX fuel into additional reactors and (2) there is sufficient

reprocessing capability to satisfy MOX fuel demand over the projection period.

 Sources: Reprocessing and recycling&Energy Information Administration, “New Sources of Nuclear Fuel,” in Electric Power

Monthly, DOE/EIA-0226(95/09), pp. ix-xix; MOX fuel utilization&Energy Information Administration, Nuclear Power Generation

and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC, September 1997), pp. 27-28; U.S. policy&The White

House, Office of the Press Secretary, Nonproliferation and Export Control Policy Fact Sheet (Washington, DC, September 27,

1993).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 11

Table 3. U.S. and Russian Production and Inventories of Highly Enriched Uranium (HEU) and Plutonium

for National Defense Programs, December 31, 1993

Production

(Metric Tons)

Inventory

(Metric Tons) Comments

Russian HEU 1,400a 1,270a Production ended in 1988.

U.S. HEU 994b 749a Production ended in 1992.

Russian Plutonium 145a 131a Ten out of 13 plutonium-production reactors were

closed between 1987 and 1992; production of

weapons-grade plutonium continues at 3 reactors

operated for electricity and heat generation.

U.S. Plutonium 103.4b

 99.5c Production ended in 1988.

a

Estimate.

b

Published by the U.S. Department of Energy.

c

As of September 1994, published by the U.S. Department of Energy. Inventory includes weapons-grade and non-weaponsgrade plutonium acquired from sources other than U.S. Government plutonium-production reactors.

Sources: Russian HEU&O. Bukharin, “Analysis of the Size and Quality of Uranium Inventories in Russia,” paper presented at

the Nuclear Energy Institute’s International Uranium Fuel Seminar (Williamsburg, VA, October 8-11, 1995); U.S. HEU

production&U.S. Department of Energy, Office of the Press Secretary, Openness Press Conference Fact Sheets (Washington,

DC, June 27, 1994), p. 52; U.S. HEU inventories&D. Albright, F. Berkhout, and W. Walker, Plutonium and Highly Enriched

Uranium 1996 World Inventories, Capabilities and Policies, Stockholm International Peace Research Institute (Oxford, United

Kingdom, 1997), Table 4.3; Russian plutonium&D. Albright, F. Berkhout, and W. Walker, Plutonium and Highly Enriched Uranium

1996 World Inventories, Capabilities and Policies, Stockholm International Peace Research Institute (Oxford, United Kingdom,

1997), Table 3.12; U.S. plutonium&U.S. Department of Energy, Plutonium: The First 50 Years (Washington, DC, February 1996),

Table 1.

3. Building the Inventories

Large inventories of HEU and plutonium were built up

for national defense purposes in the United States and

Russia during some 40 years of production (Table 3).

With the end of the cold war, the U.S. Government

moved to declassify information about the sources and

uses of its inventories of HEU and plutonium. As part

of its “openness initiative” begun in 1993, DOE has made

available through various media detailed information

about the nuclear materials it manages. This chapter

contains information released by DOE on inventories of

commercial-grade uranium and other types of uranium

produced from national defense programs.

In contrast to the United States, little official information

is available regarding the sources, uses, and inventories

of uranium, HEU, and plutonium in Russia. Historical

analyses of nuclear programs have provided some

insights into the current status of Russian inventories.

Oleg Bukharin at the Center for Energy and Environmental Studies at Princeton University, and David

Albright, Frans Berkhout, and William Walker for the

Stockholm International Peace Research Institute have

published recent estimates of the sources and uses of

Russian uranium and plutonium. The work of these

authors serves as the basis for the following discussion

on the inventories held by Russia. To develop estimates

of inventories, the authors employed a combination of

“bottom-up” and “top-down” approaches. For the

bottom-up approach, estimates were made for the

historical production capability at each step of the

nuclear fuel cycle, including uranium mining, uranium

enrichment, plutonium production, and recycling. The

top-down approach consisted of (1) estimating the

extent of nuclear programs for civilian and national

defense purposes and (2) calculating the amount of

uranium and plutonium required for each identified
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

12 Materials, Policies, and Market Effects

28 O. Bukharin, “Analysis of the Size and Quality of Uranium Inventories in Russia,” paper presented at the Nuclear Energy Institute’s

International Uranium Fuel Seminar (Williamsburg, VA, October 8-11, 1995). 29 D. Albright, F. Berkhout, and W. Walker, Plutonium and Highly Enriched Uranium 1996 World Inventories, Capabilities, and Policies,

Stockholm International Peace Research Institute (Oxford, United Kingdom, 1997), Table 3.12. 30 Ibid. 31 Announcement at the ninth session of the U.S.-Russian (Gore-Chernomydrin) Joint Commission on Economic and Technological

Cooperation (Moscow, September 23, 1997). 32 B. Kremer, personal communication, U.S. Department of Energy, Office of Nuclear Energy, Science and Technology (Washington,

DC, November 20, 1997). 33 Cogema, MOX Plant in Russia: The Engineering Work Has Started (Velizy Cedex, France, September 1997), pp. 1-5. 34 The Government of Canada has offered the use of CANDU reactors in Canada to burn surplus weapons-grade plutonium.

program. From the two approaches, an average or most

likely value was selected from a range of estimates

(Table 3).

Russian Highly Enriched Uranium

The Soviet Union produced an estimated 1,400 metric

tons of HEU from 1950 until 1988.28 This HEU is

estimated to contain 90 percent 235U. Gaseous diffusion

plants initially provided the enrichment. In the early

1960's, however, centrifuge technology began to replace

gaseous diffusion plants. The last gaseous diffusion

plant was closed in 1991. Most of the uranium used in

the production of HEU reportedly came from the

reprocessing of fuel irradiated in plutonium-production

reactors. As a result of the irradiation in reactors, the

reprocessed uranium contained isotopic impurities,

including 234U and 236U. As discussed in the next chapter,

the removal of these contaminants was required for LEU

derived from Russian HEU to meet commercial specifications.

The inventory of HEU remaining in Russia was estimated to be 1,270 metric tons at the end of 1994. Besides

its use in weapons, HEU has been utilized as fuel for

plutonium-production reactors, naval propulsion

reactors, and research programs. HEU suitable for

fueling naval propulsion reactors was apparently

produced from higher assay HEU (90 percent 235U)

irradiated in plutonium-production reactors and subsequently recovered through reprocessing.

Russian Plutonium

As estimated by Albright et al., the Soviet Union and

Russia produced 145 metric tons of plutonium between

1949 and the end of 1993.29 By 1970, 13 plutoniumproduction reactors were in operation. All 13 reactors

were of graphite-moderated, light-water cooled design;

5 were built at Chelyabinsk-65 in Mayak; 3 at

Krasnoyarsk-26 in Zheleznogorsk, near Krasnoyarsk;

and 5 at Tomsk-7 in Sversk. Reprocessing facilities were

also built at each location to recover plutonium and

uranium from spent fuel discharged by the plutoniumproduction reactors. At the end of 1993, Russia held an

estimated 131 metric tons of separated plutonium for

national defense purposes.30

Ten Russian plutonium-production reactors were closed

between 1987 and 1992. Despite undertaking the dismantling of nuclear weapons, Russia continues to

operate two plutonium-production reactors at Tomsk-7

and one at Krasnoyarsk-26. Russian officials previously

had stated that these facilities must continue to operate

so that heat and electricity can be provided to the

civilian population. Negotiations between the U.S. and

Russian governments led to the announcement by Vice

President Gore in September 1997 that Russia, with U.S.

assistance, will end production of weapons-grade

plutonium at the remaining three reactors.31 The core of

each reactor will be converted to accommodate highburnup fuel. The reactors, scheduled to be converted by

the end of 2001, will continue to provide needed

electricity and heat but will no longer produce weaponsgrade plutonium.32 Both countries also have agreed not

to restart any plutonium-production reactors that have

already been shut down.

Based on nonproliferation principles adopted by the

Group of Seven Industrialized Nations and Russia in

April 1996, Russia has developed plans to burn surplus

plutonium in civilian light-water and fast breeder

reactors. These plans include a joint venture between

MINATOM and two Western nuclear fuel companies,

Cogema and Siemens, to build and operate a MOX fuel

plant that will use weapons-grade plutonium.33 The

plant, named DEMOX, is expected to fabricate 1.3 metric

tons of MOX fuel per year by early in the next decade.

Unlike the uranium made available to the world market

from the conversion of Russian HEU, Russian plutonium

is not expected to be consumed outside Russia except

under possible bilateral agreements.34 The utilization of
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 13

35 U.S. Department of Energy, Office of the Press Secretary, Openness Press Conference Fact Sheets (Washington, DC, June 27, 1994), p. 52. 36 Prior to the establishment of DOE, U.S. enrichment activities were administered by the Atomic Energy Commission (1946-1975) and

the Energy Research and Development Administration (1975-1977). 37 U.S. Department of Energy, Office of the Press Secretary, Openness Press Conference Fact Sheets (Washington, DC, June 27, 1994), p. 52. 38 D. Albright, F. Berkhout, and W. Walker, Plutonium and Highly Enriched Uranium 1996 World Inventories, Capabilities, and Policies,

Stockholm International Peace Research Institute (Oxford, United Kingdom, 1997), Table 3.12. 39 U.S. Department of Energy, Office of the Press Secretary, Openness: The Way to Do Business Press Conference Fact Sheets (Washington,

DC, January 15, 1997), p. 51. 40 U.S. Department of Energy, Highly Enriched Uranium Working Group Report on Environmental, Safety and Health Vulnerabilities Associated

with the Department’s Storage of Highly Enriched Uranium, DOE/EH-0525 (Washington, DC, December 1996), p. 1. 41 U.S. Department of Energy, Plutonium: The First 50 Years (Washington, DC, February 1996), 82 pp.

MOX fuel has no impact on Russian purchases of

imports, because all requirements for commercial

nuclear fuel are filled by internal supplies. For these

reasons, Russian surplus plutonium inventories are not

included in the analysis of government inventories

presented in this report.

U.S. Highly Enriched Uranium

The U.S. Government produced 994 metric tons of HEU

from 1945 to 1992.35 This production came from two

gaseous diffusion plants operated by DOE and its

predecessor organizations: the K-25 site in Oak Ridge,

Tennessee, from 1945 until 1964, and the Portsmouth

plant in Portsmouth, Ohio from 1956 until 1992.36 A

third gaseous diffusion plant, the Paducah plant near

Paducah, Kentucky, began to operate in 1954 as a source

of LEU feedstock used in producing HEU at the other

two plants. All three plants also provided enrichment

services for uranium to fuel commercial nuclear power

plants. The K-25 site was placed on standby in 1985 and

subsequently closed in 1987. The Portsmouth and

Paducah plants continue to serve commercial customers.

In addition to the gaseous diffusion plants, “other

technologies” were used in producing unspecified

“small” quantities of HEU prior to 1947.37

The production of HEU in the United States for use

specifically in nuclear weapons was terminated in 1964.

However, HEU with a 235U content between 20 percent

and 90 percent was produced until 1992 to fuel U.S.

Navy propulsion reactors and for research purposes. A

full accounting of U.S. HEU inventories has not been

made available by the U.S. Government. Albright et al.

estimated that 749 metric tons of HEU were held by the

United States at the end of 1993.38

As part of its Openness Policy, DOE expects to complete a report in which it will detail the U.S.

Government’s production, acquisition, uses, inventories,

and disposition of HEU from 1945 through 1996.39

Besides material currently being used by the Department

of Defense, DOE holds HEU that has been returned to

inventory after use in certain applications, as well as raw

materials that have not yet been used. Returns to

inventory have come principally from the ongoing

dismantling of nuclear weapons and from reactor fuels

that were originally supplied by the United States to

foreign countries and subsequently returned. In August

1996, an environmental, safety, and health assessment

was completed for over 250 metric tons of HEU stored

at 22 DOE sites. This material includes pits and other

disassembled nuclear weapons parts, metals, oxides,

process residues, solutions, and reactor fuel.40

U.S. Plutonium

In February 1996, the Secretary of Energy released a

comprehensive accounting of the U.S. Government’s

sources and uses of plutonium .41 The United States has

produced or acquired 111.4 metric tons of plutonium

between 1944 and 1994. Fourteen plutonium-production

reactors at Hanford, Washington, and at the Savannah

River site near Aiken, South Carolina, were operated by

the U.S. Government between 1944 and 1988. These

reactors produced 103.4 metric tons of plutonium. The

remaining sources were U.S. Government nonproduction reactors (0.6 metric ton), foreign countries (5.7

metric tons), and the U.S. civilian nuclear industry (1.7

metric tons). As of September 1994, 99.5 metric tons of

plutonium remained in inventory. Plutonium withdrawals include materials used in wartime, testing,

transfers to the U.S. civilian industry and foreign

countries, and losses due to radioactive decay.

In 1944, the B-Reactor at Hanford became the first

plutonium-production reactor to operate in the United

States. Eight other reactors, all of graphite-moderated,

light-water-cooled design, commenced operation at

Hanford between 1944 and 1963. Before the last reactor

was closed in 1987, Hanford produced 54.5 metric tons

of weapons-grade plutonium and 12.9 metric tons of
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

14 Materials, Policies, and Market Effects

42 Ibid, p. 30. 43 U.S. Department of Energy, Office of Defense Programs, Decision to close K-Reactor (February 1996). 44 The Department of Energy (DOE) is evaluating two potential production options for producing tritium: (1) existing commercial lightwater reactors and (2) an accelerator system designed and built by DOE. 45 U.S. Department of Energy, Plutonium Recovery from Spent Fuel Reprocessing by Nuclear Fuel Services at West Valley, New York from 1996

to 1972 (Washington, DC, February 1996), p. 13. 46 Ibid, p. 1.

fuel-grade plutonium. Five production reactors were

built at the Savannah River site between 1953 and 1955.

They were designed to use heavy water as both a

moderator and the primary cooling medium. Savannah

River had produced 36.1 metric tons of weapons-grade

plutonium until production ended in 1988. Although

plutonium production ceased in 1988, one reactor at

Savannah River, the K-Reactor, had been maintained as

a near-term contingency for tritium production.42 With

plans to develop new sources of tritium, DOE permanently closed the K-Reactor in 1996.43, 44

Government nonproduction reactors were operated for

purposes other than producing plutonium. These

reactors were used for test and research activities, power

production, and naval propulsion. Several DOE-owned

prototype reactors operated by public utilities were also

included in this category. Government nonproduction

reactors produced 0.1 metric ton of weapons-grade

plutonium and 0.5 metric ton of fuel-grade plutonium.

The U.S. Government acquired plutonium from the U.S.

civilian nuclear industry through the Plutonium Credit

Activity program and other agreements to take back

spent fuel or other materials. In 1983, legislation was

passed restricting the use of plutonium acquired from

U.S. civilian sources to non-weapons purposes. The

Plutonium Credit Activity, established by the Atomic

Energy Act of 1954, as amended, provided credits to

commercial utilities that returned spent fuel to the AEC.

Even though the AEC owned all uranium that fueled

commercial nuclear power reactors until private

ownership was allowed in 1964, the plutonium that was

produced during the operation of the reactors was

owned by the utilities. Interestingly, the Atomic Energy

Act of 1946, which prohibited private ownership of

uranium, did not pertain to the back end of the fuel

cycle.

Between 1957 and 1970, five utilities were paid $10.4

million for approximately 0.9 metric ton of fuel-grade

plutonium under the Plutonium Credit Activity. None

of the plutonium reprocessed from the U.S. civil nuclear

industry was used to produce weapons.45 In addition to

the Plutonium Credit Activity, approximately 0.8 metric

ton of fuel-grade plutonium was acquired as spent fuel

from commercial reactors and as special fuels and

materials from universities, hospitals, and private

industry. Most of this material was acquired by the U.S.

Government for purposes of storage and eventual

disposal.

Approximately 5.7 metric tons of plutonium were

acquired from 15 foreign countries. The largest share, 5.4

metric tons, came from the United Kingdom; it was

acquired from 1959 to 1980 under the Mutual Defense

Agreement between the United States and the United

Kingdom. In exchange, the United States provided the

United Kingdom with tritium and HEU. The remainder

of the plutonium was acquired through Agreements for

Cooperation with the International Atomic Energy

Agency, the European Atomic Energy community, and

bilateral agreements with various countries. The Agreements for Cooperation involved programs engaged in

the peaceful uses of atomic energy. Most of this

plutonium was contained in spent fuel.

Plutonium, along with uranium, was recovered through

the reprocessing of spent fuel and other irradiated

targets produced by U.S. Government production

reactors or acquired by the Government from other

sources. Reprocessing took place at three U.S. Government-owned sites and one privately owned site. U.S.

Government-owned plutonium recovery facilities, called

“canyons,” were operated at Hanford, Savannah River,

and Idaho National Engineering Laboratory. In April

1992, DOE announced the phaseout and eventual end of

U.S. Government reprocessing due to declining demand

for plutonium and HEU.

Nuclear Fuel Services operated a reprocessing plant at

West Valley, New York, from 1965 until 1972; it was the

only privately owned reprocessing facility operated in

the United States. The West Valley plant reprocessed

most of the 0.9 metric ton of plutonium acquired by the

U.S. Government from utilities through the Plutonium

Credit Activity.46 Also, approximately 0.6 metric ton of

plutonium was recovered at West Valley from AECowned spent fuel and liquid residues. The separated

plutonium was shipped as plutonium nitrate solution by

commercial truck to Hanford. In 1972, Nuclear Fuel

Services suspended operation for the purposes of
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 15

47 Energy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table 31. 48 The term “slightly enriched uranium” is used to describe enriched uranium having a 235U content lower than required for commercial

reactor fuel. 49 U.S. Department of Energy, Office of the Secretary, Determination Pursuant to the United States Enrichment Corporation Privatization Act

for the Sale of Excess Department of Energy Uranium During Fiscal Year 1997 (Washington, DC, March 12, 1997). 50 R. Schmidt, personal communication (HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998). 51 U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Draft Programmatic Environmental Statement on Alternative

Strategies for the Long-term Management and Use of Depleted Uranium Hexafluoride (Summary), DOE/EIA-EIS-0269 (Washington, DC,

December 1997). 52 Ibid.

increasing capacity and to retrofit the plant to meet new

regulatory requirements. After failure to meet the new

requirements, all reprocessing activities at West Valley

were terminated.

U.S. Government

Commercial-Grade Uranium

At the end of 1996, the U.S. Government, through DOE

and the United States Enrichment Corporation (USEC),

held inventories of natural UF6 and LEU equivalent to

107.7 million pounds U3O8.

47 The natural UF 6 and LEU

contained in these inventories are referred to as

“commercial-grade” because they can be sold directly in

the commercial nuclear fuel market. Although owned

by the U.S. Government, USEC is operated as a commercial corporation that is involved in the commercial

nuclear fuel cycle (see text box, page 23). Its inventories

are considered to be an integral part of its business,

rather than surplus to its needs. Therefore, USEC’s

inventories are not considered in the scope of this report.

The total quantity of DOE’s inventories of commercialgrade uranium held for defense purposes has not been

disclosed. However, DOE recently announced plans,

described in Chapter 5, for commercializing about 40

million pounds U3O8 equivalent declared as surplus that

was originally intended for use in U.S. defense programs. This inventory consists principally of natural

UF6 and a lesser amount of LEU. Pending transfers of

DOE inventories to USEC are considered in this report

as part of various DOE disposition programs. 

Other U.S. Government

Inventories of Uranium

DOE also holds other inventories of uranium that do not

fit in the categories previously described. These inventories are characterized as: (1) surplus natural and

slightly enriched uranium and (2) depleted uranium

contained in enrichment tails.48 The uranium contained

in these inventories would require additional processing

before being used to produce nuclear fuel.

The surplus natural and slightly enriched uranium is

contained in various forms, including metals, oxides,

and other compounds, not readily amenable for

commercial use.49 While assaying between 0.71 and 1.25

percent 235U, much of the uranium contains impurities

that does not allow it to meet specifications of the

American Society for Testing and Materials (ASTM) for

nuclear fuel. DOE, through its field offices, proposed to

sell uranium that does meet ASTM specifications in

fiscal year 1997, although previous attempts to sell it to

a domestic buyer were unsuccessful. Without the strong

nonproliferation incentives attached to HEU and

plutonium, DOE is not likely to process this material

into marketable form before finding a commercial buyer.

Recently, DOE proposed to use surplus slightly enriched

uranium stored at the Fernald, Ohio field office for

blending down HEU that would be utilized by the

Tennessee Valley Authority (see page 34).50

Approximately 560,000 metric tons of enrichment tails

are stored at the Paducah, Portsmouth, and K-25

enrichment plant sites.51 These tails, containing depleted

uranium, were produced during the enrichment of

uranium for both civilian and military purposes prior to

DOE’s transfer of enrichment activities to USEC on July

1, 1993. Unlike Russia, the United States does not

recycle enrichment tails. Because of the high electricity

costs associated with the operation of U.S. gaseous

diffusion plants, the enrichment of tails is not economically feasible in the United States under current

uranium market conditions. Meanwhile, DOE is currently preparing an environmental impact statement that

addresses various storage alternatives, including

retrieval for future use.52 Because no final determination

has been reached, an analysis of the potential effects of

U.S. enrichment tails on the nuclear fuel market is not

undertaken in this report.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 17

53 Energy Policy Act of 1992, Title II&The United States Enrichment Corporation (Chapter 24, Section 1408). 54 Ibid; Chapter 22, Section 1202. 55 Assumes an LEU product assay of 4.4 percent U-235 derived from HEU feedstock containing 90 percent U-235 and a slightly enriched

uranium blendstock containing 1.5 percent U-235.

4. Sale of Highly Enriched Uranium from

Dismantled Russian Nuclear Weapons

From Concept to Agreement

Russian HEU became the world’s first uranium from

dismantled nuclear weapons to be converted into fuel

for civilian nuclear power plants. This historic development, popularly referred to as “megatons to megawatts,”

came about as the United States and Russia resolved a

series of political, economic, and technical issues over

the course of 4 years (Appendix A, Table A1). As a

result, the uranium that once was contained in the

nuclear weapons of a former adversary is now being

used to generate electricity for homes and businesses in

the United States.

The weapons-to-fuel concept was advanced by the

United States in 1991 to address proliferation concerns

related to the growing inventories of surplus HEU and

plutonium derived from dismantled Soviet nuclear

weapons. These concerns escalated with the dissolution

of the Soviet Union in late 1991. While most of the

former Soviet Union’s nuclear industry came under the

control of Russia, political changes and a deterioration

of economic conditions made it difficult to ensure

adequate security for nuclear materials. From the

Russian government’s standpoint, the surplus HEU was

an important national asset that could be used to secure

foreign exchange. With strong incentives for both parties

to reach an agreement, President Bush announced in

August 1992 that the United States and Russia had

agreed in principle for the United States to purchase

Russian HEU for conversion into commercial nuclear

fuel.

In anticipation of the final agreement between the two

countries, the Energy Policy Act of 1992 (EPACT), signed

into law in October 1992, provided the legal framework

for the United States to implement the purchase of

Russian HEU. EPACT authorized the newly established

United States Enrichment Corporation (USEC) to

“negotiate the purchase of all highly enriched uranium

made available by any state of the former Soviet Union

under a government-to-government agreement.”53

However, USEC’s enabling legislation contained certain

provisions that could potentially conflict with objectives

of securing Russian HEU. As the U.S. Executive Agent

for the purchase of Russian HEU, USEC was directed to

minimize the impact on the U.S. uranium industries of

the sale on the commercial market of LEU derived from

Russian HEU. In addition, EPACT authorized USEC to

“operate as a business enterprise on a profitable and

efficient basis” and to “maximize the long-term value of

the Corporation to the Treasury of the United States, as

well as to be the beneficiary of transfers from DOE of

surplus inventories of U.S. HEU and natural uranium.”54

On February 18, 1993, a little over a year after the

breakup of the Soviet Union, a formal agreement was

signed as The Agreement between the Government of the

United States and the Government of the Russian Federation

Concerning the Disposition of Highly Enriched Uranium

Extracted from Nuclear Weapons. This agreement, referred

to hereafter in this report as the Russian HEU Agreement, provided for the United States to purchase 500

metric tons of HEU over 20 years. The HEU was to

come specifically from the dismantling of Russian

nuclear weapons. The dismantling of weapons, the

separation of HEU from warheads, and the blending

down of HEU to produce LEU suitable for use as

fuel in nuclear power plants would be carried out in

Russia. The agreement called for USEC to purchase the

LEU derived from 10 metric tons of HEU annually in the

first 5 years of the agreement, increasing to 30 metric

tons in later years. Prices and timing of deliveries would

be negotiated annually. Over the life of the agreement,

the United States would pay Russia about $11.9 billion

(in 1993 dollars) for 15,259 metric tons of LEU, which

would displace about 398 million pounds U3O8 of mined

uranium and 92 million SWU of enrichment that would

be needed to produce an equivalent amount of LEU.55
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

18 Materials, Policies, and Market Effects

56 Techsnabexport is a joint stock company responsible for exporting uranium held by the Ministry of Atomic Energy for the Russian

Federation. 57 The Ux Consulting Company, LLC, Analysis of World Nuclear Fuel Inventories (Marietta, GA, April 1997), p. 5.

United States Enrichment Corporation

USEC was created by the Energy Policy Act of 1992 (EPACT) as an initial step in transferring to the private sector

the uranium enrichment activities formerly held by the U.S. Department of Energy (DOE). As a wholly owned

Government corporation, all of USEC’s stock issued and outstanding is held by the U.S. Treasury. Similarly, all net

revenues not required for operating expenses, investments, or working capital are required to be paid as dividends

to the U.S. Treasury. However, USEC’s enabling legislation intended that it be operated as a market-oriented

business, without many of the constraints faced by Government agencies, while preparing for privatization.

USEC began operating as a business on July 1, 1993. It manages the operation of gaseous diffusion plants for

uranium enrichment in Paducah, Kentucky, and Portsmouth, Ohio. Both plants are leased from DOE. For the fiscal

year ending June 30, 1997, USEC reported revenues of about $1.6 billion from sales of enrichment services to

electric utilities in 14 countries, including the United States. Net income for the year was around $250 million. As a

U.S. Government corporation, USEC is exempt from Federal, State, and local taxes.

USEC is also demonstrating the commercial application of the Atomic Vapor Laser Isotope Separation (AVLIS)

technology for uranium enrichment. The ownership of AVLIS had been transferred from DOE to USEC pursuant to

EPACT. AVLIS differs from the gaseous diffusion and centrifuge technologies that are currently being operated.

It utilizes uranium metal, rather than gaseous UF6, as the feedstock for enrichment. USEC expects to operate AVLIS

commercially in 2004.

Pursuant to EPACT, USEC’s Board of Directors submitted its privatization plan to Congress and President Clinton

in June 1995. The privatization plan recommends a “dual-path approach,” whereby a negotiated sale to private

investors is pursued simultaneously with an initial public offering of common stock. However, privatization will

depend on meeting several criteria, including the maintenance of a reliable domestic supply of enrichment service

and securing the maximum financial return to the U.S. Government. The United States Enrichment Corporation

Privatization Act, signed in April 1996, provides for certain restrictions on privatization. For example, no one person

may own more than 10 percent of the corporation within 3 years of privatization. USEC’s Board of Directors is

authorized to select the final terms of the sale as well as the purchaser. The Secretary of Treasury is also required

to approve the terms of the sale. On July 25, 1997, President Clinton approved the initiation of privatization. This

approval directs USEC to work with the Treasury Department, Nuclear Regulatory Commission, and other relevant

Government agencies to implement the final privatization transaction. 

 Sources: United States Enrichment Corporation, 1996 Annual Report; Energy Policy Act of 1992; USEC Privatization Act; and United

States Enrichment Corporation, press releases (August 8,1997 and October 23, 1997).

Delays in Implementing the

Russian HEU Agreement

The Russian HEU Agreement authorized the Executive

Agents, USEC and Techsnabexport Company Ltd.

(TENEX), to conclude implementation contracts within

6 months after the signing of the agreement.56 Three

concerns had to be addressed before the Russian HEU

Agreement could be implemented. They were: (1) LEU

derived from HEU did not meet product standards for

commercial nuclear fuel; (2) verification was required

that HEU was derived from dismantled nuclear

weapons; and (3) Russia was to be paid in a timely

fashion for the natural uranium component of the LEU

derived from blending down the HEU.

The LEU derived from Russian HEU did not initially

meet the specifications established by the American

Society for Testing and Materials for commercial nuclear

fuel. It was contaminated with unacceptable plutonium

and high quantities of 234U and 236U isotopes. These

contaminants would interfere with the fission of

uranium atoms required to produce energy for

generating electricity. The problem was resolved in two

steps.57 First, a reprocessing circuit was dedicated at
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 19

58 D. Collier, “HEU&Can the Industry Adapt?” in Focus&Nuclear Fuel Cycle Quarterly, NAC International (Norcross, GA, Spring 1997),

p. 8.59 Overfeeding is the use of more relatively less expensive uranium to produce the same quantity of enriched product with less relatively

more expensive power. In this process, the actual enrichment tails assay would be higher than the contracted tails assay. 60 United States Enrichment Corporation, 1996 Annual Report, p. 25.

Tomsk-7 for the purification of the HEU. In this process,

plutonium is chemically separated from the HEU. In the

second step, the purified HEU was blended with slightly

enriched tails containing relatively low concentrations of

234U and 236U. The resulting LEU was able to meet the

required specifications.

The United States required verification that the LEU it

purchased under the Russian HEU Agreement had been

converted from HEU taken from dismantled nuclear

weapons. This issue is referred to as “transparency,”

because the Russian dismantlement and conversion

activities had to be sufficiently transparent to be verified

with a high degree of confidence. An agreement was

signed between the United States and Russia in March

1994 that established a mutually acceptable framework

for resolving the transparency issue, but the implementation of the agreement required further negotiations.

Implementation involved monitoring at facilities

regarded by the Russians as sensitive with regard to

national security. On-site inspections of each country’s

weapons dismantlement facilities and remote monitors

have been proposed as a means to meet the objectives of

transparency.

LEU produced from Russian HEU contains uranium

from HEU feedstock and slightly enriched blendstock.

To produce each stock, uranium had to be converted

and enriched. Thus, the LEU has an asset value equal to

the sum of its contained costs for U3O8, conversion, and

SWU. The terms of the initial Russian HEU Agreement

provided for USEC to pay for the contained SWU when

the LEU was delivered by Russia. However, USEC

agreed to pay Russia for the enrichment contained in the

LEU at a price higher than its marginal cost of

production.58 USEC would pay for the natural uranium

feed component of the LEU, made up of the cost of U3O8

and conversion, only after the natural uranium feed was

either sold or used for “overfeeding” the enrichment

plants.59 USEC secures the natural uranium feed by

substituting LEU purchased from Russia for the natural

UF6 normally delivered by utilities as enrichment feed

material (see box, page 20). Because of this substitution,

USEC charges utilities only for the SWU contained in the

LEU.

The natural uranium feed component of Russian LEU is

referred to in this report as “Russian feed.” It must be

noted that Russian feed includes the equivalent U3O8

and conversion contained in both the slightly enriched

blendstock and the HEU feedstock used to produce the

LEU. Because USEC had not sold or used internally any

Russian feed, it made no payments to Russia for the

natural uranium feed component. As a result, the

Russian Executive Agent moved to delay implementing

the second year of the contract. USEC then paid $161

million (in 1996 dollars) for Russian feed contained in

the LEU derived from 18 metric tons of HEU purchased

in 1995 and 1996.60 This action allowed the U.S. and

Russian Executive Agents to implement the contract.

First Deliveries of Low-Enriched

Uranium Derived from Russian HEU

The first delivery to the United States of LEU blended

down from Russian HEU arrived by ship in Baltimore in

June 1995. It was transported to the Portsmouth plant,

where it was made available by USEC to fill commercial

contracts. (USEC has no restrictions on the quantity of

SWU contained in the LEU it can sell.) The first sale of

LEU derived from Russian HEU for use as fuel in a

commercial nuclear reactor occurred in November 1995,

when USEC delivered a quantity of Russian LEU to fill

a contract for enrichment with a U.S. utility.

Because of the problems described above, only 6 metric

tons of HEU were downblended to LEU by Russia for

delivery to USEC in 1995. The quantity of HEU was 60

percent of the 10 metric tons specified by the Russian

HEU Agreement. In 1996, Russia increased deliveries of

LEU to the equivalent of 12 metric tons of HEU. As

described below, annual deliveries for 1997 and 1998

were rescheduled to substantially exceed the 10 metric

tons specified in the initial contract.

Authorization for the Sale of the

Russian Uranium Feed Component

The USEC Privatization Act, signed into public law in

April 1996, provided the legal framework for USEC to

address the Russian feed issue. It also regulated the

quantity of U3O8 contained in Russian feed that can enter
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

20 Materials, Policies, and Market Effects

Concept of Separating the Natural Uranium Feed Component from Russian

Low-Enriched Uranium (LEU) Delivered to the United States Enrichment

Corporation (USEC)

Option I: A utility contract for enrichment services is filled by traditional means (no Russian LEU involved). Utilityowned natural uranium hexafluoride (UF6) is delivered to USEC from the conversion plant; a the amount delivered

corresponds to the quantity of natural uranium feed required to meet the specifications of the contract. The material

is held as inventory (I-A) until the actual enrichment service takes place (I-B). The resulting LEU produced by

USEC (I-C) meets the specifications of the contract.

Option II: USEC chooses to fill the contract with LEU delivered from the Russian Federation (II-A) rather than by

feeding its enrichment plant with natural UF6 delivered by the utility. The contract to deliver LEU to USEC is based

on the Russian HEU Agreement;

 b the LEU is derived from blending down highly enriched uranium (HEU) taken

from dismantled Russian nuclear weapons. Since USEC is paying Russia for only the enrichment services

component of the LEU, the equivalent natural uranium feed component is required by the USEC Privatization Act

to be returned to the Russian Executive Agent or sold on behalf of the Russian Executive Agent.c Actual quantities

of the natural feed component are made available by substituting the LEU received from Russia for the equivalent

natural uranium feed and the cost of enrichment services that would have been required if USEC had produced

the required enrichment services. The customer-supplied natural uranium feed displaced by the Russian LEU is

subsequently labeled “Russian feed.” This uranium is to be sold separately so that Russia can be paid for the natural

uranium feed component of Russian LEU delivered to USEC. As illustrated above (II-B), the natural UF6 feed

delivered to USEC by the utility for enrichment is designated as Russian feed.

a

Conversion is the process of changing natural uranium oxide (U3O8) from the milling or processing of uranium ore into

uranium hexafluoride (UF6), the feedstock required for enriching naturally occurring uranium into fuel for nuclear power

plants. b

The Agreement between the Government of the United States and the Government of the Russian Federation Concerning the Disposition

of Highly Enriched Uranium Extracted from Nuclear Weapons (February 18, 1993). c

USEC Privatization Act (April 26, 1996), Section 3112(b).

Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 21

61 Public Law 104-134, Balanced Budget Down Payment Act, Subchapter A&USEC Privatization Act, Section 3112b (Uranium Transfers

and Sales&Russian HEU) (April 26, 1996).

Table 4. U.S. Restrictions on Selling the Uranium Feed Component of Low-Enriched Uranium (LEU)

Produced from Blending Down Russian Highly Enriched Uranium (HEU) After January 1, 1997

Delivery Year

HEUa

(metric tons)

Feed Contained

in LEU

Produced from HEUb

(million pounds U3O8)

Direct Quota

to U.S. End Usersc

(million pounds U3O8)

Russian

Matching Scheduled

(million pounds U3O8)

1997 . . . . . . . . . . . . . . . . 18 14.4 -- 2.7

1998 . . . . . . . . . . . . . . . . 24 19.1 2.0 3.6

1999 . . . . . . . . . . . . . . . . 30 23.9 4.0 4.0

2000 . . . . . . . . . . . . . . . . 30 23.9 6.0 4.2

2001 . . . . . . . . . . . . . . . . 30 23.9 8.0 4.0

2002 . . . . . . . . . . . . . . . . 30 23.9 10.0 4.9

2003 . . . . . . . . . . . . . . . . 30 23.9 12.0 4.3

2004 . . . . . . . . . . . . . . . . 30 23.9 14.0 --

2005 . . . . . . . . . . . . . . . . 30 23.9 16.0 --

2006 . . . . . . . . . . . . . . . . 30 23.9 17.0 --

2007 . . . . . . . . . . . . . . . . 30 23.9 18.0 --

2008 . . . . . . . . . . . . . . . . 30 23.9 19.0 --

2009 and beyond . . . . . . . 30 23.9 20.0 --

a

Likely capacity for blending Russian HEU down to low-enriched uranium; the quantity for 1997-2001 pursuant to an agreement

between the U.S. Enrichment Corporation and Techsnabexport, November 1996. For 2002 and later years, it is assumed that

30 metric tons of HEU will be blended down to LEU.

b

The equivalent U3O8 contained in low-enriched uranium (LEU) produced from blending HEU having a 235U content of 90 percent

with slightly enriched uranium having a 235U content of 1.5 percent. For example, the LEU produced from 18 metric tons of HEU

would contain the equivalent of 14.4 million pounds U3O8 in the following combination: 10.3 million pounds in the HEU feedstock

and 4.1 million pounds in the slightly enriched uranium blendstock.

c

Pursuant to the USEC Privatization Act (April 26, 1996), Section 3112(b). d

The Amendment to the Suspension Agreement with the Russian Federation (March 11, 1994) provides for a schedule whereby

Russia can sell uranium at specified quantities to U.S. end users as long as the sales are matched with newly produced U.S.-

origin uranium.

Sources: Quota and schedule&See footnotes c and d; Uranium feed contained in LEU&Energy Resources International, Inc.,

1997 Nuclear Fuel Cycle Supply and Price Report (Washington, DC, May 1997), Table 4-18.

the U.S. market.61 For deliveries of Russian LEU made

on or after January 1, 1997, USEC is directed to concurrently make available to the Russian Executive Agent

the quantity of natural UF6 contained in the Russian

feed. The Russian Executive Agent could direct USEC

to deliver the Russian feed to a North American facility

of its choice. Thus, the Russian Executive Agent will

gain immediate access to the feed component, and it

may then offer for sale the contained U3O8 and

conversion services. In return, USEC will be responsible

for purchasing only the SWU component.

The Russian feed is considered “Russian-origin uranium.” Russia has no restrictions on selling the

conversion component of the Russian feed it receives

from USEC. However, the U3O8 component of the feed

can only be sold to U.S. end users either as matched

sales established by an amendment to the Suspension

Agreement with Russia (see textbox, p. 22) or by an

annual direct quota authorized by the USEC Privatization

Act (Table 4). The direct quota applies to the feed

component of Russian LEU delivered to USEC on or

after January 1, 1997. Russian feed sold through matched

sales transactions cannot be counted against the direct

quota. The U3O8 component can be sold outside the

United States at any time.

For deliveries of Russian LEU made in 1995 and 1996,

the USEC Privatization Act directed USEC to transfer

without cost the Russian feed to DOE. DOE was made
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

22 Materials, Policies, and Market Effects

Suspension Agreement With Russia

Beginning in the late 1980s, the Soviet Union sold significant quantities of natural and enriched uranium to the

Western world. The large quantity of these sales, estimated to be as much as 246 million pounds U3O8 equivalent

through 1996, served to depress market prices. In response, a coalition of 13 domestic uranium producers and the

Oil, Chemical and Atomic Workers Union, representing employees at DOE’s enrichment plants, filed an antidumping

petition with the U.S. Department of Commerce (DOC) and the International Trade Commission (ITC) in November

1991. The petition alleged that imports from the former Soviet Union were priced below fair value, thus causing injury

to the U.S. uranium industry. Subsequently, the DOC and the ITC ruled that the domestic industry had been injured

by such imports. In October 1992, DOC signed agreements with six republics of the former Soviet Union, including

Russia, whereby imports from the republics would be restricted in exchange for DOC suspension of its antidumping

investigations.a

 The Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation

(Suspension Agreement with Russia) allowed a certain quantity of Russian imports to enter the United States as long

as the actual market price was above a threshold price determined by DOC. Since uranium market prices remained

low, no new purchases of Russian uranium could be made for consumption in the United States.b

Moving to implement a more realistic quota system, the DOC and MINATOM signed an amendment to the

Suspension Agreement in March 1994. The amended agreement covers the period from April 1, 1994, through

March 31, 2004. It replaces the previous price-based quotas with set annual quotas. In order to exercise the quota,

Russian imports must be matched with a corresponding volume of newly produced U.S. uranium or SWU. Contracts

must also be matched in duration (i.e., spot or long-term) and product type (i.e., U3O8 or enriched uranium). No one

company can purchase more than 20 percent of any year’s quota. The quota established for U3O8 varies annually

between 1.9 million pounds and 6.6 million pounds U3O8. The annual quota established for enrichment was 2 million

SWU. However, to account for the lack of restrictions on the sale of the SWU component of LEU derived from

Russian HEU, imports of Russian-origin SWU through matched sales were initially permitted only during 1994 and

1995.

The March 1994 amendment did not address “enrichment bypass.” Enrichment bypass arises when uranium

concentrate produced in one country and enriched in a second country becomes an import of the second country.

For example, uranium mined in Russia and enriched in France had been considered as French-origin. In October

1996, DOC and MINATOM reached an agreement to close the enrichment bypass and treat all natural uranium from

Russia as Russian origin. In exchange, the portion of the Russian SWU quota that had not been used in previous

years could be used in the future. The United States and Russia also agreed to renegotiate the SWU quota in 1998.

a

At the end of 1991, the political entity known as the Soviet Union was dissolved leaving 15 independent republics.

b

Certain long-term purchase contracts in force before the Suspension Agreement with Russia were allowed to continue.

Sources: Suspension Agreement with Russia and subsequent amendments&Energy Information Administration, Nuclear

Power Generation and Fuel Cycle Report 1995, DOE/EIA-0436(95) (Washington, DC, October 1995), pp.125-127; The Ux

Weekly (August 19, 1996), p. 2; Uranium sold by former Soviet Union&J. Steyn, “World Uranium Inventory Changes,” paper

presented at the World Nuclear Fuel Market 24th Annual Meeting and International Conference on Nuclear Energy, p. 4.

responsible for selling and receiving payment for this

uranium within 7 years of the enactment of the USEC

Privatization Act (signed April 1996). DOE is permitted

to sell the Russian feed under the following conditions:

(a) at any time for use in the United States for the

purpose of overfeeding; (b) at any time for end use

outside the United States; © to the Russian Executive

Agent in 1995 and 1996 for use in matched sales

pursuant to the amendment to the Suspension

Agreement with Russia; or (d) in calendar year 2001 for

consumption by end users in the United States not prior

to January 1, 2002, in volumes not exceeding 3 million

pounds U3O8 equivalent per year.

Current Status

Russian HEU Agreement

The Russian HEU Agreement currently reflects a series

of agreements concluded between USEC and TENEX

during the second half of 1996 (Appendix A, Table A1).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 23

62 United States Enrichment Corporation, 1996 Annual Report, p. 11. 63 USEC’s purchase under the November 1996 amendment to the Russian HEU Agreement is for only the enrichment component of

Russian LEU derived from the blending down of HEU. Since USEC will not be paying for the natural uranium feed component of the LEU,

“SWU” will be used in place of LEU to denote such purchases. 64 United States Enrichment Corporation, Chronology of the Megatons to Megawatts Contract, as of January 27, 1997 (Bethesda, MD, January

1997), p. 3. 65 United States Enrichment Corporation, 1996 Annual Report, p. 33.

1994 1995 1996 1997 1998 1999 2000 2001

0

5

10

15

20

25

30

35

Metric Tons of HEU

Original Schedule

Current Schedule

Figure 2. Comparison Between the Original and

Current Schedules for Blending Down

Highly Enriched Uranium (HEU) from

Dismantled Russian Nuclear Weapons

Pursuant to the Russian HEU

Agreement, 1994-2001

Explanation: Original schedule—Implementation

contract for Russian HEU Agreement signed between the

United States Enrichment Corporation (USEC) and

Techsnabexport (TENEX) in January 1994; Current

schedule—actual HEU blended down and delivered to

USEC during 1995 and 1996, and the amendment to the

Russian HEU Agreement signed between USEC and

TENEX in November 1996 for the period 1997-2001.

Source: United States Enrichment Corporation, 1996

Annual Report.

In September 1996, the agreement was amended to meet

a provision in the USEC Privatization Act that sought to

eliminate any requirements for USEC to purchase the

natural uranium component of Russian LEU delivered

after December 31, 1996. Also related to the USEC

Privatization Act, USEC in December 1996 transferred to

DOE without cost the natural uranium component of

Russian LEU purchased in 1995 and 1996. A more

detailed description of plans by DOE to sell this Russian

feed is presented in Chapter 5.

An offer by TENEX to increase deliveries in 1997 was

initially declined by USEC on the basis of economic

considerations. USEC stated that increased SWU

purchases had contributed to its higher costs of

providing enrichment services.62 The apparent conflict

between operating USEC as a profit-oriented corporation and meeting U.S. nonproliferation objectives

received the attention of the U.S. Government. After

being threatened with removal as the U.S. Executive

Agent, USEC reversed its position and entered into

negotiations with TENEX regarding increased deliveries.

In November 1996, USEC and TENEX further amended

the original contract by establishing the quantities and

prices for the period 1997 through 2001. A new

accelerated schedule was implemented, committing

USEC to purchase the enrichment contained in LEU

blended down from 18 metric tons of HEU in 1997, 24

metric tons of HEU in 1998, and 30 metric tons of HEU

per year from 1999 through 2001.63, 64 Implementation of

the new schedule would result in the blending down to

LEU of an additional 22 metric tons of Russian HEU

between 1996 and 1998 beyond the quantity specified by

the original contract for the same period (Figure 2). The

quantity of enrichment to be purchased by USEC had

been set for 3.3 million SWU in 1997, 4.4 million SWU in

1998, and 5.5 million SWU in 1999 and subsequent years.

As part of the agreement, USEC paid $100 million in

advance to Russia in December 1996 for future SWU

purchases in 1998 and 1999.65

To meet the demands of the accelerated schedule, Russia

brought a second plant, the Siberian Chemical Enterprise

Complex in Krasnoyarsk, on line to increase the capacity

to blend down HEU. Previously, blending took place at

a facility in Ekaterinburg. Besides increasing the quantity of LEU to be made available through 1998, the

November amended agreement is significant in that it

eliminates the need for annual negotiations on price and

quantity. Thus, considerable uncertainty over the future

availability of LEU from Russian HEU was eliminated.

Although USEC has a contract with the Russian 

Executive Agent to purchase SWU contained in the LEU,

the Russian government in 1997 delayed issuing the

licenses required to export the LEU from Russia to

USEC. Russian law prohibited the issuance of export

licenses until payments were received from the sale of

Russian feed to Western suppliers or consumers. While
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

24 Materials, Policies, and Market Effects

66 “More Feed for Thought,” The Ux Weekly (December 15, 1997), p. 1. 67 Cameco Corporation, “Discussion to Continue Concerning Highly Enriched Uranium,” press release (May 8, 1997). 68 Cameco Corporation, “Cameco Signs Uranium Agreement in Principle with Russia,” press release (August 18, 1997). 69 Ibid. 70 Ibid. 71 U.S. Department of Commerce, International Trade Commission, “Agreement Suspending the Antidumping Investigation on

Uranium From the Russian Federation,” in Federal Register, Vol. 62, October 6, 1997, p. 52322. 72 C. A. Moss, “DOC Procedures for HEU Natural Uranium Component Sales,” memorandum to the Nuclear Energy Institute’s Nuclear

Fuel Supply Forum (January 9, 1998).

negotiations were taking place with Western suppliers

for the purchase of the uranium feed, the Russian central

bank granted a 2-year extension for receipt of

payments.66 With this development, deliveries to the

United States of LEU derived from Russian HEU were

resumed.

Negotiations for Purchasing Russian Feed

Since at least 1993, MINATOM has been evaluating

offers from parties interested in purchasing the Russian

feed component that Russia will receive from USEC.67

Legislation contained in the USEC Privatization Act

authorized USEC to make the feed available to the

Russians beginning on January 1, 1997. In August 1997,

an agreement in principle was signed between three

Western uranium supply companies and MINATOM,

for the three companies to purchase Russian feed.68 The

companies are Cameco Corporation and Cogema, two of

the world’s largest uranium producers, and Nukem Inc.,

a uranium trader. The companies agreed to guarantee

minimum prices subject to certain conditions and to

make advance payments, up to $US 100 million,

annually to MINATOM. Not all the available feed was

to be included in the agreement, as Russia could reserve

certain, as yet undefined, quantities for blending down

to LEU for consumption in Russia, or to fill commercial

contracts by its own representatives. Each company’s

share of the Russian feed to be made available by Russia

was as follows: Cameco, 45 percent; Cogema, 45 percent;

and Nukem, 10 percent. The purchasing companies

would market their shares independently.

In December 1997, MINATOM and Western suppliers

suspended negotiations for the purchase of the Russian

feed by the Western suppliers.69 Cameco Corp., Cogema,

and Nukem were unable to receive assurances from

MINATOM that an agreement would be (1) enforceable

for the proposed 10-year contract and (2) fully

sanctioned by the Russian government. MINATOM

concluded that the agreement was not in the best

economic interests for Russia. It has indicated that it

would sell the uranium feed through affiliates at a floor

price above the average of world market prices.70 In a

statement released by Cameco Corp., the Western

companies indicated a willingness to resume negotiations as soon as their concerns have been satisfactorily

addressed.

Department of Commerce Procedures for

Selling Russian Feed

To meet its legal responsibilities, U.S. Department of

Commerce (DOC) has developed a series of procedures

to administer and enforce the U.S. quotas for Russian

feed as specified by Section 3112 of the USEC

Privatization Act (Table 4). DOC’s initial proposal was

published for public comment in October 1997.71 Based

on a review of public comments and discussions with

the Ministry of Atomic Energy for the Russian

Federation (MINATOM), DOC adopted procedures in

January 1998 for selling Russian feed in the United

States.72 DOC intends to review the procedures in

September 1998 to ensure that its statutory obligations

are being met.

As an initial step, MINATOM will issue certificates to its

marketing agents noting that the Russian feed is to be

delivered to the United States for consumption only.

The cumulative quantity of Russian feed allocated by the

certificates for a given year will not exceed the annual

quota established by the USEC Privatization Act. DOC

will allow the re-allocation of deliveries among agents or

to MINATOM as long as such allocations occur no later

than December 1 in any given year. The re-allocation of

Russian feed will be confined to deliveries in the same

annual period subject to the annual maximum delivery

quota. If an agent delivers less than its allocation, the

agent may enter into a new contract for the difference

between its deliveries and the maximum it was allocated

for that year. An agent would forfeit any portion of the

annual quota not delivered by December 31.

All agents authorized by MINATOM to deliver Russian

feed to U.S. end users must submit sales contracts for

DOC approval. To be approved by DOC, the following
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 25

73 Ibid.

requirements must be met: (1) an authorized certificate

is provided; (2) the date, amount, and point of each

delivery is provided; (3) the contract must state that the

material to be sold is of Russian origin; (4) the contract

must state that the material is to be sold for

consumption only; and (5) the agent must certify that it

is still under its annual allocation of the delivery quota,

that the Russian feed is Russian uranium intended solely

for consumption, and that it does not circumvent the

relevant provisions of the USEC Privatization Act.

73 The

DOC will notify the agents of approval or rejection

within 10 business days of the contract’s submission. All

authorized sales agents must submit quarterly reports to

DOC providing detailed information on the movement

of Russian feed into and out of its accounts.

To ensure the implementation of DOC’s procedures,

close cooperation will be required between DOC and

MINATOM. MINATOM is required to provide DOC

with a copy of the certificates issued to its marketing

agents. Also, DOC and MINATOM will review jointly

the data pertaining to deliveries made in the prior year.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 27

74 Energy Policy Act of 1992, Section 1016 (Uranium Inventory Study) of Title X&Remedial Action and Uranium Revitalization (October

1992). 75 Public Law 104-134, Balanced Budget Down Payment Act, Subchapter A-USEC Privatization Act, Section 3112 (c&Transfers to the

Corporation, d&Inventory Sales) (April 1996). 76 “Weapons-usable” fissile materials can be used to produce both less sophisticated nuclear weapons and more advanced weapons

which require “weapons-grade” fissile materials to produce more predictable explosions. 77 National Academy of Sciences, Committee on International Security and Arms Control, Management and Disposition of Excess

Weapons Plutonium, National Academy Press (Washington, DC, January 24, 1994), p. v.

5. Commercialization of U.S. Government

Surplus Inventories

Development of Disposition

Policies and Programs

The United States is reducing its inventory of nuclear

materials to be consistent with the realities of arms

reduction. The policies and implementation of the U.S.

Government programs that affect the disposition of

surplus inventories of HEU and plutonium and commercial-grade natural uranium and LEU are described

in this chapter. Each program involves the conversion

of all or part of the respective surplus inventories to fuel

for use in commercial nuclear power plants.

The Nuclear Weapons Council, made up of representatives from the DOE, Department of Defense, and the

Joint Chiefs of Staff, recommends to the President the

quantities of uranium and plutonium required for

national security purposes. The quantities of material in

excess of those requirements are deemed to be surplus.

The time frame over which the surplus material could be

made available for commercial use is dependent on the

successful resolution of multiple issues, which sometimes are competing. These issues have included

technical feasibility, rate of weapons dismantlements,

nonproliferation, economics, international relations, the

Nation’s budget, health and safety, and the environment. In addition, input from the public has been

sought and considered in reaching major policy

decisions. As a result, a period of about 5 years elapsed

after the end of the Cold War before U.S. Government

surplus inventories began to be made available to the

commercial nuclear fuel market (Appendix B, Table B1).

There was no public policy or law for dealing with U.S.

Government inventories when the Cold War ended. The

legal foundation for identifying U.S. surplus uranium

that could be converted to commercial use was

established by the Energy Policy Act of 1992 (EPACT).

EPACT directs the Secretary of Energy to develop “a

comprehensive inventory of all Government owned

uranium or uranium equivalents, including natural

uranium, depleted tailings, low-enriched uranium, and

highly enriched uranium available for conversion to

commercial use.”74 Furthermore, EPACT required the

Secretary of Energy to develop a plan to convert HEU to

LEU and to provide recommendations for implementing

the plan. Later, the USEC Privatization Act provided

DOE with the authority to transfer uranium, including

HEU-derived LEU, to USEC and to sell surplus commercial-grade inventories in the marketplace upon

satisfying certain conditions.75

Neither EPACT nor subsequent legislation contained

provisions that required the conversion of plutonium

into commercial fuel. The U.S. Government's concern

for the potential proliferation of nuclear weapons has led

to the development of plans to dispose of weaponsusable plutonium as well as HEU.76 Considerable effort

has been spent in the study of acceptable options for the

disposition of U.S. plutonium. President Bush's National

Security Advisor commissioned the U.S. National

Academy of Sciences in 1992 to study and report on the

options available for disposing of surplus plutonium.77

The findings of the National Academy of Sciences

served as the foundation for decisions to pursue the

plutonium disposition strategy described in this chapter.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

28 Materials, Policies, and Market Effects

78 U.S. Department of Energy, Record of Decision for the Storage and Disposition of Weapons-Usable Fissile Materials Final Programmatic

Environmental Impact Statement (Washington, DC, January 14, 1997), Footnote 1, p. 2. 79 U.S. Department of Energy, “Pena Doubles Amount of U.S. Plutonium and Highly Enriched Uranium Available for International

Inspection,” press release (Washington, DC, September 29, 1997). 80 U.S. Department of Energy, Office of Fissile Materials Disposition, Long-Term Storage and Disposition of Weapons-Usable Fissile Materials

Programmatic Environment Statement Implementation Plan, DOE/IS-0229-IP (Washington, DC, March 1995), p. 1-3. 81 The NEPA process in accordance with the U.S. Department of Energy’s NEPA implementing procedures and guidelines (10 CFR

Part 1021) and the Council on Environmental Quality regulations implementing NEPA (40 CFR Parts 1500-1508). 82 U.S. Department of Energy, Sales of Surplus Natural and Low Enriched Uranium Finding of No Significant Impact (Washington, DC,

October 1996) p. 6.

The nuclear nonproliferation objectives of the U.S.

Government were set forth in the Nonproliferation and

Export Control Policy announced by President Clinton in

September 1993. This policy commits the United States

to seek elimination, where possible, of inventories of

weapons-usable fissile materials. Accordingly, in March

1995, President Clinton declared as surplus 200 metric

tons of HEU and plutonium held for national security

purposes. As part of the Openness Initiative announced

in February 1996, the Secretary of Energy reported a

revised surplus inventory of about 213 metric tons,

consisting of 174.3 metric tons HEU and 38.2 metric tons

plutonium.78 To demonstrate the irreversibility of its

decision to declare fissile materials as surplus to defense

needs, the United States has committed to make

available 90 metric tons of HEU and plutonium for

international inspection by the IAEA.79

In addition to HEU and plutonium, the U.S. Government holds surplus inventories of commercial-grade

natural uranium and LEU that cannot be used in

weapons without further enrichment. Thus, the Government’s plans for disposing of commercial-grade natural

uranium and LEU are driven more by economic

considerations than by nonproliferation objectives.

DOE, which is the steward of U.S. Government inventories of fissile materials, has moved to implement the

President's nonproliferation policy and the directives of

the legislation described above. In January 1994, the

Secretary of Energy created the Fissile Materials

Disposition Project.80 The Office of Fissile Materials

Disposition was created later in the year to develop the

Department's recommendations and to direct the implementation of decisions concerning disposition of surplus

weapons-grade fissile materials. The Office of Nuclear

Energy, Science and Technology has been given responsibility for managing the sale of surplus commercialgrade uranium.

In developing implementation plans for disposing of

nuclear materials, DOE was required to follow the

guidelines and procedures contained in the National

Environmental Policy Act of 1969 (NEPA process).81 The

NEPA process ensures that potential impacts on the

environment will be considered for each proposed

action. Pursuant to its statutory obligations regarding

the NEPA process, the Environmental Protection

Agency reviews each proposed action. Assessments of

the potential environmental impacts that could arise

from each proposed DOE disposition plan have been

made available for public comment. In the NEPA

documents, DOE also has included assessments of costs,

socioeconomic impacts, and proliferation concerns.

The effort required to complete the NEPA process for a

particular proposed plan reflects the plan’s complexity

(Appendix C, Table C1). Plans for the storage and

disposition of weapons-usable HEU and plutonium

required the analysis of complex technical procedures

including the processing, handling, and transporting of

materials. In addition, DOE has sought public participation in developing preferred alternatives. For the

disposition of HEU, 15 months passed between the time

that DOE announced its intent to prepare a separate EIS

and the release of a final EIS (Appendix C, Table C1).

In contrast to weapons-usable materials, the proposed

action to sell surplus commercial-grade uranium and

LEU was not anticipated to require extraordinary

handling, processing, or waste management activities.

The ongoing commercial operations of the enrichment

plants are covered by existing NEPA documents.

Through the issuance of a Finding of No Significant

Impact, DOE determined that the sale of surplus commercial-grade uranium “does not constitute a major

Federal action significantly affecting the quality of the

human environment within the meaning of the National

Environmental Policy Act of 1969.”82 Therefore, preparation of an EIS was not required for this proposed action.

As a result, only 3 months passed between DOE’s initial

notification of the proposed action and the completion of

the final document required by the Act (Appendix C,

Table C1).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 29

83 U.S. Department of Energy, Office of Fissile Materials Disposition, Highly Enriched Uranium Disposition Plan (Washington, DC,

September 1996). 84 C. Williams III and J. Arbital, “Disposition of Excess Highly Enriched Uranium Status and Update,” paper presented at the Nuclear

Energy Institute’s International Uranium Seminar 97 (Monterey, CA, September 28-October 1, 1997), p. 12. 85 U.S. Department of Energy, “Notice of Intent to Prepare a Separate Environmental Impact Statement for the Disposition of Highly

Enriched Uranium,” in Federal Register, April 5, 1995. 86 U.S. Department of Energy, “Record of Decision for the Disposition of Surplus Highly Enriched Uranium Final Environmental

Impact Statement,” in Federal Register, Vol. 61 (August 5, 1996), p. 40619-40629.

Highly Enriched Uranium

Surplus Inventory Characterization

DOE has provided detailed accounting of the 174 metric

tons of U.S. HEU declared as surplus to national defense

needs (Table 5). More than half of the material is stored

at the Y-12 Plant in Oak Ridge, Tennessee.83 The HEU is

in a variety of physical forms, including metal, oxide,

aluminum-uranium alloy, solutions, and processed

spent fuel. HEU can also be characterized by 235U assay

and isotopic or chemical impurities. In contrast to HEU

under the Russian HEU Agreement, much of the U.S.

surplus contains less than 90 percent 235U. However, all

uranium enriched to 20 percent or greater 235U is considered “weapons-usable.” Isotopic composition is an

important factor in determining potential commercialization. Certain isotopes in higher than usual

quantities pose as a radiation hazard during handling

(

232U and 234U) and inhibit reactor performance (236U).84

DOE HEU Disposition Program

In April 1995, DOE announced that it intended to

prepare an environmental impact statement on the

disposition of surplus HEU (HEU EIS) that would be

separate from the overall weapons-usable disposition

plan announced a year earlier (Appendix C, Table C1).85

A nominal 200 metric tons was considered to include

HEU that has been declared surplus or may be declared

surplus should future arms reduction treaties be

enacted. The HEU Final EIS provided a Preferred Alternative from an assessment of a “no action alternative”

and four reasonable alternatives. Three of the four

reasonable alternatives considered commercialization

for between 25 and 85 percent of the inventory, with the

remainder being disposed of directly as waste. Direct

disposal of all the surplus HEU was considered as the

fourth reasonable alternative. The no action alternative

considered continuing the storage of HEU.

In July 1996, DOE announced its Record of Decision

(ROD) concerning the decision to implement the

Preferred Alternative advanced in the HEU Final EIS.86

The Preferred Alternative specifies that all the U.S.

surplus HEU would be made non-weapons-usable by

blending it down to LEU over a 20-year period (Figure

3). The resultant LEU is considered proliferation

resistant because it cannot be used for manufacturing

nuclear weapons without expensive and time-consuming enrichment in a plant that can be relatively easy

to identify. According to the ROD, DOE plans to make

available up to 85 percent of ensuing LEU for use in

commercial fuel. This commercial-grade LEU will have

a 235U content of between 4 and 5 percent. LEU that can

not be economically made to conform to commercial

specification or accepted deviation will be disposed of as

low-level waste after further blending down to 0.9

percent 235U. Some of the HEU-bearing spent fuel might

be stored for possible disposal in a high-level waste

depository pursuant to the National Waste Policy Act.

An assessment of the following three technologies for

the blending down of HEU was contained in the HEU

Final EIS: (1) uranyl nitrate hexahydrate (UNH), (2)

molten metal, and (3) UF6. The UF6 technology is

applicable only to HEU that is already in the form of

UF6. No plants in the United States are currently capable

of converting HEU metal or oxide into UF6, the typical

form of LEU delivered to fuel fabricators. Four plants,

two U.S. Government and two commercial, have the

capability of blending down HEU metal or oxide with

UNH technology: (1) DOE’s Y-12 Plant in Oak Ridge,

Tennessee; (2) DOE’s Savannah River site in Aiken,

South Carolina; (3) Babcock & Wilcox Naval Nuclear

Fuels Division in Lynchburg, Virginia; and (4) Nuclear

Fuel Services, Inc., in Erwin, Tennessee. Only the Y-12

Plant can employ the molten metal technology. Because

the output cannot be used by the fuel fabrication

industry, the molten metal technology would be used

only for blending HEU to waste.

UNH produced from blending down HEU metal or

oxide would be delivered to fuel fabricators, where it

would then be converted to uranium dioxide (UO2)

powder, which can be pelletized for use in fuel rods. To

foster the acceptance of UNH in place of UF6, the

American Society for Testing and Materials has created
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

30 Materials, Policies, and Market Effects

Table 5. Characterization of Inventory in Relation to the U.S. Department of Energy’s Disposition

Program for Surplus Weapons-Usable Highly Enriched Uranium (HEU), as of February 28, 1998

Quantity

(metric

tons) Form

Average 235U

Assay 

(percent)

Commercial

Character of

Derived

LEUa

 Proposed

Start Year for

Commercial

Use

 Commercial

 Outletb Comments

13 UF6 75.7 Spec Ongoing Transferred to

USEC in 1993 for

subsequent sale.

To cover costs

associated with

liabilities at DOE-owned

enrichment plants.

Subject to IAEA

inspection as HEU is

blended down into LEU.

50 Metal,

Oxide

41.3 Spec 1998 Transferred to

USEC beginning in

1998 for

subsequent sale.

Directed by USEC

Privatization Act (1996).

Committed to IAEA

safeguards; material

will be available for

inspection upon

undergoing disposition.

38 Metal,

Fuel

elements,

Oxide 

66.0 Off-spec By 2003 Transfer to TVA for

direct reactor use:

lead test assembly

1999, reactor

reloads beginning

by 2003.

Utilization plan for at

least 30 metric tons

HEU pursuant to

Memorandum of

Understanding between

DOE and TVA, January

1997. Other HEU could

be utilized, the

remainder disposed of

as waste.

10 Metal 93.2 Spec Possibly 2003 Not determined. Placed under IAEA

safeguards in 1995.

45 Assorted Various Largely Spec Possibly some

before 2005

Not determined. Most commercialization

after 2010; some to be

disposed of as waste.

16 Spent

fuel

Various N/A N/A N/A Waste.

2 Assorted Various N/A N/A N/A Waste.

174

a

The isotopic or chemical composition of the HEU and the selection of blendstock will determine whether or not the downblended low-enriched uranium (LEU) is within the specifications developed by the American Society for Testing and Materials

(ASTM): specification (spec) versus off-specification (off-spec). b

Highly enriched UF6 is being blended down directly into low-enriched UF6, a marketable nuclear fuel product, in a commercial

uranium enrichment production stream. All other forms of HEU will require blending down into an intermediate form of lowenriched uranium before it can be used in producing commercial reactor fuel.

UF6 = uranium hexafluoride.

IAEA = International Atomic Energy Agency, TVA=Tennessee Valley Authority, USEC=United States Enrichment Corporation.

N/A = not applicable.

Sources: U.S. Department of Energy, Office of Fissile Materials Disposition, Highly Enriched Uranium Disposition Plan

(Washington, DC, September 1996); C. Williams III and J. Arbital, “Disposition of Excess Highly Enriched Uranium Status and

Update,” paper presented at the Nuclear Energy Institute’s International Uranium Seminar 97 (Monterey, CA, September 28-

October 1, 1997), p. 12; D. Tousley, personal correspondence (DOE Office of Fissile Materials Disposition, Washington, DC,

November 18, 1997); R. Schmidt, personal communication (HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 31

a

HEU as uranium hexafluoride (UF6) is converted into low-enriched uranium (LEU) for commercial use by blending HEU with

LEU as UF6 in the enrichment production stream. b

The portion of the uranium product stream that becomes depleted in 235U during enrichment. Depleted uranium, generated

by the U.S. Government’s former enrichment program, will be used to blend down some of the HEU. c

Spent fuel could be stored at an interim site pending the completion of a geologic repository for final disposal as high-level

waste.

 UF6 = Uranium hexafluoride.

UNH = Uranyl nitrate hexahydrate.

Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.

DOE's HEU Disposition 

Program

Civilian Fuel Cycle 

Uranium Mining and 

Milling

Uranium Conversion

Uranium Enrichment

Fuel Fabrication

Front End of Fuel Cycle

Depleted

Uranium

Principal

End Use Back End of Fuel Cycle

(U.S. "Once Through" Example)

Final Disposal as 

Low-level Waste

Stages of Nuclear 

Fuel Cycle Recycled Materials

Process or 

Product Flows Blendstock Waste Flows

Blend Down of HEU

(40-94% U)

as Metal, Alloys, Oxides, 

Spent Fuel

235

Slightly Enriched Uranium 

(0.9% U) 235

Electricity

Interim Storage

Final Disposal

Irradiation 

in Reactor

HEU as UF

(76% U)

a

6 235

b

LEU as UNH

(4-5% U) 235

c

Figure 3. Relationship of the U.S. Department of Energy’s (DOE) Surplus Highly Enriched Uranium (HEU) 

Disposition Program and the Civilian Nuclear Fuel Cycle
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

32 Materials, Policies, and Market Effects

87 Ibid, p. 40623. 88 R. Schmidt, personal communication (HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998). 89 Ibid. 90 United States Enrichment Corporation, Annual Report 1996, p. 31. 91 USEC Privatization Act (April 26, 1996), Section 3112(c). 92 C.K. Williams III, and J. Arbital, “Disposition of Excess Highly Enriched Uranium Status and Update,” paper presented at the

Nuclear Energy Institute’s International Uranium Seminar 97 (Monterey, CA, September 28-October 1, 1997), p. 3. 93 The Ux Weekly (April 27, 1998), p. 3.

new standards that can be used by the fuel fabrication

industry to measure quality.

A cost comparison of blending HEU into LEU for commercial nuclear fuel and direct disposal was included in

the HEU Final EIS. The estimated cost per kilogram

HEU was determined for each technology as follows: (1)

$13,900 for metal blending to slightly enriched uranium

(0.9 percent 235U) for disposal; (2) $22,900 for UNH

blending to slightly enriched uranium for disposal; (3)

$3,200 for UF6 blending to LEU (4 percent 235U) for

commercial use; and (4) $5,700 for UNH blending to

LEU for commercial use. For options 3 and 4, the

potential sales revenue was estimated at $11,700 per

kilogram HEU, based on commercial market prices at

the time of the assessment. The total cost of using

option 2 for the disposition of the entire nominal 200

metric tons as waste was estimated at $3.4 billion.87 In

contrast, the Preferred Alternative (commercialization,

170 metric tons; direct disposal as waste, 30 metric tons)

would result in a net return of $340 million to $770

million.

HEU Available for Commercialization

In September 1996, the Office of Fissile Materials

Disposition provided a disposition plan based on the

potential for surplus HEU inventories to be blended

down to LEU that would meet commercial specification.

Inventories requiring more extensive purification presumably would be made available at later dates. The

schedule proposed in the plan was as follows: (1) 60

metric tons available today to 5 years; (2) 40 metric tons

available over 5 to 15 years; (3) 36 metric tons difficult to

recover over 15-20 years; and (4) 26 metric tons likely to

be waste. In addition to these inventories, 13 metric tons

have been transferred to USEC and will be blended

down for commercial use by the end of 1998.

The characterization of DOE’s HEU inventory is work in

progress. Since the end of the fiscal year ending

September 30, 1997, DOE has further delineated the

characteristics of the inventory (Table 5).88 Under current plans, as much as 101 metric tons of surplus U.S.

HEU could be transferred to Government-owned

corporations: USEC and the Tennessee Valley Authority.

DOE has not announced specific plans for the sale or

transfer of the remaining surplus HEU. At least 18

metric tons will be processed for disposal as waste.89

Transfers to the United States Enrichment

Corporation

To meet certain legal obligations, DOE began transferring surplus HEU in 1993 without charge to USEC.

Two types of HEU inventories are included in the

transfers: (1) 13 metric tons as UF6 and (2) 50 metric tons

as metal and oxide. The 13 metric tons were transferred

to fund liabilities at DOE-owned enrichment plants

pursuant to EPACT. As UF6, it can be blended down

directly to LEU in the production enrichment stream.

USEC anticipates that the blending down of the highly

enriched UF6 will be completed by the end of 1998.90

The Secretary of Energy was directed by the USEC

Privatization Act to transfer up to 50 metric tons of HEU

without charge to USEC.91 This transfer has enhanced

the value of USEC as the corporation prepared for

privatization (see page 18). To implement the transfer,

DOE was required to (1) finalize a transfer agreement

with USEC, (2) complete inventory selection and

characterization, (3) assist USEC in procuring services

for down-blending, and (4) develop procedures for

refunding reimbursable expenses incurred by USEC.92 In

April 1998, a Memorandum of Agreement was signed

between DOE and USEC initiating the transfer of 50

metric tons of HEU along with 7,000 metric tons of

natural UF6.

93 DOE expects the transfer to be completed

around 2003.

The LEU that would be made available for commercial

use from the blending down 63 metric tons of HEU

contains 5.7 million SWU (Table 6). This LEU contains

an equivalent natural uranium feed component

contributed from both the HEU and the blendstock. To

commercialize 63 metric tons of HEU transferred by

DOE, USEC is anticipated to use the following sources

of uranium for blendstock: (1) internal stockpiles held

since USEC was created from DOE, (2) transfer by DOE

of 7,000 metric tons of natural UF6, or (3) purchases from
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 33

94 Ibid., p. 12.

Table 6. Equivalent Natural Uranium Feed and SWU Components of Low-Enriched Uranium (LEU) Derived

from U.S. Highly Enriched Uranium (HEU) Based on the U.S. Department of Energy’s Plans to

Transfer Surplus HEU to the United States Enrichment Corporation (USEC) and the Tennessee Valley

Authority (TVA)

HEU

 Quantity

 (metric tons)

 Average 235U

Assay

(percent)

Uranium Feed Component

(million pounds U3O8)

Enrichment Component

 (million SWU)a

Recipient and

HEU Time of Transfer b

Blended LEU

Product c HEUb

Blended LEU

Product c

13 75.7 6.2 9.6 2.1 2.3 USEC: 1993d

50 41.3 13.0 14.1 4.2 3.4 USEC: 1998-2003

38e 66.0 15.5 17.7 5.2 4.3 TVA: 2003-2015f

a

The separative work units (SWU) of enrichment required to produce equivalent LEU, assuming enrichment tails at 0.30 percent 235U.

b

The equivalent U3O8 or SWU contained in HEU with the following average 235U assays: 13 metric tons, 75.7 percent; 50 metric

tons, 41.3 percent; 38 metric tons, 66.0 percent. c

The equivalent U3O8 or SWU contained in LEU bended down from HEU. Different blendstock assays are assumed for each HEU

class as follows: 13 metric tons HEU-LEU (2.0 percent 235U), 50 metric tons HEU-natural uranium (0.71 percent 235U), 38 metric

tons HEU-slightly enriched uranium (1.25 percent 235U) and natural uranium (0.71 percent 235U). d

USEC expects to complete the blending of highly enriched uranium hexafluoride (UF6) to low-enriched UF6 by 1998. e

The actual amount may be less depending on the final characterization of the HEU.

f

TVA expects to use a small amount of LEU derived from HEU as a lead fuel assembly demonstration scheduled for 1999.

 Source: R. Schmidt, personal communication (HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998).

the commercial market. Of these sources, only one

inventory class, the 7,000 metric tons of natural UF6, is

U.S. surplus defense material&it is already accounted

for as part of “commercial-grade” inventories described

later in this chapter. To avoid double counting the

portion of the 7,000 metric tons of natural UF6 that could

be used as blendstock, only the natural uranium

component of the HEU was considered in this report.

Thus, the commercialization of 63 metric tons of HEU

undergoing transfer to USEC would displace the

equivalent of 19.2 million pounds U3O8 from traditional

sources of uranium (Table 6).

No legal restrictions have been placed on USEC for

selling the natural uranium or SWU components of LEU

derived from blending down 13 metric tons of highly

enriched UF6. For the 50 metric tons of HEU, the USEC

Privatization Act authorized the quantity and timing by

which USEC can make deliveries to commercial end

users. To apply the restrictions, the Act considered the

quantities of equivalent natural uranium and SWU

contained in the transfers of 50 metric tons of HEU and

7,000 metric tons of natural uranium (see page 37) as an

aggregate amount. The restrictions are as follows: (1)

deliveries of uranium to commercial end users are not

permitted before January 1, 1998; (2) deliveries in any

calendar year after 1997 are not permitted to exceed 10

percent of the transferred uranium (by UF6 content) or

the equivalent of 4 million pounds U3O8; and (3) no more

than 800,000 SWU contained in LEU derived from the

HEU can be delivered in any calendar year.

Use of Off-Specification HEU by the

Tennessee Valley Authority

DOE had been investigating the option of commercializing surplus HEU classified as “off-specification.”

LEU derived from blending down off-specification HEU

would not meet the specifications established by the

American Society for Testing and Materials for commercial nuclear fuel. The presence of the isotope 236U in

LEU derived from off-specification HEU could have an

adverse effect on reactor performance.94 Nevertheless,

DOE anticipates that such LEU can be used to fuel

commercial nuclear reactors.

In January 1997, DOE and the Tennessee Valley

Authority (TVA) reached a Memorandum of Understanding (MOU) whereby LEU blended down from DOE
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

34 Materials, Policies, and Market Effects

95 U.S. Department of Energy and the Tennessee Valley Authority, “Memorandum of Understanding Between the Department of

Energy and the Tennessee Valley Authority for a Program to Utilize Off-Specification Low Enriched Uranium Derived from Highly

Enriched Uranium as Commercial Nuclear Power Reactor Fuel” (January 1997). 96 Ibid; p. 1. 97 R. Schmidt, personal communication (HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998). 98 C.K. Williams III and J. Arbital, “Disposition of Excess Highly Enriched Uranium Status and Update,” paper presented at the Nuclear

Energy Institute’s International Uranium Seminar 97 (Monterey, CA, September 28-October 1, 1997), p. 3. 99 Ibid; p. 17. 100 D. Tousley, personal correspondence, U.S. Department of Energy, Office of Fissile Materials Disposition (Washington, DC,

November 18, 1997).

surplus off-specification HEU would be used by TVA to

fabricate nuclear fuel to produce electricity.95 By

implementing the MOU, TVA would acquire nuclear

fuel at costs significantly below market prices. DOE and

TVA intend to “share equally in any cost savings

derived from TVA’s use of off-specification LEU”

derived from DOE HEU.96 Meanwhile, DOE would be

able to avoid additional costs of preparing offspecification HEU for direct disposal.

To meet the obligations of the MOU, DOE would blend

down 38 metric tons of off-specification HEU to LEU,

using a combination of natural uranium and slightly

enriched uranium (235U content of 1.25 percent) from its

own inventories as blendstock.97 By using blendstock

that meets ASTM specifications, the 236U content of the

resultant LEU is anticipated to be reduced to a level that

would not adversely affect reactor performance. The

blending could take place at DOE’s Savannah River site

in South Carolina. With the exception of new facilities

that could be required, DOE would be liable for all

environmental remediation or decontamination and

decommissioning of any existing DOE sites involved in

the implementation of the MOU. If blending cannot be

done at the Savannah River site, DOE would be responsible for providing TVA with LEU from another site.

By utilizing LEU derived from the 38 metric tons of

HEU made available by DOE, TVA would avoid purchasing 4.3 million SWU from the commercial market

(Table 6). This LEU contains an equivalent natural

uranium feed component contributed from both the

HEU and the blendstock. For blendstock, DOE is

assumed to supply uranium held in forms that would

not be readily saleable on the commercial market.

Because this anticipated blendstock supply is not part of

any other U.S. surplus inventory quantified in this

report, the utilization of 38 metric tons of HEU by TVA

would displace the quantity of natural uranium

contained in both the HEU and blendstock, equivalent to

17.7 million pounds of U3O8 (Table 6).

In return for receiving HEU and blendstock at no

charge, TVA will be responsible for: (1) sampling,

analysis, packaging, transportation, and storage of the

blending material within 2 years after an execution of an

interagency agreement; (2) taking possession and title to

the LEU at the blending site; (3) paying any additional

capital costs for special equipment that may be required

at the blending site in the year that they are incurred; (4)

paying for support services provided by DOE; (5)

paying for the incremental operating cost of blending

HEU at the Savannah River site that is in excess of

DOE’s statutory limits; (6) paying all costs to use the

LEU once possession is taken, including transportation

of LEU to fuel fabricator, fuel fabrication, and licensing

and operation of fuel assembles made from the blended

LEU. TVA also would be responsible for the storage

and disposal of all related spent fuel pursuant to the

National Waste Policy Act. 

To demonstrate the feasibility of the program, TVA

proposed to load lead assemblies containing LEU

blended down from off-specification HEU into an

operating reactor.98 TVA anticipates that the demonstration could begin by early 1999. For the proposed

demonstration, DOE will provide TVA with HEU and

blendstock at no charge. Both parties will share the

costs of blending down the HEU and fuel fabrication.

Any cost savings that may be realized by TVA as a result

of the demonstration will be shared equally with DOE.

Upon successful demonstration, fuel reloading could

begin by 2003. DOE anticipates that the transfer of 30

metric tons would continue to 2011.99 The use of

additional HEU could extend the program through 2015.

HEU Made Available for International

Inspection

The U.S. Government has designated approximately 73

metric tons of HEU as available for IAEA-sponsored

international inspection.100 In 1995, 10 metric tons of

metal stored at the Y-12 Plant in Oak Ridge were placed

under IAEA safeguards, becoming the first HEU to be

made available for international inspection. In 1996, the

Secretary of Energy made available for international

inspection the following quantities of HEU: 13 metric
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 35

101 U.S. Department of Energy, “Pena Doubles Amount of U.S. Plutonium and Highly Enriched Uranium Available for International

Inspection,” press release (Washington, DC, September 29, 1997). 102 D. Tousley, personal correspondence, U.S. Department of Energy, Office of Fissile Materials Disposition (Washington, DC,

November 18, 1997). 103 U.S. Department of Energy, “International Agency Inspects U.S. Uranium Facility; Marks Nuclear Nonproliferation Milestone,” press

release (Washington, DC, December 1, 1997). 104 U.S. Department of Energy, “Notice of Intent to Prepare an Environmental Assessment on the Proposed Sale of Surplus Natural

and Low Enriched Uranium,” in Federal Register, Vol. 61 (July 9, 1996). 105 U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessments: DOE Sale of Surplus

Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996), p. 1-1. 106 Public Law 104-134, Balanced Budget Down Payment Act, Subchapter A&USEC Privatization Act, Section 3112 (d&Inventory Sales)

(April 1992). 107 U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment: DOE Sale of Surplus Natural

and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996). 108 R.M. George, “Status Report on DOE’s Surplus Uranium Sales Program,” speech presented at the Nuclear Energy Institute’s Nuclear

Fuel Supply Forum (Washington, DC, January 28, 1997).

tons of highly enriched UF6 that had been transferred

from DOE to USEC in 1994 and 13 metric tons of oxide

and metal that is part of the pending transfer of 50

metric tons of HEU from DOE to USEC. A subsequent

announcement by the Secretary of Energy in September

1997 committed the remaining 37 metric tons of the

pending HEU transfer. In the case of transfers to USEC,

the HEU will be made available for inspection as the

material is undergoing disposition.101 Since much of the

HEU involved in the 1997 announcement is in the form

of metal that had been fabricated for weapons, the shape

of the material must first be altered so as not to disclose

information classified for national defense purposes.102

In December 1997, IAEA began activities to verify that

highly enriched UF6 was being blended down into LEU

at the Portsmouth plant.103 This was the first time that

IAEA verified the transformation of nuclear material no

longer needed for defense purposes for use as commercial nuclear fuel.

Commercial-Grade Uranium

DOE Sales of U.S. Natural UF6 and LEU

In July 1996, DOE published in the Federal Register a

Notice of Intent to sell approximately 21.5 million

pounds U3O8 equivalent of commercial-grade uranium

declared as surplus to U.S. national defense purposes.104

This surplus consists of natural uranium in the form of

UF6 (20.3 million pounds U3O8 equivalent) and LEU with

a 235U content of 4.5 percent (1.2 million pounds U3O8

and approximately 280,000 SWU) (Table 7). It is being

stored by DOE at the enrichment plants in Paducah,

Kentucky, and Portsmouth, Ohio.

DOE intended that revenues obtained from selling

surplus U.S. uranium be applied to offset payments

made in meeting commitments to upgrade and maintain

the enrichment plants that it owns and leases to USEC.

Congress, in its fiscal year 1997 appropriations authorization, anticipated that DOE would sell $42 million of

uranium in fiscal year 1997 and apply the revenues for

such use.105 In addition, the sale would eliminate

inventory holding costs. Before any material can be

sold, however, the Secretary of Energy is required by the

USEC Privatization Act to determine that “the sale of the

material will not have an adverse material impact on the

domestic uranium, conversion, and enrichment

industries.”106 In addition, the Secretary’s determinations

must take into account the sales of uranium under the

Russian HEU Agreement and the Suspension Agreement

with Russia. Also, the price paid for the uranium must

not be less than the fair market value established for the

uranium.

The report, Environmental Assessment: DOE Sales of

Surplus Natural and Low Enriched Uranium,107 published

by DOE in October 1996, provided an analysis of three

reasonable disposition alternatives and a no action

storage alternative regarding U.S. Government surplus

commercial-grade uranium. The Preferred Alternative

consists of: (1) sell all 20.3 million pounds U3O8 equivalent of natural uranium between 1996 and 2004 for

domestic or foreign use after the Secretary’s determination, and (2) sell all 1.2 million pounds U3O8

equivalent of LEU in 1996, if possible, after Secretarial

determination (Table 7). No sales were made in 1996,

because the Secretary’s determination was not made

during the year.

In January 1997, the Office of Nuclear Energy, Science

and Technology announced the quantity and mechanism

by which it planned to sell uranium during fiscal year

1997, ending on September 30, 1997.108 It proposed to

sell up to 3.2 million pounds U3O8 equivalent of natural
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

36 Materials, Policies, and Market Effects

Table 7. Status of U.S. Department of Energy (DOE) Plans to Dispose of Surplus Commercial-Grade

Natural Uranium and Low-Enriched Uranium (LEU), as of December 31, 1997

Planned

Action

Quantity

(million

pounds U3O8

equivalent) Schedule

Secretarial

Determinationa

Transactions

to Date Comments

Sell DOE

Surplus

Natural

Uranium

(as UF6)

b

20.3 Sell all between 1996 and 2004 for

domestic or foreign end use after

Secretarial determination; for FY97c

not to exceed 2.0 million pounds if

all LEU is sold (see below). Total

sales of natural uranium and LEU

cannot exceed 3.2 million pounds

per year.

March 12, 1997;

sales authorized

for FY97.

In August 1997, DOE invited

bids for 1.0 million pounds

U3O8 equivalent and 382,781

kg U conversion for delivery

by September 30, 1999.

Contracts completed between

DOE and the winning bidders

during October 1997.

Natural uranium to be sold

as follows:

  Competitive sealed bids 

  Uranium and conversion

components offered

separately

  Award to highest bidder

  If bids not adequate,

some uranium could be

retained for later sale.

Sell DOE

Surplus

LEU

1.2 Sell all for domestic or foreign end

use in FY97, if possible, after

Secretarial determination.

March 12, 1997;

sales authorized

for FY97.

None LEU expected to be sold or

transferred to USEC in lieu

of contractual obligations.

Sell

Russian

HEU Feed

Transferred

to DOE

from USECd

(as UF6)

14.2 Sell about half to Russia for use in

matched sales to domestic end

users (only 2.7 million pounds of

matched salese

 allowed in calendar

1997). Sell remaining material for

overfeeding, foreign end use, or in

2001 for domestic end use after

2002.

Not required. DOE and Global Nuclear

Services and Supply (GNSS)

signed contract on December

12, 1996; DOE to provide

GNSS with uranium for use in

matched sales. First delivery

made to GNSS on December

30, 1996.

Transfer

DOE

Surplus

Natural

Uranium to

USECf

 (as

UF6)

Up to 18.3 Pending. Not required. None.  Transfer to include 50

metric tons HEU; total

UF6 and HEU equivalent

to 31.2 million pounds.

  USEC not permitted to

sell transferred material

until January 1, 1998,

only at a rate of 10

percent per year not

exceeding 4 million

pounds (including HEU).

a

The Secretary of Energy must determine that the sale of material will not have an adverse material impact on the domestic uranium mining,

conversion, and enrichment industry pursuant to USEC Privatization Act (April 26, 1996), Section 3112 (d). b

UF6 is the chemical formula for uranium hexafluoride; it is used as feedstock for producing LEU. c

FY97: Fiscal Year 1997 (October 1, 1996, to September 30, 1997).

d

Natural uranium component of LEU derived from Russian HEU, transferred from the U.S. Enrichment Corporation (USEC) to the DOE pursuant to

USEC Privatization Act (April 26, 1996), Section 3112 (b). e

Sales of Russian uranium to U.S. end users must be matched with newly produced U.S.-origin uranium pursuant to the Amendment to the

Suspension Agreement with the Russian Federation (March 11, 1994). f

DOE is directed to transfer to the U.S. Enrichment Corporation (USEC) without cost up to 7,000 metric tons of natural uranium and 50 metric tons

of HEU pursuant to the USEC Privatization Act (April 26, 1996), Section 3112(c).

Sources: Sales of natural uranium and LEU%U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental

Assessment: DOE Sale of Surplus Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996); R.M. George, “Status Report

on DOE’s Surplus Uranium Sales Program,” speech presented at the Nuclear Energy Institute’s Nuclear Fuel Supply Forum (Washington, DC, January

28, 1997); U.S. Department of Energy, Determination Pursuant to the United States Enrichment Corporation Privatization Act for the Sale of Excess

Department of Energy Uranium During Fiscal Year 1997 (Washington, DC, March 12, 1997). Transfer of natural uranium to USEC&U.S. Department

of Energy, Office of Fissile Materials Disposition, Disposition of Surplus Highly Enriched Uranium Final Environmental Impact Statement,

DOE/EIS-0240-D (Washington, DC, June 1996); R. George, personal communication (Office of Nuclear Energy, Science and Technology, Germantown,

MD, September 30, 1997).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 37

109 The USEC Privatization Act provides that Secretarial determinations will take into account sales of uranium under the Russian HEU

Agreement and the Suspension Agreement. Unlike U3O8, the sale of the conversion component of LEU derived from Russian HEU has not

been limited by schedules or quotas. 110 U.S. Department of Energy, Office of the Secretary, Determination Pursuant to the United States Enrichment Corporation Privatization

Act for the Sale of Excess Department of Energy Uranium During Fiscal Year 1997 (Washington, DC, March 12, 1997). 111 The Exchange Value as reported in TradeTech, The Nuclear Review (July 1997). 112 The Ux Weekly, “DOE’s Determination?” (March 17, 1997), p. 1. 113 Commerce Business Daily (August 5, 1997). 114 Public Law 104-134, Balanced Budget Down Payment Act, Subchapter A&USEC Privatization Act, Section 3112(b) (April 1992). 115 Overfeeding involves using more relatively less expensive uranium to produce the same quantity of enriched product with less

relatively more expensive power. 116 R.M. George, “Status Report on DOE’s Surplus Uranium Sales Program,” speech presented at the Nuclear Energy Institute’s Nuclear

Fuel Supply Forum (Washington, DC, January 28, 1997).

uranium and LEU through competitive bidding for

minimum lots of 50,000 pounds. DOE would initiate the

process by issuing a request for proposals asking

interested parties to submit a sealed bid. The sale would

be awarded to the highest bidder. Some uranium could

be held if unacceptable bids were received. In addition,

buyers would be given the option of bidding on the

uranium’s conversion component, separate from U3O8 or

UF6. This separation of components recognizes that the

introduction of surplus UF6 into the market could have

a greater impact on the uranium conversion industry

than on other nuclear fuel cycle industries.109 The plan

moved closer to reality on March 12, 1997, when the

Secretary of Energy determined that the proposed

quantity could be sold in fiscal year 1997 without

creating an adverse material impact on the domestic

industry.110

The timing of the Secretary’s determination coincided

with a decline in the spot-market price for U3O8. By the

end of March 1997, the price had fallen to $13.30 per

pound U3O8 from a high of $16.50 per pound U3O8 in

July 1996.111 Uranium suppliers expressed concern that

DOE’s initial plans to sell 3.2 million pounds U3O8

equivalent in fiscal year 1997 would further depress

prices.112 DOE postponed the initiation of sales until

August 1997, when it invited qualified interested parties

to bid for up to 1.0 million pounds U3O8 equivalent as

natural UF6 and 382,721 kg U of conversion.113 This

material would be available for delivery up to

September 30, 1999. DOE received qualified bids for the

entire offering by September 30, 1997.

DOE Sales of Russian HEU Feed

The 1996 Notice of Intent also included a proposal to sell

14.2 million pounds U3O8 of Russian feed, in the form of

natural UF6, transferred to DOE by USEC. This Russian

feed is the natural uranium component of LEU derived

from 18 metric tons of Russian HEU purchased by USEC

during 1995 and 1996 as part of the Russian HEU

Agreement (see Chapter 4). Its transfer to DOE,

completed in December 1996, was mandated by the

USEC Privatization Act.

114 DOE is authorized by the

USEC Privatization Act to sell the Russian feed through

one or a combination of four options: (1) at any time for

use in the United States for the purpose of overfeeding

enrichment plants,115 (2) at any time for end use outside

the United States, (3) in 1995 and 1996 to the Russian

Executive Agent at the purchase price for use in

matched sales pursuant to the Suspension Agreement, or

(4) in calendar year 2001 for consumption by end users

in the United States not prior to January 1, 2002, in

quantities not to exceed the equivalent of 3 million

pounds U3O8 per year (Table 7). Revenues realized from

the sale of Russian feed would go to the U.S. Treasury.

In the Environmental Assessment, DOE proposed to sell

about 50 percent of the material to the Russian Executive

Agent. In December 1996, DOE and Global Nuclear

Services and Supply (GNSS), representing the Russian

Executive Agent, signed a contract for the sale of a

portion of the Russian feed during fiscal year 1997 for

use in matched sales in the United States.116 The first

delivery was made to GNSS on December 30, 1996, at a

price of $28.50 per kg U as UF6. This price is equivalent

to $8.65 per pound U3O8 for the uranium component.

DOE Transfer to USEC Pursuant to the

USEC Privatization Act

In addition to natural uranium and LEU intended for

sale, DOE has been directed by the USEC Privatization

Act to transfer to USEC without charge up to 7,000

metric tons of natural uranium, equivalent to 18.3

million pounds of U3O8. For purposes of minimizing the

market impact of DOE transfers to USEC, the USEC

Privatization Act places in the same pool transfers of both

natural uranium and the 50 metric tons of HEU

described on page 32. USEC is not permitted to sell

uranium from the DOE transfers until January 1, 1998,
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

38 Materials, Policies, and Market Effects

117 U.S. Department of Energy, Record of Decision for the Storage and Disposition of Weapons-Usable Fissile Materials Final Programmatic

Environmental Impact Statement (Washington, DC, January 14, 1997), Footnote 1, p. 2. 118 The Uranium Institute, The Recycling of Fissile Nuclear Materials, Final report of the recycling working group (London, November

1996), p. 44. 119 U.S. Department of Energy, Office of Fissile Materials Disposition, General Requirements Document, DOE/MD-007 (Washington, DC,

October 1, 1996), p. 2-4. 120 Metal considered as “pure” can contain from trace up to 1 percent impurities. 121 National Academy of Science, Committee on International Security and Arms Control, Management and Disposition of Excess Weapons

Plutonium, National Academy Press (Washington, DC, January 24, 1994). 122 American Nuclear Society, Protection and Management of Plutonium, Report of The Special Panel on the Protection and Management

of Plutonium (La Grange Park, Illinois, August 1995). 123 Final Report of the U.S.-Russian Independent Scientific Commission on Disposition of Excess Weapons Plutonium, June 1, 1997, released by

The White House Office of Science and Technology (Washington, DC, September 10, 1997). 124 Ibid; p. 2.

and then only at a rate of 10 percent a year while not

exceeding 4 million pounds U3O8 equivalent. DOE’s

Office of Fissile Materials Disposition has included an

assessment of this action as part of its overall assessment

of HEU disposition.

Plutonium

Surplus Inventory Characterization

DOE has officially declared 38.2 metric tons of U.S.

weapons-grade plutonium as surplus.117 This plutonium

is equivalent to about 17 million pounds of U3O8.

118

Other inventories are expected to increase the quantity

of U.S. Government surplus plutonium to approximately

50 metric tons.119 Of the 50 metric tons of plutonium

identified as surplus, 31.8 metric tons are metal contained in components of dismantled nuclear weapons,

called “pits,” or in other forms.120 The remainder of the

inventory contains impure metal alloys, various oxides,

and reactor fuel. DOE has adopted the term “weaponsusable” to characterize its surplus plutonium inventories. To meet the President’s nonproliferation policy,

DOE is required to dispose of surplus weapons-usable

plutonium in a proliferation-resistant fashion. Also, the

surplus plutonium, including that coming from dismantled weapons, will be made available for IAEA

inspection. To be available for inspection, pits will have

to be disassembled and converted to unclassified forms.

Development of Plutonium Disposition

Alternatives

Unlike HEU, which can be readily converted to

proliferation-resistant LEU, the disposition of separated

plutonium is much more difficult. The difficulty arises

because the fissile isotopes of plutonium cannot be

blended down into a commercial form unusable for the

manufacturing of weapons. In a U.S. Governmentcommissioned study completed in 1994, the National

Academy of Sciences (NAS) advanced the position that

the disposition of surplus weapons-grade plutonium

should result in plutonium being made roughly as

inaccessible for weapons use as the much larger and

growing quantity that exists in spent fuel from

commercial reactors.121 The NAS concluded that two

alternatives used in parallel would provide a reasonable

approach for meeting its “spent fuel standard.” The two

alternatives, each requiring the conversion of plutonium

metal into oxide, are: (1) immobilization into chemically

stable forms suitable for disposal in a geologic repository (immobilization alternative) and (2) fabrication into

MOX fuel that will be irradiated in commercial nuclear

power reactors (reactor alternative). Subsequent studies

by the American Nuclear Society (1995) and the U.S.-

Russian Independent Scientific Commission on Disposition of Excess Weapons Plutonium (1997) have

supported the NAS position.122, 123

The reactor alternative is based on commercially established technologies that have been used for many years

in Western Europe and Japan (see Chapter 2). To accelerate the timetable for disposition while other facilities

are being developed, the U.S.-Russian Independent

Scientific Commission recommended existing European

MOX fuel fabrication plants for producing initial fuel

batches of weapons-plutonium MOX to be irradiated

in U.S. and Russian reactors.124 The irradiation of weapons plutonium in commercial nuclear power reactors

would be limited to a “once-through” fuel cycle, in

which the discharged spent fuel would not be

reprocessed but rather disposed of in a geologic

repository. Although the irradiation of MOX fuel would

not burn up all of the contained plutonium, the fissile

plutonium would be diluted with newly generated nonfissile plutonium isotopes. The high radiation emitted

from fission products forms a radiation barrier to

protect the plutonium remaining in discharged spent

fuel from diversion. Recovery of fissile plutonium from
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 39

125 Federal Register (June 21, 1994). 126 The deep borehole alternative consists of using boreholes to emplace plutonium permanently into deep stable rock formations. No

radiation barriers would be added. 127 U.S. Department of Energy, Office of Fissile Materials Disposition, Technical Summary Report for Surplus Weapons-Usable Plutonium

Disposition, DOE/MD-003 (Washington, DC, July 17, 1996), p. 1-1. 128 U.S. Department of Energy, Office of Fissile Materials Disposition, Storage and Disposition of Weapons-Usable Fissile Materials Final

Programmatic Statement, DOE/EIS-0229 (Washington, DC, December 1996). 129 U.S. Department of Energy, Record of Decision for the Storage and Disposition of Weapons-Usable Fissile Materials Final Programmatic

Environmental Impact Statement (Washington, DC, January 14, 1997). 130 Ibid, p. 19. 131 U.S. General Accounting Office, Nuclear Nonproliferation and Safety: Uncertainties About the Implementation of U.S.-Russian Plutonium

Disposition Efforts, Report to the Chairman, Committee on Foreign Relations, U.S. Senate, GAO/RCED-98-16 (Washington, DC, January

1998), Figure 3. 132 S.G. Cochran, W.H. Dunlop, T.A. Edmunds, L.M. MacLean, and T.H. Gould, Fissile Material Disposition Program Final Immobilization

Form Assessment and Recommendation, UCRL-ID-128705 (Lawrence Livermore National Laboratory, October 3, 1997), p. 1.

spent fuel would require substantial resources and

technology.

DOE’s Dual-Track Strategy for Plutonium

Disposition

In June 1994, DOE published a Notice of Intent to

prepare a programmatic environmental impact statement for the storage and disposition of weapons-usable

fissile materials (S&D PEIS).125 The S&D PEIS considered

variants of the immobilization and reactor alternatives

as well as a deep borehole alternative, advanced by NAS

for plutonium disposition.126 Furthermore, DOE adopted

the NAS spent fuel standard in developing a mission to

render surplus plutonium “as unattractive and inaccessible for retrieval and weapons use as the residual

plutonium in the spent fuel from commercial

reactors.”127 The S&D Final PEIS, published in December

1996, 128 provided for a dual-track disposition strategy

using the immobilization and reactor alternatives, while

reserving the option to immobilize all surplus plutonium

(Figure 4). To be amenable for these disposition

alternatives, the surplus plutonium would first be

converted into plutonium oxide (PuO2). DOE indicated

that the timing and extent of implementing the alternatives are dependent on a variety of factors, including

the demonstration of technologies, site-specific environmental assessments, cost reviews, contract negotiations,

and agreements with Russia and other countries.

In January 1997, DOE released its Record of Decision

(ROD) that sets forth decisions on the programmatic

strategies advanced in the S&D Final PEIS.129 DOE

estimated that implementation of its dual-track strategy

would cost approximately $2.2 billion in 1996 dollars.130

This estimated cost is net of potential cost recoveries

from the reduction of purchases of conventional LEU by

nuclear power generating companies participating in the

reactor alternative, estimated by DOE to be $930 million

over the life of the program.131

Immobilization Alternative

According to the ROD, DOE plans to immobilize at least

8 metric tons of surplus plutonium that would not be

acceptable for use in MOX fuel without extensive

purification. To date, immobilization of plutonium has

not been demonstrated on an industrial scale. In October

1997, a technology to process impure plutonium oxides

into a ceramic form was recommended over an alternate

technology that would have produced a glass form.132

To make the plutonium more proliferation resistant,

high-level radioactive waste is to be poured around the

immobilized material to achieve an intense radiation

barrier. All immobilized plutonium would be encased

in stainless steel canisters and would remain at the

processing site until a permanent high-level waste

repository becomes available. When combined with

commercial spent fuel at a high-level waste repository,

the immobilized former weapons-usable plutonium

would be under safeguards and security comparable to

those of commercial nuclear fuel. Thus, immobilization

produces an outcome that falls under the spent fuel

standard. In planning to immobilize a portion of the

surplus plutonium, DOE would make less plutonium

available to manufacture MOX fuel for commercial

nuclear power reactors.

Reactor Alternative

In the ROD, a decision was made to irradiate some of

the surplus plutonium as MOX fuel in existing,

domestic, commercial reactors. A plant for fabricating

MOX fuel would be operated on a DOE site only for the

surplus plutonium disposition program. The exact

location for the MOX fabrication plant would be
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

40 Materials, Policies, and Market Effects

Figure 4. Relationship of the U.S. Department of Energy’s Surplus Plutonium Disposition Alternatives and

the Civilian Nuclear Fuel Cycle

a

MOX fuel fabrication plant on a U.S. Department of Energy site to be operated by a commercial consortium only for the

disposition of weapons-usable plutonium. b

Depleted uranium, generated by the U.S. Government’s former uranium enrichment program, wil be used as a feed for MOX

fuel.c

Existing light-water reactors in the United States and Canadian deuterium-uranium (CANDU) reactors in Canada are

considered as options for the irradiation of MOX fuel. d

High-level radioactive waste is to be stored at interim sites pending completion of a permanent geologic repository.

Pu = Plutonium.

PuO2 = Plutonium oxide.

Source: Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 41

133 Evolutionary reactors are also known as advanced light-water reactors. 134 U.S. Department of Energy, Office of Fissile Materials Disposition, Technical Summary Report for Surplus Weapons-Usable Plutonium

Disposition, DOE/MD-0003 (Washington, DC, July 17, 1996). 135 MOX fuel fabricated from weapons plutonium is not expected to be available for initial lead assembly loadings until 2003 in Russia

and 2004 in the United States. 136 U.S. Department of Energy, Office of Fissile Materials Disposition, Program Acquisition Strategy for Obtaining Mixed Oxide Fuel

Fabrication and Reactor Irradiation Services (PAS) (Washington, DC, July 17, 1997), p. 1. 137 U.S. Department of Energy, “Notice of Intent Surplus Plutonium Environmental Impact Statement,” in Federal Register (May 22,

1997), pp. 28009-28014. 138 U.S. Department of Energy, Office of Fissile Materials Disposition, Program Acquisition Strategy for Obtaining Mixed Oxide Fuel

Fabrication and Reactor Irradiation Services (PAS) (Washington, DC, July 17, 1997).

determined later. By owning and controlling the plant

site, DOE would follow U.S. Government policy, which

discourages the civilian use of plutonium. The irradiation of MOX fuel would be limited to a once-through

fuel cycle with the resulting discharged spent fuel

disposed of in a geologic repository.

To irradiate MOX fuel, DOE had considered four types

of reactors: (1) existing commercial light-water reactors,

(2) commercial light-water reactors on which construction was halted, which would be completed, (3)

evolutionary light-water reactors (improved variants of

existing designs) that would be built at a DOE site,133

and (4) existing Canadian deuterium-uranium (CANDU)

reactors. For domestic reactors, the modification of

operating licenses for commercial reactors to burn MOX

fuel will be required. The use of MOX fuel will be

limited to the disposition of surplus weapons-usable

plutonium. To ensure that specific reactor types and

ownership could be properly analyzed, a number of

reactor and core design parameters had to be identified.

A detailed description of the technical parameters for

the reactor alternative is presented in the report by the

Office of Fissile Materials Disposition entitled, Technical

Summary Report for Surplus Weapons-Usable Plutonium

Disposition.

134

The reactor alternative also has been considered as an

option to ensure the mutual disposition of U.S. and

Russian weapons plutonium. At the Moscow Nuclear

Safety and Security Summit in April 1996, the Group of

Seven Industrialized Nations, including the United

States, along with Russia adopted the spent fuel

standard. Following the Moscow summit, the Government of Canada agreed in principle to the concept of

using Canadian reactors for the disposition of weapons

plutonium. Canadian government policy does not

exclude the use of plutonium as reactor fuel. Because

campaigns to irradiate weapons plutonium are not

expected to begin at U.S. or Russian reactors before

2003, the availability of CANDU reactors could present

an opportunity for implementing a reciprocal disposition campaign with Russia at an earlier date.135 To

assess the feasibility of a possible cooperative agreement

with Canada and Russia, DOE is working with the

Canadian government and nuclear industry to test a

small quantity of MOX fuel at a Canadian research

reactor.136 Should an agreement be reached, DOE would

modify its disposition plans to include the CANDU

option.

Status of the Reactor Alternative as of

December 31, 1997

To remain in the scope of this report, the following

description of the current status of DOE’s plutonium

disposition activities is limited to the reactor alternative.

In May 1997, DOE published a Notice of Intent to

prepare an EIS to examine reasonable alternatives and

potential environmental impacts as required by the

NEPA process for the proposed siting, construction, and

operation of three types of facilities for surplus plutonium disposition.137 The facilities to be considered are

for: (1) conversion of pits into PuO2, (2) immobilization

of impure plutonium oxides into glass or ceramic form,

and (3) fabrication of PuO2 into MOX fuel. Siting for a

MOX fuel fabrication plant was considered for the

following DOE facilities: Hanford Reservation, Washington; Pantex Plant, Amarillo, Texas; Idaho National

Engineering and Environmental Laboratory, Idaho; and

Savannah River site, South Carolina. The proposed EIS

follows the Record of Decision for the Storage and

Disposition of Weapons-Usable Fissile Materials PEIS

(Appendix C, Table C1). Detailed assessments of

potential sites for disposition facilities had not been

made in previous statements.

As a preliminary step in procuring potential MOX fuel

fabrication and reactor irradiation services from the

private sector, the Office of Fissile Materials Disposition

released a program acquisition strategy (PAS) in July

1997.138 The PAS describes DOE’s approach and solicits

comments from prospective offerors. Comments

regarding the PAS will be used in preparing a draft

Request for Proposals (RFP), which was scheduled for
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

42 Materials, Policies, and Market Effects

139 Ibid, p. A-2. 140 Small quantities of gallium, a metallic element, are alloyed with plutonium metal during the manufacture of pits. 141 “DOE MOX Implementation Plan Puzzles Industry and Critics Alike,” NuclearFuel (July 28, 1997), pp. 4-5.

Table 8. U.S. Department of Energy’s (DOE) Schedule for Implementing the Reactor Alternative to

Dispose of Surplus Weapons-Usable Plutonium

Date Planned Action Comments

February 1998

(see note)

Issue Request for Proposals. To acquire MOX fuel fabrication and reactor irradiation

services preferably from a private sector consortium

that must include either a U.S.-owned reactor licensee

or a U.S.-owned nuclear steam supply system vendor.

May 1998 (see note) Proposals due from offerors.

September 1998 Award contract.

2001 DOE to make first plutonium from

weapons dismantlement available to

produce MOX fuel for lead assembly

demonstration or production operation.

At least 0.5 metric ton PuO2. Lead assembly refers to

the initial loading of MOX fuel into the core of a reactor.

2004 DOE to increase plutonium availability. 1.0 metric tons PuO2 feed by the beginning of 2004,

approximately 3.5 metric tons per year in subsequent

years.

2007 Deadline for irradiation to commence at

commercial reactors.

MOX fuel core reloads, assumes that lead assembly

demonstrations have already taken place.

2022 Complete irradiation campaign. After the campaign ends, MOX fuel production and

irradiation to end in the United States.

 Note: Based on original schedule. A Request for Proposals had not been issued as of April 30, 1998.

 Sources: U.S. Department of Energy, Office of Fissile Materials Disposition, Program Acquisition Strategy for Obtaining

Mixed Oxide Fuel Fabrication and Reactor Irradiation Services (PAS) (Washington, DC, July 17, 1997).

issuance in final form to potential offerors in early 1998

(Table 8). DOE expects to award a contract in September

1998. However, DOE will not construct or operate a

MOX fuel fabrication facility or irradiate MOX fuel in a

commercial reactor until such activities are approved in

the pending “Record of Decision for Surplus Plutonium

Disposition.”

As described in the PAS, DOE requests that both

integrated MOX fuel fabrication and reactor irradiation

services be provided by a single consortium. The single

consortium is believed to offer two advantages: (1)

encouraging relationships between fuel fabricators,

engineering firms, and nuclear reactor operators, and (2)

simplifying DOE’s selection and contracting processes

by awarding one contract. In addition to fuel fabrication

and irradiation services, the consortium would be

expected to design the MOX fuel, modify reactors to

accommodate MOX fuel, provide architectural and

engineering services, and obtain licensing of the MOX

fuel fabrication plant from the Nuclear Regulatory

Commission. The PAS also provided the qualifying

criteria for each of the required activities. The U.S.

Government would provide the following materials and

services: (1) depleted uranium (UF6 or UO3), if desired;

(2) PuO2; (3) fuel fabrication facility at DOE site; (4)

transportation of PuO2 to fuel fabrication site; (5)

transportation of fuel to reactors for irradiation; (6)

acceptance of certain wastes; and (7) certified package

for transportation of fresh MOX fuel.

As a technical baseline for planning purposes, 33 metric

tons of plutonium are expected to be converted to PuO2

feed for MOX fuel fabrication.139 To enure proper MOX

fuel fabrication, gallium may have to be removed from

PuO2 derived from pits.140, 141 Nevertheless, DOE plans
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 43

142 EIA uses the following average burnup rates for MOX-fueled reactors in developing projections for uranium requirements and spent

fuel: boiling-water reactors, 39,000 MWDT/MTIHM; pressurized-water reactors, 46,800 MWDT/MTIHM.

to make at least 0.5 metric ton of PuO2 from weapons

dismantlement available by the beginning of 2001 for

lead assembly (initial reactor fuel loading) demonstration or production operation (Table 8). An assumed rate

of approximately 3.5 metric tons per year is to be

maintained after 2004.

To meet uranium feed requirements for MOX fuel

fabrication, DOE is planning to provide depleted uranium either as UF6 or UO3 to the consortium at no cost.

This supply would come from existing DOE inventories,

such as UF6 held at the Paducah, Portsmouth, and K-25

enrichment plant sites (see Chapter 3). The consortium

is not permitted under most conditions to either acquire

depleted uranium from other sources or process the

depleted uranium into feed outside of existing, licensed

U.S. facilities. However, the consortium can choose to

acquire uranium at enrichment levels different from

those of depleted uranium at its own cost.

DOE requests that the irradiation of MOX fuel derived

from weapons-usable plutonium begin no later than

2007 and end in 2022 (Table 8). To meet this schedule,

the consortium must provide a minimum of three and a

maximum of eight operating reactors that can complete

the mission within remaining licenses. DOE will consider only reactors located in the United States licensed

to at least 2012. The burnup of MOX fuel is to exceed a

minimum of 20,000 megawattdays thermal per metric

ton of initial heavy metal (MWDT/MTIHM). Higher

burnups within the operating experience of MOX-fueled

European reactors are preferred to minimize spent fuel

discharges.142 All spent fuel must be amenable to storage

and disposal pursuant to the Nuclear Waste Policy Act.
Market Effects
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 47

0

100

200

300

400

500

600

700

Million Pounds U308 Equivalent

Cigar Lake Project, Canada

McArthur River Project, Canada

Government Surplus Inventories

6. Analysis of Market Penetration Factors

Plans for converting U.S. and Russian surplus defense

inventories into fuel for commercial nuclear power

plants have been described in the two preceding

chapters. The realization of such a goal is dependent on

factors related to both the ability of the governments to

meet the plans and the dynamics of the commercial

marketplace. This chapter provides an analysis of the

key factors that could influence the ultimate market

penetration of uranium derived from U.S. and Russian

surplus defense inventories.

Based on approved disposition plans for U.S. and

Russian surplus defense inventories, the equivalent of

474 million pounds U3O8 is expected to be made

available for use in commercial nuclear fuel over the

next 15 to 20 years. This quantity exceeds the reserves

of any one of the world’s major new uranium mines

scheduled to begin production during the next several

years (Figure 5). Assuming that the schedules described

in previous chapters will be met, the annual rate for

commercializing surplus defense inventories would

exceed the equivalent of 30 million pounds U3O8 by 1999

(Figure 6). In comparison, the largest mining projects

under development, Cigar Lake and McArthur River in

Canada, are each scheduled to produce as much as 18

million pounds of U3O8 per year for at least 15 years.

The LEU that would be made available for commercial

use contains 102 million SWU of enrichment. On an

annual basis, increased commercialization is expected to

yield more than 6 million SWU by 1999 (Figure 7). The

sale of LEU from surplus defense inventories would

displace the need for enrichment services normally

required to produce an equivalent amount of LEU from

natural uranium. For example, USEC has filled certain

enrichment service contracts since 1995 with LEU

blended down from Russian HEU. Under such an

arrangement, USEC would charge customers for the

SWU contained in the delivered LEU but would avoid

using its own enrichment production capacity.

Proposed plans for disposing of weapons-grade

plutonium include an option for burning MOX fuel in

commercial reactors. If approved, the implementation

of the U.S. disposition program by the end of the next

decade could result in the displacement of 1 to 2 million

pounds U3O8 per year. The plutonium would not be

sold in a commercial market but rather supplied directly

to reactors that are under contract to DOE (see Chapter

5). The nuclear power generating company would be

part of a larger consortium of companies responsible for

providing integrated services, including MOX fuel

fabrication, to DOE.

Figure 5. Comparison of the Uranium

Reserves of Major Mining Projects and

the Uranium Contained in U.S. and

Russian Surplus Defense Inventories

Currently Scheduled for

Commercialization

Explanation: Reserves are reported as “geological”;

they are estimates of uranium contained in the ground and

do not consider losses due to mining or milling; surplus

defense inventories include Russian HEU and U.S. HEU,

natural uranium, and LEU.

Sources: Mining projects&Cigar Lake Mining Corporation, The Cigar Lake Project Environmental Impact

Statement (Executive Summary) (Saskatoon, Canada, July

1995), p. 3; The McArthur River Project Environmental

Impact Statement (Executive Summary) (Saskatoon,

Canada, November 1995), p. 3. Surplus defense

inventories&Russian HEU Agreement and U.S. Department

of Energy plans to dispose of HEU, LEU, and natural

uranium.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

48 Materials, Policies, and Market Effects

1997 2000 2003 2006 2009

0

10

20

30

40

Million Pounds U3O8 Equivalent

Russian HEU Russian HEU: Pre-1997

U.S. HEU U.S. Natural Uranium & LEU 

Figure 6. Potential Market Availability of

Uranium Derived from U.S. and Russian

Surplus Defense Inventories

Currently Scheduled for

Commercialization, 1997-2010

1997 2000 2003 2006 2009

0

2

4

6

8

Million Separative Work Units (SWU)

 Russian HEU U.S. HEU U.S. LEU

Figure 7. Potential Market Availability of

Enrichment Derived from U.S.

and Russian Surplus Defense

Inventories Currently Scheduled for

Commercialization, 1997-2010

The ultimate penetration of surplus defense inventories

into the market is indicated by deliveries from suppliers

to nuclear power generating companies. It can be

constrained by a number of factors that are considered

to fall into the following two categories: (1) programmatic and (2) supply and demand. While it is likely

that commercialization of surplus inventories will retain

the support of the U.S. and Russian governments, it is

not clear that current schedules can be met. Programmatic constraints include the technical, regulatory,

political, and contractual factors that could affect the

timely realization of the government programs. Once

released to the marketplace, products are subject to the

supply and demand constraints. Supply and demand

constraints include projected declines in nuclear power

generation capacity in the United States and Western

Europe, national policies toward trade and security of

supply, competing supplies, utility procurement practices, and supplier marketing strategies.

Because plutonium would not be sold in a market, the

realization of the reactor option for disposition depends

only on programmatic factors. In view of the assessment

of programmatic and supply and demand constraints

provided below, the actual market penetration of U.S.

and Russian surplus defense inventories is expected to

lag behind current government plans for commercialization.

A third factor&the extent to which the uranium feed

component of LEU produced from Russian HEU (Russian feed) is made available to Western consumers as a

result of decisions by the Russian government&combines certain aspects of the two broad

categories. Because of its large potential impact on the

nuclear fuel market, a discussion of the possible Russian

utilization of Russia HEU feed is treated as a separate

topic.

Programmatic Factors

Russian HEU

The commercialization of Russian HEU could be constrained by inadequate capacity or contractual differences related to the Russian HEU Agreement. Russia

was able to resolve initial technical problems in blending

Russian HEU into LEU to meet commercial specifications (see Chapter 4). The quantity of LEU delivered

to USEC in 1996 exceeded contractual obligations by 20

percent; however, the November 1996 amendment to the

Russian HEU Agreement provided for deliveries to

 Sources: Russian HEU—Russian HEU Agreement; U.S.

HEU and LEU—U.S. Department of Energy disposition

plans; United States Enrichment Corporation, 1996 Annual

Report.

 Explanation: Russian HEU: Pre-1997—Uranium feed

component of Russian LEU derived from HEU transferred to

the U.S. Department of Energy (DOE) by the United States

Enrichment Corporation in 1996. DOE is authorized by the

USEC Privatization Act to sell this uranium.

 Sources: Russian HEU—Russian HEU Agreement. U.S.

HEU, natural uranium, and LEU—U.S. Department of Energy

disposition plans; United States Enrichment Corporation, 1996

Annual Report.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 49

143 The availability of a blendstock from enriching tails low in U-234 and U-236 could be constrained by the availability of Russian

enrichment capacity that has not been contaminated by reprocessed uranium. 144 “Mishandling Russian Uranium” (editorial), The New York Times (June 11, 1997), p. 24. 145 Cameco Corporation, “Discussions Suspended Concerning Russian Highly Enriched Uranium,” press release (December 11, 1997). 146 The Ux Weekly (April 27, 1998), p. 3.

double by 1998. To meet this increased delivery requirement, capacities would have to be expanded for dismantling nuclear weapons, purifying and blending

down HEU, and supplying blendstock. In addition to

the enrichment of “clean” tails, Russia could utilize the

Russian feed returned to it by USEC as blendstock.143

Because the Russian HEU Agreement is strongly driven

by U.S. nonproliferation policy and Russia’s financial

needs, both parties are expected to cooperate in

resolving unanticipated problems. As has been done in

the past, the Russians could be paid in advance for

product by USEC or receive technical and financial

assistance from the U.S. Government.

The current contract pursuant to the November 1996

amendment to the Russian HEU Agreement runs

through 2001. One or both of the Executive Agents

could take an aggressive stand on pricing or quantity to

be delivered that might delay the completion of an

agreement. This situation could result in a disruption of

supply and an increase in price. Recent commentary has

suggested that a privatized USEC might not be

interested in pursuing the Russian HEU Agreement to

the fullest extent because of economic considerations.144

Nevertheless, the U.S. and Russian governments would

be expected to intercede, if necessary, to ensure a

contract extension. 

The sale of the feed component of LEU derived from

Russian HEU (Russian feed) has added an additional

dimension to the commercialization of Russian HEU.

Because the Russian government had linked the delivery

of LEU with the sale of Russian feed (see Chapter 4), the

availability of both SWU and natural uranium in the

commercial market are dependent on concluding the

Russian HEU Agreement and selling the uranium feed

component. With the suspension of negotiations

between MINATOM and Western suppliers, Russia will

apparently sell the Russian feed.145 Nevertheless, Russia

has not indicated the amount of Russian feed that would

be made available for Western consumption. A more

detailed assessment of Russian feed availability is

presented in a later section of this Chapter.

U.S. Commercial-Grade Uranium

In the fiscal year ending September 30, 1997, DOE was

permitted to sell natural UF6 and LEU after the Secretary

of Energy determined that such sales would not

adversely affect the domestic uranium industry. However, future sales of such commercial-grade uranium

also would require similar determinations. To facilitate

sales, DOE is working on expanding the Secretary’s

determination to cover a multi-year period. Nevertheless, the condition of approval by the Secretary of

Energy adds uncertainty to the availability of commercial-grade uranium from DOE.

U.S. HEU

The availability of LEU derived from U.S. HEU depends

on the completion of several programmatic milestones.

While the USEC Privatization Act provided for DOE’s

transfer of HEU to USEC, a Memorandum of Agreement

to initiate the transfer of 50 metric tons of HEU along

with 7,000 metric tons of natural uranium was not

signed by the two parties until April 1998.146 For

blending down HEU to LEU, USEC requires the services

of a contractor. USEC is permitted by the USEC

Privatization Act to deliver up to 4 million pounds U3O8

equivalent per year from this material beginning in 1998

(see page 33). Deliveries of the enrichment services

component of HEU-derived LEU are limited to 800,000

SWU per year, beginning in 1998. Because the HEU

must be blended down after the transfer has been

completed, the resultant LEU might not be made

available for an extended period. Nevertheless, USEC

could choose to meet the quota for 1998 by selling the

transferred natural uranium, which requires no further

conversion. 

The TVA’s utilization of LEU derived from off-specification HEU is contingent on the results of a lead fuel

assembly demonstration scheduled for 1999. Such a

demonstration would indicate any technical or licensing

problems. Until the lead fuel assembly demonstration

has been completed, considerable uncertainty exists as

to the quantities of HEU that can be used and the

scheduling for reloading fuel derived from HEU into the

reactors.

U.S. Plutonium 

The plan to burn surplus weapons-usable plutonium in

commercial nuclear power reactors is the least certain of

all DOE disposition programs. Its implementation
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

50 Materials, Policies, and Market Effects

147 U.S. General Accounting Office, Nuclear Nonproliferation and Safety: Uncertainties About the Implementation of U.S.-Russian Plutonium

Disposition Efforts, Report to the Chairman, Committee on Foreign Relations, U.S. Senate, GAO/RCED-98-16 (Washington, DC, January

1998), p. 2. 148 The Ux Weekly (October 7, 1996), p. 2. 149 “Economic Crisis Tests Pacific Bloc,” The Washington Post (November 23, 1997), p. A24. 150 Ontario Hydro, “Statement by William Farlinger, Chairman and Interim Chief Executive Officer,” press release (Toronto, August

13, 1997). 151 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table D1. 152 The Uranium Institute, News Briefing 97-33-1 (London, August 1997). 153 The Uranium Institute, The Global Nuclear Fuel Market: Supply and Demand 1995-2015 (London, June 1996), Table 8.3. 154 Nucleonics Week (October 23, 1997), p. 1.

depends on resolving a variety of issues transcending

national and international interests. For example, U.S.

Government officials have favored the negotiation of a

weapons plutonium disposition agreement between the

United States and Russia as a precursor to large-scale

expenditures for U.S. disposition facilities.147 To date, no

such agreement exists between the two countries.

The plutonium disposition program would not be

implemented until an assessment of the potential

environmental impacts has been completed for the

proposed siting, construction, and operation of the

required facilities. The construction of facilities will be

required for converting surplus plutonium materials

into plutonium oxide and for fabricating MOX fuel.

Because the technology for burning MOX fuel in

commercial reactors is well established, most of the

uncertainty lies in licensing and public acceptance. Each

of the facilities and the commercial reactors where

irradiation would take place must be licensed by relevant government agencies. The plutonium disposition

program must also gain widespread public acceptance.

Environmental interest groups have opposed the reactor

option for the disposition of plutonium. For example,

the Nuclear Control Institute, the National Resources

Defense Council, and Greenpeace petitioned the Nuclear

Regulatory Commission in 1996 to reject a proposal by

DOE to ship plutonium to Canada.148 The shipments

were to be made to test the feasibility of burning MOX

fuel in CANDU reactors (see page 41).

Supply and Demand Constraints

in the Western Market

Operable Nuclear Power Generating

Capacity

Projections of uranium and enrichment requirements are

based on assumptions about nuclear power generation

and fuel management practices. One of the most

important assumptions, operable capacity, is particularly

subject to considerable uncertainty. Electric industry

restructuring in the United States and other countries

and political opposition, especially in Europe, could

result in early plant retirements. In the Far East, Korea

and other countries with plans to add nuclear generating

capacity have experienced recent economic difficulties.149

As a result, new plant construction is likely to be

delayed as financing becomes more difficult to secure.

Also, public opposition to the construction of new

nuclear power plants in Japan could result in the

installation of less new capacity than had been anticipated. Any of these situations would result in a decline

in demand for uranium and nuclear fuel cycle services.

Examples of early retirements announced in 1997 for

nuclear power plants are Maine Yankee in the United

States and seven reactor units at the Bruce A and

Pickering A plants in Canada. Ontario Hydro could

possibly return the Bruce A and Pickering A reactors to

service, but only upon Board approval based on

economic and market considerations.150 The total net

generating capacity of the seven units is approximately

4,600 megawatts-electric.151 Due to the closures, Ontario

Hydro’s annual uranium requirements will be reduced

by about 1.4 million pounds U3O8.

152

Commercial MOX Fuel Usage

The use of plutonium in MOX fuel displaces the need for

newly produced uranium and enrichment services (see

Chapter 2). MOX fuel is projected by the Uranium

Institute to displace 4.9 million pounds U3O8 in 2000,

increasing to 8.0 million pounds U3O8 in 2010.153 These

projections do not include the possible use of MOX fuel

in Russia and the United States. Moreover, recent

changes in government policy could limit the growth of

MOX fuel usage in existing commercial programs. In

October 1997, France’s newly elected Socialist government announced that plutonium recycling would not be

expanded.154 This development is particularly significant

because France is the leader in MOX fuel utilization.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 51

155 See Table 3-2 for annual quotas established by the Amendment to the Agreement Suspending the Anti-dumping Investigation on

Uranium from the Russian Federation, March 11, 1994 (Suspension Agreement with Russia). 156 Energy Information Administration, Form EIA-858, “Uranium Industry Annual Survey 1996.” 157 Euratom Supply Agency, Annual Report 1996, p. 10.

1997 1999 2001 2003 2005 2007 2009

0

5

10

15

20

25

Million Pounds U308 Equivalent

 Available to U.S. End Users

 Not Available to U.S. End Users

Figure 8. Potential Availability of Uranium Feed

from the Blending Down of Russian

Highly Enriched Uranium to Low-Enriched

Uranium, 1997-2010

Assumptions: (1) Availability to U.S. end users based on

direct quota authorized by the USEC Privatization Act. (2)

Annual quantity of uranium feed reflects likely capacity for

blending down Russian HEU to LEU. The quantity for 1997-

2001 was determined by an agreement between the United

States Enrichment Corporation (USEC) and Techsnabexport,

November 1996. (3) For 2002 and later years, it is assumed

that 30 metric tons of Russian HEU will be blended down to

LEU per year. (4) Does not consider uranium feed contained

in the LEU derived from 18 metric tons of Russian HEU that

was purchased by USEC in 1995 and 1996.

Source: U.S. quota&USEC Privatization Act (April 26,

1996), Section 3112 (b).

Trade Restrictions and Other National

Policies

Unlike the SWU component, the natural uranium feed

component of LEU blended down from Russian HEU

(Russian feed) was not marketed prior to 1997. The

availability of Russian feed to U.S. end users is restricted

to matched sales quotas of the Suspension Agreement

with Russia and the direct quotas authorized by the

USEC Privatization Act (see Chapter 4).155 The pre-1997

Russian feed purchased by Global Nuclear Services and

Supply from DOE is expected to enter the market over

the next several years through matched sales contracts.

Both U.S. producers and utilities have already embraced

matched sales of uranium from Russian mines and other

commercial sources. Since Russian imports are generally

less costly to purchase than U.S.-origin uranium, utilities

can reduce their overall fuel costs by matching uranium

from both sources. U.S. producers also benefit because

it improves the marketability of their product. In 1996,

the equivalent of 3.7 million pounds U3O8 of Russianorigin material were delivered to U.S. utilities as part of

24 matched sales transactions made in 1996 or prior

years.156 As of December 31, 1996, 14 matched sales

contracts remained in effect for future deliveries of

Russian-origin uranium.

Based on the purchase of LEU produced from 18 metric

tons of HEU, USEC was expected to make available the

equivalent of 14.4 million pounds U3O8 of Russian feed

to the Russian Executive Agent in 1997. Assuming that

the matched sales quota will be used for the sale of pre1997 Russian feed, all of this uranium would have to be

sold outside the United States in 1997 (Figure 8). The

direct quota for selling Russian feed to U.S. end users

does not take effect until 1998; however, not until 2004

will more than half of the scheduled supply of Russian

feed be permitted to be sold to U.S. end users.

The availability of Russian feed also is likely to be

limited for end use in the European Union (EU) and

Japan. The Euratom Supply Agency (ESA) has enacted

a policy designed to ensure a security of supply for its

EU member countries through diversification.157 To

achieve this goal, ESA has sought to limit imports from

the Commonwealth of Independent States (CIS),

including Russia, to 25 percent of total purchasing

contracts. This policy is considered flexible in that it

does not apply strict quotas set by law. In addition, ESA

has ruled that Russian feed returned by USEC to the

Russian Executive Agent for subsequent sale to EU

countries would be considered a Russian import.

Because CIS imports have exceeded 25 percent of total

purchasing contracts in the past several years, ESA is

planning to monitor the situation carefully. As a result,

the penetration of the EU market by Russian feed could

be restricted over the short term. However, increasing

quantities of Russian feed are expected to be sold to the

EU as existing contract commitments expire in the

coming years. 

In past years, utilities in Japan generally have not

purchased uranium from Russia. Political differences
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

52 Materials, Policies, and Market Effects

158 “Tokyo and Moscow Show Warming Relations,” The Washington Post (May 31, 1997), p. A14. 159 Energy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table 21. 160 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, (DOE/EIA-0436(97) (Washington, DC,

September 1997), Table F1.

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0

20

40

60

Million Pounds U308 Equivalent

Anticipated Market Requirements

Quantity of Uranium Under 

Purchase Contracts

Unfilled Requirements

Figure 9. Anticipated Uranium Market

Requirements of U.S. Utilities,

1997-2006, as of December 31, 1996

1998 2000 2002 2004 2006 2008 2010

0

20

40

60

Percent

Figure 10. Quota for Deliveries to U.S. End Users of

Uranium Feed from the Blending Down

of Russian Highly Enriched Uranium to

Low-Enriched Uranium as a Share of

Projected U.S. Uranium Requirements,

1997-2010

 Sources: Projected U.S. uranium requirements&Energy

Information Administration, Nuclear Power Generation and

Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table F1; U.S. quota&USEC Privatization

Act (April 26, 1996), Section 3112 (b).

 Source: Energy Information Administration, Uranium

Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC,

April 1997), Table 21.

between the countries played an important role in

barring Russian uranium imports. In recent months,

however, relations between Japan and Russia have

begun to improve. The two countries have exchanged

visits by top defense officials and discussed arms sales,

and trade and Japanese investments in Russia have been

accelerated.158 This change in the relationship of the two

countries suggests that Japan could become a significant

consumer of Russian-origin uranium over the next few

years. The possibility of Japan purchasing Russian feed

could be enhanced should the Russian Executive Agent

sell the Russian feed it receives from USEC to suppliers

that have established relationships with Japanese

utilities.

Unfilled Requirements and Other

Procurement Issues

Assuming that commercialization schedules are met,

U.S. and Russian surplus defense inventories must

compete in the world uranium market against

traditional sources of supply. The extent to which

utilities’ requirements are covered by existing contract

commitments with suppliers will dampen the introduction of new sources of uranium. Because utilities

operate on long-range planning horizons, a large share

of market transactions have been made for long-term

supply commitments well in advance of actual

deliveries. For example, U.S. utilities reported in the

beginning of 1997 that 82 percent of their anticipated

1998 requirements were covered by purchase contracts

concluded prior to the end of 1996.159 In future years,

progressively smaller shares of requirements are

covered by current contract commitments (Figure 9).

Those countries with more conservative procurement

policies than the United States would be expected to

have a greater share of their future requirements

covered by existing commitments. Thus, the opportunities for selling competitively priced uranium,

including that from surplus defense inventories, through

longer-term contracts will increase in later years. 

Utilities have traditionally favored procurement from

diversified suppliers. By the end of the next decade, the

quantity of Russian feed that is permitted by law to be

sold to U.S. end users will reach one-half of U.S. reactor

requirements (Figure 10).160 Because of diversification

policies, sales of Russian feed to U.S. utilities might

not reach the maximum level permitted by law.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 53

Nuclear Fuel Market Transactions

The nuclear fuel market, like any market, consists of transactions between buyers and sellers. Utilities, producers,

and market intermediaries engaged in brokering or trading products and services can act as both buyers and sellers.

Transactions are contractual obligations to provide goods and services in exchange for money or other

considerations. Contractual obligations between buyers and sellers are referred to as “contract commitments.” In

the nuclear fuel market, contract commitments can be in effect for less than a year or for as long as 10 years or more

from the date of contract execution.

Historically, the majority of commitments between utilities and suppliers have been made on a longer-term basis.

For example, contracts with deliveries occurring over a period of 3 years or more from the execution date (mediumterm and long-term contracts) were responsible for 75 percent of the uranium delivered to U.S. utilities during 1996.a

Long-term commitments have provided utilities with a steady supply of nuclear fuel at costs that fall within utilities’

planned procurement budgets. The nuclear industry is interested in the predictability of cash flows that can be

realized through long-term commitments. Also, investments in new capacity or in the expansion of existing capacity

are seldom made without securing long-term commitments from utilities to purchase products or services.

The remainder of utility purchases have been concluded through shorter-term contracts, especially as purchases in

the spot market.b

 Deliveries from spot-market purchases are completed within a year of contract execution. The

spot-market price can experience considerable volatility. In 1996, for example, the spot-market price for the

restricted uranium market rose 45 percent from the beginning of the year to June 30, before declining 65 percent

by the end of the year.c,d The volatility of spot-market prices offers market participants the opportunity to secure

supply at prices below existing contract prices.

To take advantage of relatively lower spot-market prices, utilities are interested in maintaining a certain degree of

flexibility in their procurement practices. Some long-term contracts with suppliers offer utilities an option of receiving

additional quantities above a base amount. When the spot-market price is higher than the long-term price, utilities

can lock in on the lower long-term price. Conversely, this quantity flexibility places utilities in a position to realize cost

savings by filling the remainder of requirements with lower cost spot-market purchases. Uranium producers also

have purchased uranium from the spot market and subsequently sold it to utilities at a higher contract price. This

practice became increasingly common in the late 1980s as the spot-market price fell below the marginal production

costs of many producers.

 aEnergy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table

16.

 b

A utility can also fill its requirements through loans or exchanges with other utilities or by drawing down excess inventories.

 c

A two-tier market was developed at the end of 1992 as a result of the suspension agreements that restrict imports from the

republics of the former Soviet Union.

 d

Exchange value as reported in TradeTech, The Nuclear Review (October 1997).

Nevertheless, Russian feed could gain wide acceptance

if it is marketed by a supplier that can offer a proven

record of reliability and excess production capacity to

cover unanticipated disruptions.

Strategies for Marketing Uranium

As long as it remains the U.S. Executive Agent over the

life of the Russian HEU Agreement, USEC is expected to

purchase 92 million SWU contained in the LEU blended

down from 500 metric tons of Russian HEU. The

uranium feed component of the LEU will be returned by

USEC to the Russian Executive Agent for subsequent

commercial sale. For 4 years, Western suppliers

negotiated with MINATOM to purchase Russian feed.

In August 1997, an agreement in principle was reached

whereby Cameco Corp. and Cogema, two of the world’s

largest uranium producers, could each purchase 45

percent of the Russian feed made available by the

Russian Executive Agent. Nukem Inc., a uranium

trading company, would receive 10 percent. However,

as described in Chapter 4, negotiations between the

parties were suspended in December 1997. Russia is

expected to market the uranium to Western consumers

through its representatives, Global Nuclear Supply and

Services (GNSS) and Techsnabexport (TENEX).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

54 Materials, Policies, and Market Effects

161 Spot-market price is the monthly Exchange Value for the restricted U.S. market, as reported in TradeTech, The NUCLEAR Review

(August 1997). 162 Cameco Corporation, “Discussions Suspended Concerning Russian Highly Enriched Uranium,” press release (December 11, 1997). 163 Euratom Supply Agency, Annual Report 1996, p. 10. 164 The Uranium Institute, “World Uranium Production and Nuclear Share,” fact sheet (October 16, 1997). 165 Energy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table 31.

The three Western producers, USEC, Cameco, and

Cogema, were expected to sell most if not all of their

acquired uranium through longer term contracts. USEC

is also expected to sell SWU in a similar fashion.

Producers would also have the flexibility to modify

production plans to accommodate these acquisitions by

closing down more costly capacity or delaying the start

of new projects. These strategies are likely to ensure

more stable prices, which would support the costs of

producing uranium or providing enrichment services.

Nukem, on the other hand, could sell a much greater

share of uranium on the spot market than the producers

group. Without its own production capacity, Nukem

could implement a marketing strategy directed toward

gaining market share at the expense of producers and

decreasing its inventory holding costs, in part by

offering uranium at competitive prices on the spot

market. Selling on the spot market, however, has

become increasingly unattractive with recent price

declines. The average uranium spot-market price has

declined from $16.50 per pound U3O8 in June 1996 to

below $11.00 per pound U3O8 in June 1997.161 More

likely, a firm engaged in trading would conclude a

significant number of long-term contracts to establish

itself as a reliable supplier.

Russia is also expected to favor longer term contracts.

The HEU feed provides GNSS and TENEX with an

alternative source of supply to meet existing contracts

and pursue new contracts. Historically, Russia has

exported uranium from inventories and mine production. Russia has indicated that it would sell the

uranium feed at a floor price above the average of world

market prices.162

Under current plans to transfer HEU and natural

uranium, USEC could receive the equivalent of up to

37.5 million pounds U3O8 and 5.7 million SWU in HEU

and natural uranium transferred from DOE. The

ownership of natural uranium could allow USEC to

become a major producer of enriched uranium product.

Excess Commercial Inventories

Since the early 1980s, excess inventories held by

suppliers and utilities have filled a gap between uranium

production and demand in the West. Imports from the

Commonwealth of Independent States (CIS), especially

from Kazakhstan, Russia, and Uzbekistan, have contributed to this supply. For example, Euratom reported

that the equivalent of 43.2 million pounds U3O8 was

imported to the EU from the CIS in 1996.163 Of this

amount, 17.7 million pounds U3O8 was under purchase

contracts for EU utilities. The remaining quantity of

uranium was held in inventory for later delivery to

customers both in and outside the EU. In comparison,

Kazakhstan, Russia, and Uzbekistan produced only 12.5

million pounds U3O8 from mines during 1996 (Figure

11).164 From these data, it is evident that the CIS had

been exporting uranium from inventories. 

In the United States, inventories held by utilities and

suppliers, excluding DOE and USEC, increased from the

equivalent of 72.5 million pounds U3O8 at the end of

1995 to 81.2 million pounds U3O8 at the end of 1996, a

gain of 12 percent.165 This increase, the first for the

United States since the early 1980s, is attributed to

discretionary purchases made by utilities during 1995

and 1996.

Because of the uncertainty regarding the availability of

CIS imports, it is difficult to assess the level of excess

inventories in the future. Commercial inventories are

likely to continue to be an important supply over the

next several years. By 2000, CIS imports are expected to

decrease to levels matching production. With less

available CIS supply, commercial inventories could be

drawn down to levels no longer considered as excessive.

At the same time, U.S. and Russian surplus defense

inventories are expected to fill the role held by

traditional commercial inventories in supplying the

deficit between uranium demand and production.

Availability of Russian Feed for

Western Consumption

Assuming that HEU blending meets the schedule

pursuant to the Russian HEU Agreement, not all of the

uranium feed component (Russian feed) is likely to be

made available for Western consumption. To earn

foreign exchange, Russia is expected to sell much of the

Russian feed to the West. Nevertheless, Russia has
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 55

166 Cameco Corporation, “Cameco Signs Uranium Agreement in Principle with Russia,” press release (August 18, 1997). 167 Energy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table 5. 168 Energy Information Administration, International Nuclear Model, Reference Case 1997. 169 O. Bukharin, “Analysis of the Size and Quality of Uranium Inventories in Russia,” paper presented at the Nuclear Energy Institute’s

International Uranium Fuel Seminar (Williamsburg, VA, October 1995). 170 Ibid. 171 Based on reactor requirements of 18 million pounds U3O8 equivalent and 4 million pounds U3O8 equivalent supplied from reenriching depleted uranium from enrichment tails.

0

10

20

30

40

50

Million Pounds U308 per Year

CIS Exporters Mine Production 1996

Key Lake Mine Production 1996

Potential Cigar Lake Mine Production

Potential Sales of Government Inventories

CIS Deliveries to EU 1996

Figure 11. Historical and Potential Annual Supply

Comparisons

Explanation: CIS&Commonwealth of Independent States;

EU&European Union; Government inventories&U.S. and

Russian surplus defense inventories; CIS

exporters&Kazakhstan, Russia, and Uzbekistan.

Assumptions: (1) uranium feed component of LEU derived

from Russian HEU is delivered to end users in the same year

that it becomes available and (2) maximum legal quantities of

uranium derived from U.S. surplus defense inventories of HEU

and natural uranium are sold.

Sources: CIS deliveries to EU&Euratom Supply Agency,

Annual Report 1996 (1997), p. 10; Government inventories&this report; Potential Cigar Lake mine production&Cigar

Lake Mining Corporation, The Cigar Lake Projected

Environmental Impact Statement (Executive Summary) (July

1995) p. 7; Key Lake mine production&Natural Resources

Canada, “Canadian Uranium Statistics Fact Sheet” (July

1997); CIS exporters mine production&International Atomic

Energy Agency, “World Uranium Production and Nuclear

Share,” fact sheet (October 16, 1997).

indicated that it could reserve some material for internal

uses.166 Potential internal uses would be for filling: (1)

Russian reactor requirements, (2) longstanding commitments by Russia to provide fuel for reactors in neighboring countries, and (3) requirements for blendstock in

converting HEU to LEU. A reduction in the availability

of Russian feed could have important market ramifications. For example, if Russia would reserve for

internal use 25 percent of the Russian feed to be returned

by USEC in 1999, the equivalent of 6 million pounds

U3O8 would have to be supplied from other sources. In

comparison, the United States produced 6.3 million

pounds U3O8 in 1996.167

Analysis of Potential Russian Needs

The timing and extent by which Russia uses HEU feed

for internal purposes are expected to be influenced by

the adequacy of current supplies in meeting future

requirements. Besides its own reactor requirements,

Russia has long-term fuel export commitments to neighboring countries such as Armenia, Bulgaria, Lithuania,

and Ukraine. Russia and these four neighboring

countries are projected to require 262 million pounds

U3O8 to operate reactors between 1997 and 2010.168 No

official information is available about the size of

commercial inventories and other Russian internal

supplies.

With Russian uranium production generally reserved for

exports, internal reactor requirements have been filled

by drawing down inventories of natural uranium and

LEU and by enriching depleted uranium contained in

enrichment tails.169 Inventories of natural uranium and

LEU are considered to be “commercial” because the

contained uranium has been used for both internal

reactor requirements and exports to the West. Analysis

published in 1995 concluded that Russian commercial

inventories may be on the order of 195 million pounds

U3O8 equivalent.170

To meet requirements related to the Russian HEU

Agreement, additional utilization of enrichment tails is

likely to be reserved for the blending of HEU to LEU.

Thus, the drawdown of commercial inventories could

account for over 75 percent of the uranium supplied to

meet internal reactor requirements.171 The following

analysis considers the drawdown of Russian commercial

inventories as the key factor for establishing the
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

56 Materials, Policies, and Market Effects

172 Organization for Economic Cooperation and Development, Nuclear Energy Agency, and International Atomic Energy Agency,

Uranium Resources, Production, and Demand 1995 (Red Book) (Paris, 1996), p. 304. 173 Energy Information Administration, International Nuclear Model, Reference Case 1997.

1997 2000 2003 2006 2009

0

5

10

15

20

25

Million Pounds U3O8 Equivalent

Russia-Commercial Inventory

Russia-Production

Ukraine-Production

Russian-Enrichment Tails

Total Requirements

Figure 12. Potential Sources of Supply to Fill

Russian Requirements&Reference

Scenario, 1997-2010

Assumptions: (1) Reactor requirements are for Russia, and

to meet long-term commitments to supply fuel for nuclear

power plants in Armenia, Bulgaria, Lithuania, and Ukraine

(other export contracts are not included). (2) Uranium

production remains at 1996 levels. (3) The drawdown of

commercial inventory equals requirements less production

and enrichment tails. 

 Sources: 1996 uranium production—Uranium Institute,

“World Uranium Production and Nuclear Share,” fact sheet

(London, October 1997); Russian enrichment tails—O.

Bukharin, “Integration of the Military and Civilian Nuclear Fuel

Cycles in Russia,” Science & Global Security, Vol. 4 (1994);

Requirements—Energy Information Administration,

International Nuclear Model (PC Version), File INM.WK4,

Reference Case 1997.

likelihood that Russian feed will be used for internal

purposes.

Two scenarios, reference and mine closure, were

developed to assess the potential impacts of different

supply assumptions on the drawdown of estimated

Russian commercial inventories through 2010. For both

scenarios, the reactor requirements of Russia, Armenia,

Bulgaria, Lithuania, and Ukraine were assumed to be

filled by uranium production from Russia and Ukraine,

re-enrichment of depleted uranium from Russian

enrichment tails, and the drawdown of Russian

commercial inventories. All mine production and

inventory drawdown, were assumed to be used to meet

internal needs. Russian feed was assumed to be made

available for export to the West. The annual supply of

uranium from enrichment tails was assumed to remain

constant.

For the reference scenario, uranium mine production

was assumed to continue annually at 1996 rates through

2010 (Figure 12). All uranium concentrate from Ukraine

would continue to be sent to Russian nuclear fuel cycle

facilities to produce fuel for Ukrainian reactors.172 With

projected requirements in excess of 5 million pounds

U3O8 per year, Ukraine also was assumed to be

 supplied with uranium from Russia.173

In the mine closure scenario, uranium mine production

was assumed to be phased out gradually through 2003

(Figure 13). This scenario could be realized if Russia and

Ukraine opt to close costly state-owned mining

enterprises. Current mines were assumed to become

increasingly expensive to operate as higher grade or

more accessible ores are depleted. With the annual

supply from enrichment tails assumed constant, an

increase in inventory drawdown would be necessary to

replace mine output.

Assuming no other changes to supply, the mine closure

scenario indicates a cumulative commercial inventory

drawdown of 171 million pounds U3O8 equivalent

between 1997 and 2010 (Figure 14). To reflect additional

drawdown that would have taken place since Bukharin’s

analysis was published in 1995, Russian commercial

inventories at the beginning of 1997 were considered to

be somewhat lower than 195 million pounds U3O8

equivalent. Based on the level of exports described

earlier in this chapter, the drawdown of Russian

commercial inventories during 1996 may have been

greater than in previous years. Thus, the conditions

indicated for the mine closure scenario could result in

Russian commercial inventories becoming depleted by

2010. In comparison, the drawdown in the reference

case is just over 100 million pounds. The two scenarios

indicate that between 50 and 100 percent of Russian

commercial inventories could be drawn down by late in

the next decade. This potential development suggests

that Russia would likely require some Russian feed to

meet internal fuel supply requirements.

Restrictions on Deliveries to Russia

Assuming an internal need, Russia must be able to

import the Russian feed. To allow Russia to directly

take back HEU feed, the United States is required by the

Atomic Energy Act of 1954, as amended, to enter into an
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 57

Assumption: Uranium production assumed to gradually

decline before ending in 2003.

Sources: Initial level of uranium production—Uranium

Institute, “World Uranium Production and Nuclear Share,” fact

sheet (London, October 1997), p. 79; Russian enrichment

tails—O. Bukharin, “Integration of the Military and Civilian

Nuclear Fuel Cycles in Russia,” Science & Global Security,

Vol. 4 (1994); Requirements—Energy Information

Administration, International Nuclear Model (PC Version), File

INM.WK4, Reference Case 1997.

1997 2000 2003 2006 2009

0

5

10

15

20

25

Million Pounds U3O8 Equivalent

Russia-Commercial Inventory

Russia-Production Ukraine-Production

Russian-Enrichment Tails

Total Requirements

Figure 13. Potential Sources of Supply to Fill

Russian Requirements&Mine Closure

Scenario, 1997-2010

1997 1999 2001 2003 2005 2007 2009

0

50

100

150

200

Million Pounds U3O8 Equivalent

0

Reference Scenario

Mine Closure Scenario

Figure 14. Potential Cumulative Drawdown of

Russian Commercial Inventories,

1997-2010

Assumptions: Reference Scenario&uranium production remains

at 1996 levels; Mine Closure Scenario&uranium production

gradually declines before ending in 2003; all scenarios&the

drawdown of Russian commercial inventories equals

requirements less production and enrichment tails.

Sources: Initial level of uranium production&Uranium Institute,

“World Uranium Production and Nuclear Share,” fact sheet

(London, October 1997), p. 79; Russian enrichment tails&O.

Bukharin, “Integration of the Military and Civilian Nuclear Fuel

Cycles in Russia,” Science & Global Security, Vol. 4 (1994);

Requirements&Energy Information Administration, International

Nuclear Model (PC Version), File INM.WK4, Reference Case

agreement of peaceful nuclear cooperation with Russia. 1997.

The U.S. and Russian governments have not as yet

entered into such an agreement. However, the USEC

Privatization Act permits USEC to deliver Russian feed to

a North American facility designated by the Russian

Executive Agent. Once delivered to Canada, the

Russian Executive Agent could contract a Canadian

producer to swap an equivalent amount of uranium

mined in Canada for export to Russia. This would be

possible because an agreement for peaceful nuclear

cooperation exists between Canada and Russia.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 59

174 For a typical light-water reactor, enrichment makes up 40 to 50 percent of the cost of fuel reloaded into the reactor core. 175 By the end of 1997, the Department of Energy offered less uranium for sale than it proposed in the Secretary’s Determination of

March 1997.

7. The Effects of Selling Government

Surplus Defense Inventories

The penetration into the marketplace of low-enriched

uranium (LEU) derived from the blending down of U.S.

and Russian highly enriched uranium (HEU) would

displace demand for newly produced uranium (U3O8)

and for the conversion and enrichment services that

would be required to produce an equivalent amount of

LEU. The commercialization of U.S. inventories of

natural UF6 would have a displacement effect on the

U3O8 and conversion markets. Based on the market

penetration factors described in Chapter 6, this chapter

provides an analysis of the potential effects of such

displacements on the supply and price of fuel for

commercial nuclear power plants. For this analysis, EIA

has used economic modeling to provide a detailed

assessment of the U3O8 market. Because enrichment

services make up the largest component of fuel procurement costs, a discussion of the likely effects on the

markets for enrichment services and enriched uranium

is also included.174 The availability of U.S. and Russian

surplus defense inventories is expected to provide a

competitively priced alternative to traditional sources of

uranium.

Effects on the Uranium (U3O8) Market

Uranium Market Analysis Cases

The sale of U.S. and Russian surplus defense inventories

in the commercial market would displace newly produced uranium or uranium supplied from commercial

inventories. To analyze the effects of these potential

sales, projections of uranium price and supply have been

generated from EIA’s Uranium Market Model (UMM).

The UMM is a microeconomic model in which uranium

from available sources of supply is used to meet the

demand for uranium by electric utilities’ nuclear power

plants (Appendix D). The modeling parameters reflect

current information on extraction and enrichment

technology, uranium reserves, costs, procurement

practices, and laws and regulations.

The analysis presented here is restricted to the surplus

inventories approved for commercialization as of March

31, 1997 (Table 9).175 For the U.S. Government programs,

approval includes the completion of environmental

impact statements pursuant to the National Environmental Policy Act of 1969 (Chapter 5). Based on the

Government approval criterion, the analysis is limited to

three inventory classes with specific commercialization

schedules: (1) Russian HEU, (2) U.S. HEU, and (3) U.S.

commercial-grade inventories of natural uranium and

LEU. The time horizon for the market analysis extends

to 2010. Other quantities of surplus defense inventories,

notably U.S. HEU and U.S. and Russian plutonium,

could be made available for commercial use by the end

of the next decade, but they are not included in the

analysis.

In the case of the agreement between DOE and TVA to

use off-specification HEU in TVA reactors (see Chapter

5), the LEU derived from the HEU would not be sold on

the commercial market but, instead, would displace the

equivalent uranium and enrichment services that TVA

would have had to purchase in the commercial market.

Because the ultimate goal of the utilization program is to

provide fuel for nuclear power plants, the LEU derived

from U.S. off-specification HEU is considered to penetrate the market in the year that it is delivered to TVA.

Since the analysis was completed, DOE has revised the

quantity and timing for the commercialization of offspecification HEU reported in Table 9 (see Tables 5 and

6 for the revised plan). These changes are anticipated to

have only a marginal impact on the projections of supply

and spot-market price presented in this report.

For the 63 metric tons of U.S. HEU to be transferred

from DOE to USEC, the uranium contained in the
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

60 Materials, Policies, and Market Effects

Table 9. Potential Commercial Availability of U.S. and Russian Surplus Defense Inventories, 1997-2010,

Based on Schedules Contained in Government Disposition Plans as of March 31, 1997

Million Pounds U3O8 Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU a ................ 14.4 19.1 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 23.9 320.3

Russian HEU: Pre-1997 b . . . . . . . 2.7 3.6 0.7 0.0 0.0 3.0 3.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 14.2

Total Russian HEU Feed ........ 17.1 22.7 24.6 23.9 23.9 26.9 26.9 25.1 23.9 23.9 23.9 23.9 23.9 23.9 334.5

U.S. HEU Transfer (13 MT) c . . . . . 3.1 3.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2

U.S. HEU Transfer (50 MT) d . . . . . 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0 13.0

U.S. HEU “Off-spec” (40 MT) e . . . 0.0 0.0 0.0 0.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 15.0

Total U.S. HEU Feed . . . . . . . . . . . 3.1 4.4 1.3 1.3 2.8 2.8 2.8 2.8 2.8 2.8 2.8 1.5 1.5 1.5 34.2

U.S. Natural U Transfer f . . . . . . . . 0.0 2.1 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 0.0 0.0 0.0 18.3

U.S. LEU & Natural U Sales g . . . . 3.2 3.1 3.1 3.1 3.0 3.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.5

Total U.S. Natural U and LEU . . . . 3.2 5.2 4.9 4.9 4.8 4.8 4.8 1.8 1.8 1.8 1.8 0.0 0.0 0.0 39.8

Total Government Inventories 23.4 32.3 30.8 30.1 31.5 34.5 34.5 29.7 28.5 28.5 28.5 25.4 25.4 25.4 408.5

Assumptions: a. As of June 30, 1997, the Russian Executive Agent had not sold any of the uranium feed component returned to it by USEC. If sales

had begun later in 1997, approximately 50 percent of the uranium feed contained in LEU derived from blending down 18 metric tons

of HEU (Russian feed) would have been sold in the market during 1997. In subsequent years, it is assumed that 100 percent of

Russian feed returned to the Russian Executive Agent will be sold in the market. The quantity of Russian feed corresponds to the

schedule for blending down HEU from 1998 through 2001 established by the amendment to the Russian HEU Agreement, signed

in November 1996. For 2002 and later years, it is assumed that 30 metric tons of HEU will be blended down each year. The uranium

content is equivalent to the feed contained in LEU assaying at 4.4 percent 235U. The LEU is to be derived from HEU and blendstock,

with 235U assays of 90 percent and 1.5 percent, respectively

b. Russian feed derived from LEU purchased by USEC in 1995 and 1996. The sale of this uranium is regulated by the USEC

Privatization Act. All EIA cases include the assumption that 7.0 million pounds of U3O8 will be sold through matched sales contracts,

the annual quantity limited by quotas provided for by the Suspension Agreement between the United States and Russia. The

remaining 7.2 million pounds U3O8 will be sold by DOE beginning in 2002.

c. USEC plans to add this HEU to its production stream during 1997-1999. Uranium feed is assumed to be made available to the

market in the year that the corresponding quantity of HEU is blended down into LEU assaying at 4.95 percent 235U. The LEU is to

be derived from HEU and LEU blendstock, with 235U assays of 75.7 percent and 2.0 percent, respectively. However, only the uranium

contained in the HEU is considered for this analysis, because the blendstock would have been sold in the market regardless of the

decision to blend down HEU.

d. Schedule pursuant to USEC Privatization Act. HEU is to be blended down to LEU assaying at 4.95 percent 235U. The LEU is to be

derived from HEU and natural U blendstock, with average 235U assays of 41.3 percent and 0.71 percent, respectively. However,

only the uranium contained in the HEU is considered for this analysis, because the blendstock would have been sold in the market

regardless of the decision to blend down HEU.

e. Schedule pursuant to DOE's HEU disposition plan, September 1996. HEU is to be blended down to LEU assaying at 4.60 percent 235U. The LEU is to be derived from HEU with an average assay of 66.0 percent 235U and depleted uranium blendstock with an

average assay of 0.30 percent 235U. However, only the uranium contained in the HEU is considered for this analysis, because

depleted uranium blendstock is currently stored as waste.

f. Schedule pursuant to USEC Privatization Act.

g. DOE is assumed to sell the quantity proposed in the Secretary's Determination, March 1997.

 MT = Metric tons.

 Sources: Uranium contained in Russian HEU feed and transfer of natural uranium&Energy Resources International, Inc., 1997 Nuclear Fuel Cycle

Supply and Price Report (Washington, DC, May 1997); uranium contained in U.S. HEU feed&Russell Schmidt, personal correspondence (HEU

Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and natural uranium by DOE&U.S.

Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of Surplus Natural and Low Enriched

Uranium, DOE/EA-1172 (Washington, DC, October 1996).

blendstock has been accounted for in other inventories

considered in this analysis. Natural uranium and slightly

enriched uranium (2.0 percent 235U) are anticipated to be

used for blending down 63 metric tons of U.S. HEU that

had been designated for transfer to USEC. To provide

a blendstock, USEC could acquire uranium from any of

three sources of supply: (1) internal stockpiles held since

USEC was created from DOE, (2) transfer by DOE of

7,000 metric tons of natural UF6, or (3) purchases from

the commercial market. Whether or not used as

blendstock, these sources of supply would likely be sold

in the market.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 61

176 The equation used in the Energy Information Administration’s Uranium Market Model for projecting the uranium spot-market price

is as follows: spot-market price at the forecasted time equals a weighted average consisting of the spot-market price for the previous time

(30 percent) and the “equilibrium spot-market price” for the forecasted time (70 percent). The equilibrium spot-market price is established

at $0.01 less than the minimum acceptable selling price, or reported marginal cost, of the lowest cost production center whose production

did not make it into the market.

1997 1999 2001 2003 2005 2007 2009

0

10

20

30

40

Million Pounds U308 Equivalent

 Planned Availability as of

 March 31, 1997

 EIA Reference Case

Figure 15. Comparison of Planned Commercial

Availability of Uranium Derived from

U.S. and Russian Surplus Defense

Inventories and Market Penetration

Assumed for EIA Reference Case,

1997-2010

The penetration of U.S. and Russian surplus defense

inventories into the uranium market is anticipated to be

constrained over the next few years by the factors

discussed in Chapter 6. To reflect the range of potential

effects that those constraints could have on the market

penetration of surplus inventories, and because market

projections in general are subject to considerable

uncertainty, three analysis cases were developed.

Uranium supplied from surplus defense inventories is

modeled in the Uranium Market Model as the first step

of the uranium supply curve. It displaces an equivalent

quantity of higher cost uranium from one or more

known production centers that would have entered the

market in the absence of supply from surplus defense

inventories.176 The three cases assume the same levels of

demand for uranium fuel, based on projected requirements of the world’s reactors, as described below.

Variations in market penetration are provided by different assumptions about the availability of uranium

contained in Russian feed and, thus, the total amount of

uranium available from surplus defense inventories. The

amounts assumed to be available from U.S. Government

inventories are the same in all three analysis cases.

In the Reference Case, the quantity of uranium assumed

to be sold annually in the market approximates the

scheduled availability by 2005 (Figure 15). Sales of uranium contained in Russian feed&the largest component

of surplus defense inventories&are assumed to reach the

equivalent of 24 million pounds U3O8 in 2001 and remain

at that level through 2010 (Table 10). (This amount is

equivalent to the uranium feed contained in LEU

blended down from 30 metric tons of HEU). Cumulative

sales of Russian feed through 2010 are assumed to be

equivalent to 298 million pounds U3O8. 

In the Lower HEU Feed Case (Figure 16 and Table 11),

Russian feed equivalent to 8 million pounds U3O8 per

year is assumed to be withdrawn from the Western

market for internal Russian use beginning in 2002. (This

amount is equivalent to one-third of the uranium feed

contained in LEU blended down from 30 metric tons of

HEU.) Because not all the available Russian feed is sold

during the period 1997-2000, the supply from stockpiles

is assumed to maintain the availability of Russian feed

at 24 million pounds U3O8 per year from 2002 through

2005. By 2007, the availability of Russian feed is reduced

to 16 million pounds U3O8 per year. Through 2010,

cumulative sales of Russian feed are assumed to be

equivalent to 262 million pounds U3O8.

In the Upper HEU Feed Case (Figure 16 and Table 12),

Russian feed that was not sold during 1997-2000 is

assumed to enter the uranium market in increments of

2.0 million pounds U3O8 per year in 2002, increasing to

4.0 million pounds U3O8 per year in 2003 through 2010.

The total amount of Russian feed (not including pre-1997

feed) assumed to be sold to meet demand peaks at 28.0

million pounds U3O8 per year in 2003 and subsequent

years. Cumulative sales of Russian feed through 2010 are

assumed to be equivalent to 332 million pounds U3O8.

 Sources: Uranium contained in Russian HEU feed and

transfer of natural uranium&Energy Resources International,

Inc., 1997 Nuclear Fuel Cycle Supply and Price Report

(Washington, DC, May 1997); uranium contained in U.S.

HEU feed&R. Schmidt, personal correspondence (HEU

Disposition Program Office, Oak Ridge, TN, September 24,

1997); uranium contained in proposed sales of LEU and

natural uranium by DOE&U.S. Department of Energy, Office

of Nuclear Energy, Science and Technology, Environmental

Assessment DOE Sale of Surplus Natural and Low Enriched

Uranium, DOE/EA-1172 (Washington, DC, October 1996).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

62 Materials, Policies, and Market Effects

177 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997). 178 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table F1. 179 The Uranium Institute, The Global Nuclear Fuel Market: Supply and Demand 1995-2015 (London, June 1996), Table 8.3.

Table 10. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Reference Case

Million Pounds U3O8 Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 4.0 8.0 12.0 20.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 284.0

Russian HEU: Pre-1997 . . . . . . . . . 2.7 3.6 0.7 0.0 0.0 3.0 3.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 14.2

Total Russian HEU Feed . . . . . . . . 6.7 11.6 12.7 20.0 24.0 27.0 27.0 25.2 24.0 24.0 24.0 24.0 24.0 24.0 298.2

U.S. HEU Transfer (13 MT) . . . . . . 0.0 1.5 1.5 1.5 1.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2

U.S. HEU Transfer (50 MT) . . . . . . 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0 13.0

U.S. HEU “Off-spec” (40 MT) a . . . 0.0 0.0 0.0 0.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 15.0

Total U.S. HEU Feed . . . . . . . . . . . 0.0 2.8 2.8 2.8 4.3 3.1 2.8 2.8 2.8 2.8 2.8 1.5 1.5 1.5 34.2

U.S. Natural U Transfer . . . . . . . . . 0.0 2.1 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 0.0 0.0 0.0 18.3

U.S. LEU & Natural U Sales . . . . . 1.0 3.1 3.2 3.2 3.2 3.2 3.2 1.4 0.0 0.0 0.0 0.0 0.0 0.0 21.5

Total U.S. Natural U and LEU . . . . 1.0 5.2 5.0 5.0 5.0 5.0 5.0 3.2 1.8 1.8 1.8 0.0 0.0 0.0 39.8

Total Government Inventories 7.7 19.6 20.5 27.8 33.3 35.1 34.8 31.2 28.6 28.6 28.6 25.5 25.5 25.5 372.2

Assumptions: For the Reference Case, EIA assumes that the sales of uranium derived from U.S. and Russian government surplus inventories will

be delayed due to programmatic and market conditions. See Table 7-1 for assumptions used in determining the equivalent amount of

uranium contained in the inventories.

 a

 Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT = Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU and transfer of natural uranium-Energy Resources International, Inc., 1997

Nuclear Fuel Cycle Supply and Price Report (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt, personal correspondence

(HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and natural uranium by DOE&U.S.

Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of Surplus Natural and Low Enriched

Uranium, DOE/EA-1172 (Washington, DC, October 1996).

For demand, the UMM uses projections of uranium

required by the world’s reactors generated by EIA’s

International Nuclear Model PC Version (PCINM) for

the 1997 Reference Case published in the Nuclear Power

Generation and Fuel Cycle Report 1997.

177 The PCINM

Reference Case assumes that most reactors will operate

to the end of their license limits. For the United Sates,

only 8 of the 110 reactors operable as of December 31,

1996, are considered as candidates for early shutdown.

Over the UMM forecast period of 1997 through 2010, the

world’s reactor requirements are projected to vary from

158 million pounds U3O8 to 167 million pounds U3O8 per

year,178 reaching their highest level during the middle of

the next decade and declining slightly by 2010 (Table

13). For this analysis, the projections of Western world

reactor requirements were modified to include the

displacement of uranium arising from the use of MOX

fuel in Western Europe and Japan as projected by the

Uranium Institute (Table 13).179 The three analysis cases

do not consider the possible use of MOX fuel in Russia

and the United States.

Uranium Price and Supply Outlook

Because the uranium reactor requirements for nuclear

reactors in China and CIS are supplied internally, the

following discussion of uranium price and supply

focuses on the Western market. For this analysis,

uranium price refers to the spot-market price for the U.S.

market, in which CIS imports are restricted. With

increasingly larger quantities of Russian-origin uranium

to be supplied from HEU, the distinction between the

restricted and unrestricted prices is expected to diminish, possibly disappearing altogether. The following

projections of price and supply represent broad trends

that do not reflect short-term market volatility.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 63

180 TradeTech, The NUCLEAR Review (October 1997). 181 Ibid. 182 Matched sales contracts combine relatively high-price U.S. uranium with equal amounts of relatively low-price Russian uranium,

effectively making the price of U.S. uranium more competitive in the marketplace. 183 Energy Information Administration, Uranium Industry Annual 1997, DOE/EIA-0478(97) (Washington, DC, April 1998), Table 5.

1997 1999 2001 2003 2005 2007 2009

0

10

20

30

40

50

Million Pounds U308 Equivalent

Reference Case Lower HEU Feed Case

Upper HEU Feed Case

Figure 16. Assumed Market Penetration of Uranium

Derived from U.S. and Russian Surplus

Defense Inventories, 1997-2010

 Sources: Energy Information Administration, input data used

in Uranium Market Model, runs 1997_60, 1997_73, and

1997_82 (July 1997).

Western demand for uranium over the forecast period is

anticipated to be met by Western production, CIS

imports, commercial inventories, and U.S. and Russian

surplus defense inventories (Table 14). The relative

importance of these sources is expected to change by

early in the next decade. Excess commercial inventories,

built up largely through the accumulation of CIS

imports, have contributed to a decline in uranium prices,

falling below $11.00 per pound U3O8 during 1997.180 (The

average spot-market price for the restricted U.S. market

was $15.57 per pound U3O8 in 1996.181) Excess inventories and CIS imports are projected to supply the

Western market with about 52.0 million pounds U3O8 in

1997, or about 35 percent of projected 1997 Western

requirements.

The CIS is not expected to continue exporting uranium

at levels higher than its annual production, which is

assumed to be between 10 and 13 million pounds U3O8.

With fewer CIS imports available to the market,

commercial inventories (excluding uranium supplied

from surplus defense inventories) are anticipated to be

drawn down by early in the next decade, to levels no

longer considered as excessive. The decline in CIS

imports and excess commercial inventories will be offset

in part by the introduction of U.S. and Russian surplus

defense inventories.

The gap between current levels of uranium mine

production and projected reactor requirements is not

anticipated to be closed by the sales of surplus defense

inventories. In all three cases, additional uranium mine

production would be required to meet demand. To

induce production from higher cost operations, the price

of uranium would have to increase.

An example of higher cost uranium production in the

Western world can be found in the United States. Little

U.S. production could be supported at prices below

$11.00 per pound U3O8 (Figure 17). Because producers

hold either longer term contracts for prices higher than

the prevailing spot-market price or contracts matched

with equal amounts of relatively low-price Russian

uranium, U.S. production for 1997 did not decline

appreciably from 1996 output.182 (U.S. production was

5.6 million pounds U3O8 in 1997 compared to 6.3 million

pounds U3O8 in 1996.183). With an upward movement in

prices, additional increments of U.S. uranium capacity

could become economically feasible to operate. U.S.

producers, however, would continue to compete with

foreign producers, which might have lower marginal

costs of production.

In the Reference and Lower HEU Feed Cases, prices are

projected to rise to about $15.00 per pound U3O8 in 2004

(Figure 18). Western production is projected to reach

95.6 million pounds U3O8 by 2005, up from 82.1 million

pounds U3O8 in 2000 (Table 14). Relatively low-cost

production from mines in Canada and Australia is

expected to contribute 68.0 million pounds U3O8, or 72

percent of Western production projected for 2005. The

price in the Reference Case is projected to remain in a

relatively narrow range through 2010. The effects of

slightly lower demand on supply near the end of the

forecast period are offset by a decline in uranium

supplied from U.S. surplus defense inventories. It

should be noted that the price of uranium is projected in

the Reference Case to remain below $16.50 per pound

U3O8, the price reached in mid-1996.

In the Lower HEU Feed Case, Western production is

projected to rise to 102.4 million pounds U3O8 in 2010 as

the supply of Russian feed is reduced. The uranium
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

64 Materials, Policies, and Market Effects

Table 11. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Lower HEU Feed Case

Million Pounds U3O8 Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 4.0 8.0 12.0 20.0 24.0 24.0 24.0 24.0 24.0 20.0 16.0 16.0 16.0 16.0 248.0

Russian HEU: Pre-1997 . . . . . . . . . 2.7 3.6 0.7 0.0 0.0 3.0 3.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 14.2

Total Russian HEU Feed . . . . . . . . 6.7 11.6 12.7 20.0 24.0 27.0 27.0 25.2 24.0 20.0 16.0 16.0 16.0 16.0 262.2

U.S. HEU Transfer (13 MT) . . . . . . 0.0 1.5 1.5 1.5 1.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2

U.S. HEU Transfer (50 MT) . . . . . . 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0 13.0

U.S. HEU “Off-spec” (40 MT)a . . . 0.0 0.0 0.0 0.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 15.0

Total U.S. HEU Feed . . . . . . . . . . . 0.0 2.8 2.8 2.8 4.3 3.1 2.8 2.8 2.8 2.8 2.8 1.5 1.5 1.5 34.2

U.S. Natural U Transfer . . . . . . . . . 0.0 2.1 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 0.0 0.0 0.0 18.3

U.S. LEU & Natural U Sales . . . . . 1.0 3.1 3.2 3.2 3.2 3.2 3.2 1.4 0.0 0.0 0.0 0.0 0.0 0.0 21.5

Total U.S. Natural U and LEU . . . . 1.0 5.2 5.0 5.0 5.0 5.0 5.0 3.2 1.8 1.8 1.8 0.0 0.0 0.0 39.8

Total Government Inventories 7.7 19.6 20.5 27.8 33.3 35.1 34.8 31.2 28.6 24.6 20.6 17.5 17.5 17.5 336.2

Assumptions: Russia will take back 8.0 million pounds U3O8 of Russian feed per year for internal use, beginning in 2002. Sales of Russian feed are

assumed to remain at 24 million pounds per year until 2006, due to the availability of Russian feed not sold in previous years. See Table

7-1 for assumptions used in determining the amount of uranium contained in the surplus inventories.

 a

 Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT=Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU (Russian feed) and transfer of natural uranium&Energy Resources

International, Inc., 1997 Nuclear Fuel Cycle Supply and Price Report (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt,

personal correspondence (HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and

natural uranium by DOE&U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of

Surplus Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996).

price is projected to rise to between $16.50 and $17.00

per pound U3O8 between 2007 and 2010 (Figure 18).

Higher cost capacity in the United States, South Africa,

and other countries would be utilized at this level of

price (Table 14). Due to the price increase, annual U.S.

production is projected to increase from 8.2 million

pounds U3O8 in 2005 to 11.0 million pounds U3O8 by

2010. In comparison, U.S. production is projected in the

Reference Case to reach 8.5 million pounds U3O8 per

year by 2010.

With a higher assumed Russian feed supply, the price in

the Upper HEU Feed Case is projected to be between

$14.00 and $15.00 per pound U3O8 from 2003 through

2010 (Figure 18). In the case, the increased supply of

Russian feed would displace 4.0 million pounds U3O8 of

Western production.

Potential Market Effects of Additional

Commercialization

It is likely that other surplus defense inventories could

be made available after 2000. Because the UMM analysis

cases consider only those quantities and schedules under

approved commercialization plans, additional penetration of surplus defense inventories into the market

could further displace demand for newly produced

uranium. Since DOE’s Record of Decision for HEU

disposition (see page 29) considers up to 200 metric tons

of HEU for commercial use, DOE could sell or transfer

additional quantities of HEU before 2010. Additional

disposition of U.S. HEU could contribute the equivalent

of 1 to 2 million pounds U3O8 to the market per year.

If approved, the irradiation of U.S. weapons-usable

plutonium as MOX fuel by commercial nuclear power

reactors also could displace the demand for the

equivalent of 1 to 2 million pounds U3O8 per year

beginning in 2007. The penetration of these additional

quantities of uranium and plutonium derived from

surplus defense inventories would be expected to place

slight downward pressure on prices, with spot-market

prices falling in the range between the Reference Case

and Upper HEU Feed Case shown in Figure 18.

The rate at which Russian weapons-grade HEU is

scheduled to be blended down is much greater than that
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 65

Year

PCINM 1997

Reference Case

Western

World With

MOX Use

(This

World Analysis)

Western

World

2000 . . . 158.7 139.3 134.4

2005 .... 165.7 143.2 136.4

2010 .... 164.9 141.5 133.5

MOX=mixed oxide fuel.

Note: Western World does not include China or the

Commonwealth of Independent States.

Sources: Total and Western world uranium

requirements&Energy Information Administration, International Nuclear Model PC Version (PCINM), “Reference

Case 1997,” MOX use&The Uranium Institute, The

Global Nuclear Fuel Market: Supply and Demand 1995-

2015 (1996), Table 8.3.

Table 13. Projected Uranium Requirements for

2000, 2005, and 2010

Million Pounds U3O8

Table 12. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Upper HEU Feed Case

Million Pounds U3O8 Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 4.0 8.0 12.0 20.0 24.0 26.0 28.0 28.0 28.0 28.0 28.0 28.0 28.0 28.0 318.0

Russian HEU: Pre-1997 . . . . . . . . . 2.7 3.6 0.7 0.0 0.0 3.0 3.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 14.2

Total Russian HEU Feed . . . . . . . . 6.7 11.6 12.7 20.0 24.0 29.0 31.0 29.2 28.0 28.0 28.0 28.0 28.0 28.0 332.2

U.S. HEU Transfer (13 MT) . . . . . . 0.0 1.5 1.5 1.5 1.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2

U.S. HEU Transfer (50 MT) . . . . . . 0.0 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.0 0.0 0.0 13.0

U.S. HEU “Off-spec” (40 MT)a . . . 0.0 0.0 0.0 0.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 15.0

Total U.S. HEU Feed . . . . . . . . . . . 0.0 2.8 2.8 2.8 4.3 3.1 2.8 2.8 2.8 2.8 2.8 1.5 1.5 1.5 34.2

U.S. Natural U Transfer . . . . . . . . . 0.0 2.1 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 0.0 0.0 0.0 18.3

U.S. LEU & Natural U Sales . . . . . 1.0 3.1 3.2 3.2 3.2 3.2 3.2 1.4 0.0 0.0 0.0 0.0 0.0 0.0 21.5

Total U.S. Natural U and LEU . . . . 1.0 5.2 5.0 5.0 5.0 5.0 5.0 3.2 1.8 1.8 1.8 0.0 0.0 0.0 39.8

Total Government Inventories . . 7.7 19.6 20.5 27.8 33.3 37.1 38.8 35.2 32.6 32.6 32.6 29.5 29.5 29.5 406.2

Assumptions: Russian feed will be sold in excess of 24 million pounds U3O8 equivalent per year, beginning in 2002. Sales of Russian feed are

assumed to remain at 28 million pounds per year beginning in 2003. See Table 7-1 for assumptions used in determining the amount of

uranium contained in the inventories.

 a Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT=Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU (Russian feed) and transfer of natural uranium&Energy Resources

International, Inc., 1997 Nuclear Fuel Cycle Supply and Price Report (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt,

personal correspondence (HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and

natural uranium by DOE&U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of

Surplus Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996).

for U.S. inventories (Table 9). This discrepancy could place

pressure on the United States to accelerate the blending

down of its surplus HEU to match Russian efforts. U.S.

law, however, does not permit commercialization activities

that would adversely affect the domestic uranium industry.

Also, it is not likely that Russia would favor any sizeable

increases in the amount of surplus defense uranium made

available to the market. Oversupply of uranium would

result in depressed prices, a situation that would create an

unfavorable economic situation for any supplier. More

likely, the United States and Russia, through the IAEA,

would agree to a mutually acceptable process for verifying

that HEU declared as surplus could not be reused for

weapons. Thus, any additional U.S. commercialization

efforts are expected to make only marginal quantities of

uranium available to the market through 2010.

Enrichment Services Market

The market penetration factors for enrichment services are

different from those for U3O8, in that there are fewer

restrictions on the enrichment component from surplus
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

66 Materials, Policies, and Market Effects

Note: A two-tiered market was developed at the end of 1992 as

a result of the suspension agreements that restrict U.S. imports

from the Commonwealth of Independent States.

 Sources: Energy Information Administration, Uranium Market

Model, runs 1997_60, 1997_73, and 1997_82 (July 1997).

1997 1999 2001 2003 2005 2007 2009

10

12

14

16

18

1996 Dollars per Pound U3O8

0

Reference Case

Upper HEU Feed Case

Lower HEU Feed Case

Figure 18. Projected Spot-Market Prices in the

Restricted U.S. Uranium Market,

1997-2010

0 10 20 30 40 50

Production Capability (Million Pounds U3O8) 

0

20

40

60

80

Price (1996 Dollars per Pound U3O8)

Figure 17. Production Capability Versus Price for

U.S. Uranium Production Centers

 Note: Includes operating, planned, and prospective

production centers.

 Sources: Energy Information Administration, input data for

Uranium Market Model, runs 1997_60, 1997_73, and

1997_82 (July 1997).

defense inventories entering the market, and excess

SWU capacity is available to cover disruptions in

meeting commercialization schedules. Similar to the

control of the uranium feed component of LEU derived

from Russian HEU, most of the enrichment from surplus

defense inventories will be controlled by one producer.

The following analysis does not consider the potential

effects of deploying the advanced vapor laser isotope

2000 2005 2010

Western Production . . 82.1 95.6 102.4

 Australia .......... 22.3 26.4 28.0

 Canada ........... 35.0 42.0 42.0

 Central Africaa . . . . . . 4.0 2.0 2.0

 Namibia . . . . . . . . . . . 7.0 10.0 10.0

 South Africa . . . . . . . . 3.0 3.0 4.2

 United States . . . . . . . 7.8 8.2 11.0

 Otherb . . . . . . . . . . . . 3.0 4.0 5.2

CIS Production ...... 12.0 12.0 13.5

China Production . . . . 1.5 0.0c 0.0

Surplus Defense

 Inventories ........ 27.8 28.6 17.5

 Russian HEU ....... 20.0 24.0 16.0d

 U.S. HEU, LEU, and U 7.8 4.6 1.5

Commercial 

Inventories ......... 11.0 0.0e 0.0

Total Supply ........ 134.4 136.4 133.5

a

Higher cost production supported by contract commitments from France.

b

Includes production centers in Western Europe, Latin

America, India, Mongolia, and Pakistan. c

China is expected to use its production for domestic

reactor requirements. d

Russia is assumed to take back for internal uses onethird of the equivalent 24 million pounds U3O8 feed

contained in the LEU produced from Russian HEU (Russian

HEU feed). e

In 2005, 24 million pounds U3O8 equivalent of Russian

HEU feed are assumed to be sold from inventories held by

Western commercial firms. In this analysis, however, sales

of uranium derived Russian HEU are counted under surplus

defense inventories.

CIS=Commonwealth of Independent States. CIS uranium

exporters include Kazakhstan, Russia, and Uzbekistan.

Note: Totals may not equal sum of components because

of independent rounding.

Source: Energy Information Administration, Uranium

Market Model, run 1997_60 (July 1997).

Table 14. Projected Supply for Western Reactor

Requirements in the Lower HEU Feed

Case, 2000, 2005, and 2010

(Million Pounds U3O8 Equivalent)
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 67

184 United States Enrichment Corporation, “USEC Completes Successful Plant-Scale Test Series of Its Next Generation Uranium

Enrichment Technology” news release (December 22, 1997). 185 United States Enrichment Corporation, 1996 Annual Report, p. 11.

separation (AVLIS) technology on uranium and

enrichment service requirements. Although USEC plans

to deploy AVLIS by 2005, additional work will be

required to ensure its commercial operation.184

Control of Enrichment from Surplus

Defense Inventories

Most of the enrichment contained in surplus defense

inventories is expected to be made available to USEC

from the blending down of Russian and U.S. HEU. The

transfer of off-specification HEU from DOE to the Tennessee Valley Authority (TVA) represents the only

significant amount of enrichment from surplus defense

inventories that would not be controlled by USEC under

current disposition plans. The utilization of off-specification HEU could provide TVA with LEU over a 10-year

period (see Chapter 5). As a result, TVA would avoid

purchasing up to 4.3 million SWU from the commercial

market.

Under the Russian HEU Agreement, USEC is expected

to purchase 92 million SWU, or about 90 percent of the

enrichment contained in surplus defense inventories

currently undergoing commercialization. This includes

the SWU contained in the slightly enriched tails used as

a blendstock in Russia&uranium that would not likely be

sold in the Western market were it not for its use in

blending down the HEU. USEC acquired 3.3 million

SWU from Russia before 1997. By 1999, increased

purchases of LEU from Russia will provide USEC with

5.5 million SWU per year.

In meeting its legal responsibility as the U.S. Executive

Agent for the Russian HEU Agreement, USEC is committed to purchase the enrichment (SWU) component of

LEU derived from Russian HEU. This purchase is not

expected to contribute to profits. In its 1996 annual

report, USEC reported that increased SWU purchases

from Russia contributed to the higher costs of providing

enrichment services.185 With exclusive access to the SWU

component of LEU derived from Russian HEU, USEC

would be expected to structure sales of SWU in a

market-neutral manner so as not to depress market

price. However, USEC could find it difficult to offset the

higher costs of providing enrichment services by raising

the price of SWU sold to its customers under the current

conditions of world production overcapacity (see

below).

The USEC Privatization Act directed DOE to transfer

without cost to USEC up to 7,000 metric tons of natural

uranium and about 50 metric tons of HEU (see Chapter

5). Pursuant to the Energy Policy Act of 1992, DOE began

transferring 13 metric tons of U.S. surplus HEU without

cost to USEC in 1994. The probable utilization of the

transferred uranium by USEC to supply enriched

uranium product is described in a later section of this

chapter. The transfer of U.S. surplus defense uranium

has also enhanced the USEC’s value, thereby making

USEC more attractive for privatization.

When completed, the DOE transfers of HEU will supply

USEC with LEU equivalent to 5.7 million SWU of enrichment. This analysis does not consider the SWU content

of the commercial-grade blendstock that would have

been sold in the market regardless of the decision to

blend down HEU. As with LEU purchased under the

Russian HEU Agreement, USEC could meet its commitments to provide utilities with enrichment services by

delivering LEU derived from U.S. HEU instead of

utilizing production capacity. 

Fewer Restrictions on Selling SWU Derived

from Surplus Defense Inventories

The commercial sale of enrichment contained in LEU

derived from Russian HEU is not restricted by law. In

November 1995, USEC made its first delivery to a U.S.

utility of SWU contained in LEU derived from Russian

HEU. However, USEC is limited by the USEC Privatization Act to deliveries of no more than 800,000 SWU

SWU per year beginning in 1998 from the 50 metric tons

of U.S. surplus HEU that was transferred from DOE.

Since more than 90 percent of the enrichment scheduled

to be made available from surplus defense inventories

will be contained in LEU blended down from Russian

HEU, the restrictions on deliveries to U.S. end users of

LEU from blended down U.S. HEU should have only a

marginal effect on the market. In contrast, deliveries of

the equivalent natural uranium components from both

U.S. and Russian blended-down HEU are restricted.

Thus, USEC’s sales strategy would provide the principal

means to ensure the orderly penetration into the

marketplace of enrichment derived from surplus defense

inventories.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

68 Materials, Policies, and Market Effects

186 NAC International, Nuclear Industry Status Report on Enrichment, A Fuel-TAC Product (Norcross, GA, February 1997), Table B-3.1. 187 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(96) (Washington, DC,

September 1997), Table F3. 188 United States Enrichment Corporation, 1996 Annual Report, p. 11. 189 TradeTech, The Nuclear Review (October 1997). 190 United States Enrichment Corporation, 1996 Annual Report, p. 10.

Current Capacity Restricted Trade Plant Closure

0

10

20

30

40

50

60

Million Separative Work Units (SWU)

Requirements Met

by Available Capacity 

Excess Capacity Shortfall

Figure 19. Worldwide Enrichment Supply

Capability Under Different Capacity

Assumptions, No Surplus Defense

Inventories Available, 1997-2010

Assumptions: Restricted Trade&Russian enrichment

limited by U.S. and Western European trade restrictions to 20

percent of worldwide requirements; 7 million SWU capacity per

year not utilized. Plant Closure&In addition to Restricted

Trade, the United States Enrichment Corporation (USEC)

closes one of its gaseous diffusion plants, further reducing

available capacity by 11.3 million SWU per year. For this

analysis, the reduction in capacity is assumed to equal the full

capacity of USEC’s larger plant.

Sources: World enrichment capacity—NAC International,

Nuclear Industry Status Report on Enrichment, A Fuel-Trac

Product (Norcross, GA, February 1997), Table B-3.1;

Requirements—Energy Information Administration,

International Nuclear Model (PC Version), File INM.WK4,

Reference Case 1997.

Excess in Worldwide Enrichment Services

Capacity

Current worldwide enrichment services capacity of

around 49 million SWU per year is more than adequate

to cover projected requirements (Figure 19, “current

capacity”).186 In comparison, EIA projects worldwide

annual requirements in its reference case to be between

33.6 million SWU and 37.1 million SWU through 2010.187

However, restrictions on Russian imports effectively

reduce the amount of enrichment that could be supplied

to the entire world. Without an additional agreement

between the United States and Russia, U.S. imports of

Russian enrichment would be limited to the SWU purchased by USEC through the Russian HEU Agreement.

As described in Chapter 6, imports of Russian uranium

are also restricted by the European Union. If it is

assumed that Russian imports would be limited to 20

percent of world requirements, the world supply

capability would be reduced by about 7 million SWU or

14 percent (Figure 19, “Restricted Trade”).

Some of the excess SWU capacity could be closed.

Gaseous diffusion plants, in the United States and

France, consume much more electricity than do

centrifuge plants operated in other countries. USEC has

reported that electricity costs represent approximately

60 percent of its production costs.188 The limited

availability of less costly non-firm electric power makes

alternative supply capability. For example, closure of

USEC’s larger capacity plant under current trade

restrictions in the absence of alternative supply would

cause available capacity to fall below world requirements (Figure 19, “Plant Closure”).

Price and Supply Outlook

The availability of enrichment from surplus defense

inventories would increase the supply available to the

Western world (Figure 20). With an increase in supply

capability, the price for enrichment services would be

expected to decline. The average enrichment spotmarket price for the restricted U.S. market during the

third quarter 1997 was $90.00 per SWU.189 As the prime

recipient of SWU from surplus defense inventories,

USEC would best serve its interests by introducing the

acquired SWU in a manner least disruptive to price

stability. This is particularly important because the

implementation of the Russian HEU Agreement has

increased USEC’s cost of providing enrichment services.

To achieve price stability, USEC is expected to sell this

material gradually through long-term contracts. In its

annual report for 1996, for example, USEC states that

“substantially all of the Company’s revenue is derived

from electric utilities pursuant to long-term uranium

enrichment requirements contracts.”190
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 69

191 Energy Information Administration, Uranium Industry Annual 1996, DOE/EIA-0478(96) (Washington, DC, April 1997), Table 13. 192 Energy Information Administration, World Nuclear Outlook 1995, DOE/EIA-0436(95) (Washington, DC, October 1995), p. 35.

Current Capacity Restricted Trade Plant Closure

0

10

20

30

40

50

60

Million Separative Work Units (SWU)

 Requirements Met 

by Surplus Defense

Inventories 

 Requirements met 

 by Available Capacity

 Excess Capacity

Figure 20. Worldwide Enrichment Supply Capability

Under Different Capacity Assumptions,

Availability of Surplus Defense

Inventories Based on Uranium Reference

Case, 1997-2010

With access to most of the SWU from surplus defense

inventories, USEC may opt to stop production at one of

the two gaseous diffusion plants it leases from DOE.

The availability of less costly non-firm power could play

an important role in identifying a plant for possible

closure. Other factors include the possibility that a plant

would require significant capital expenditure in the near

term to replace aging equipment. However, USEC is not

likely to implement any possible closure until after

privatization takes place, and not before it is certain that

TENEX can meet its expanded commitments for

delivering LEU derived from Russian HEU. Should

USEC close its larger capacity plant and Russian imports

continue to be limited to 20 percent of world requirements, the capability to supply SWU from U.S. and

Russian surplus defense inventories and remaining

production capacity would be adequate to cover

projected world demand (Figure 20). Nevertheless, this

substantial reduction in excess production capacity

could result in an increase in the price of SWU as less

lower cost production would be available to meet

demand. In this scenario, USEC would be more likely to

pass through to the customer its costs incurred as U.S.

Executive Agent for the Russian HEU Agreement.

Enriched Uranium Product

Supply and Demand Factors

The ability to produce competitively priced enriched

uranium product (EUP) would position an enricher as a

marketer of uranium, as well as a provider of enrichment services. To produce EUP, an enricher requires

competitively priced natural uranium feed and available

enrichment capacity. As with enrichment services,

enrichers are likely to sell EUP through longer term

contracts rather than on the spot market. However, the

demand for EUP is expected to be limited in the near

term, because utilities have covered most of their

requirements with long-term contracts for enrichment

services. For example, only about 5 percent of the

equivalent quantity of U3O8 contracted for delivery to

U.S. utilities in 1996 was in the form of EUP.191

Nevertheless, the demand for EUP is likely to increase as

long-term contracts for enrichment services are

completed.

The demand for EUP by nuclear power generating

companies could be enhanced in response to the

restructuring of the electric power industry. The

purchase price paid by a customer for EUP includes the

natural uranium feed component as well as the enrichment.192 Because the U3O8, conversion, and enrichment

steps are eliminated for the fuel procurement process,

access to EUP could provide nuclear power generating

companies with greater flexibility in supplying fuel for

reactors. This would be especially important to electric

power generating companies with nuclear assets if they

are employing such revenue maximization strategies as

matching fuel reloading with periods of off-peak

Assumptions: Restricted Trade&Russian enrichment

limited by U.S. and Western European trade restrictions to 20

percent of worldwide requirements; 7 million SWU capacity per

year not utilized. Plant Closure&In addition to Restricted

Trade, the United States Enrichment Corporation (USEC)

closes one of its gaseous diffusion plants, further reducing

available capacity by 11.3 million SWU per year. For this

analysis, the reduction in capacity is assumed to equal the full

capacity of USEC’s larger pant.

Notes: Requirements are the average projected for 1997

through 2010; no mixed-oxide (MOX) fuel displacement.

Enrichment available from U.S. and Russian surplus defense

HEU and LEU is 6.0 million SWU per year, the average of the

amount currently scheduled for commercialization, 1997-2010.

Sources: World enrichment capacity&NAC International,

Nuclear Industry Status Report on Enrichment, A Fuel-Trac

Product (Norcross, GA, February 1997), Table B-3.1;

Requirements&Energy Information Administration,

International Nuclear Model (PC Version), File INM.WK4,

Reference Case 1997.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

70 Materials, Policies, and Market Effects

193 J. Sellers, “Strategies for Competition and Nuclear Fuel,” paper presented at the Nuclear Energy Institute’s FuelCycle 97 conference

(Atlanta, GA, April 1997), p. 6. 194 “Stranded” or “strandable” costs are electric power generation costs likely to become unrecoverable in a competitive electric power

marketplace. 195 J. Sellers, “Strategies for Competition and Nuclear Fuel,” paper presented at the Nuclear Energy Institute’s FuelCycle 97 conference

(Atlanta, GA, April 1997), p. 6. 196 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Tables F1 and F3. 197 Cameco Corporation, “Discussions Suspended Concerning Russian Highly Enriched Uranium,” press release (December 11, 1997).

demand or optimizing the most cost-efficient fuel mix.

Due to restructuring, companies could find it increasingly difficult to pass increased costs, including

fuel, through to customers.

Nuclear power generating companies also will be

looking to reduce uranium holding costs for both

economic and regulatory reasons. As the electric power

industry moves toward competitive markets, public

utility commissions could increase regulatory oversight

of fuel costs as they authorize utilities to recover

potentially strandable costs.193, 194 As a result, the owners

of nuclear power plants could be restricted in their

recovery of out-of-core inventory holding costs.195

Outlook

The opportunity to market EUP could be especially

important to USEC. When completed, transfers of HEU

and natural uranium from DOE under the USEC

Privatization Act will provide USEC with the equivalent

of 37.6 million pounds U3O8 and 6.3 million SWU. In

comparison, uranium and enrichment requirements for

U.S. nuclear power reactors in 1998 are projected to be

49.4 million pounds U3O8 and 11.0 million SWU,

respectively.196

Although revenues could be realized from the sale of

natural uranium, USEC is more likely to use the natural

uranium as feed to produce EUP. Unlike Cogema, a

uranium producer and provider of integrated nuclear

fuel cycle services, USEC does not own mines and

conversion facilities that could supply natural uranium

feed. The acquisition of enrichment contained in U.S.

and Russian surplus defense inventories would allow

USEC to use its enrichment capacity to produce EUP.

Because of limitations on the availability of relatively

inexpensive electric power, not all of USEC’s gaseous

diffusion enrichment capacity is considered economical

to operate. However, by using LEU received from the

blending down of U.S. and Russian HEU to fill contracts

for enrichment services (rather than feeding the

enrichment plant with uranium delivered by customers),

USEC could make economical capacity available for the

production of EUP.

Because of the recent suspension in negotiations between

Western suppliers and MINATOM, Cogema is not

expected to purchase any of the uranium feed contained

in LEU derived from Russian HEU in the near term.197

Such a purchase would have added to its portfolio of

competitively priced uranium supply, which includes

relatively low-cost mines in Canada. However, Cogema,

unlike USEC, does not have access to LEU that could be

used to fill existing enrichment services contracts. Thus,

Cogema would not be expected to increase EUP output

by utilizing the economical capacity of its gaseous

diffusion plant without reducing its capability to

provide competitive enrichment services.

As described in Chapter 6, Russia is likely to take back

some natural uranium feed for use in blending down

HEU and to meet domestic requirements and export

commitments. The use of uranium feed as a blendstock

for HEU blending could free up enrichment capacity

that would have been used to enrich tails for similar use.

Also, restrictions on Russian imports described above

have created additional unused capacity. While access

to the natural uranium feed component of LEU derived

from Russian HEU would provide Russia with both feed

and the ability to utilize additional enrichment capacity,

trade restrictions limit the penetration of Russian EUP in

the Western market. Nevertheless, China and Japan

could be important customers in the long term based on

expected growth in nuclear fuel requirements and

improving relations, respectively.

Projected Uranium Cost Savings to

Nuclear Power Generating Companies

From the Reference Case analysis presented in this

chapter, the spot-market price of U3O8 in 1996 dollars is

projected to rise to $15.90 per pound U3O8 by the end of

the next decade. While exceeding the depressed price

level of the mid-1990s, the projected spot-market price
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 71

198 V. Mikhailov, “The Nuclear Industry in Russia,” in Uranium and Nuclear Energy: 1997, Proceedings of the Twenty-Second Annual

Symposium of the Uranium Institute (London, September 1997), p. 166. 199 Cameco Corporation, 1997 Annual Report, p. 16.

1982 1984 1986 1988 1990 1992 1994 1996

0

20

40

60

80

1996 Dollars per Pound U3O8 Equivalent

Spot-Market

Contract-Specified

Market-Related

Figure 21. Average Price of U.S.- and ForeignOrigin Uranium Delivered to U.S. Utilities

from Domestic Suppliers Versus

Average Spot-Market Price, 1982-1996

 Sources: Spot-market price&annual average of Exchange

Value reported in TradeTech, The NUCLEAR Review

(October 1997); all other prices&Energy Information

Administration, Uranium Industry Annual, 1993 , DOE/EIA0478(93) (Washington, DC, September 1993), Table 28; and

Uranium Industry Annual 1996, DOE/EIA-0478(96)

(Washington, DC, April 1997), Table 14.

trend falls well below pre-1990 historical highs (Figure

21). The anticipated penetration into the marketplace of

U.S. and Russian surplus defense inventories would

displace relatively higher cost U3O8 production that

would have been required to fill the gap between the

current level of production and projected Western

demand. As described in the “Uranium Price and Supply

Outlook” section of this chapter (page 62), surplus

defense inventories are expected to overtake commercial

inventories and CIS imports to become the second most

important source of uranium supply, behind newly

produced uranium. Presumably, the market penetration

of surplus defense inventories will benefit nuclear power

generating companies by reducing their fuel procurement costs.

Uranium Market Analysis Scenarios

To assess the potential savings in uranium procurement

costs that could be realized by nuclear power generating

companies, three scenarios were modeled in which

surplus defense inventories are not considered available

for use in producing commercial nuclear fuel. For the

base No Surplus Defense (NSD) scenario, Western

production centers were assumed to operate under the

same schedules that were used for the three cases

described earlier in this chapter. Current schedules for

opening new mines coincide with the anticipated

depletion of existing mines. Even without the anticipated market penetration of surplus defense inventories,

these schedules could be realistic in view of the

historical oversupply in uranium brought about by

excess commercial inventories and CIS imports.

For the NSD scenario, Russia is assumed to continue

meeting its longstanding delivery commitments to

Eastern European countries, and to continue its exports

to the United States. After the current Suspension

Agreement with Russia ends in 2003, U.S. imports of

Russian uranium are assumed to continue at a rate of 4.3

million pounds U3O8 per year. As described in Chapter

6, internal reactor requirements and export deliveries

are likely to diminish Russian inventories of commercial

natural uranium and LEU to levels below the Russian

government’s strategic requirements. To meet demand

in the absence of blending down HEU, it is assumed that

Russia will increase production from its mines. Viktor

Mikhailov, former Minister of MINATOM, had stated

that Russia intends to increase production from the

current rate of about 5 million pounds U3O8 per year to

about 28 million pounds U3O8 per year by 2010.198 While

it is not certain how much of this projected output

would be sustainable in a market economy, Russia is

likely to have the capability to increase its uranium

production to some extent.

To analyze the sensitivity of uranium spot-market price

to uncertainties in supply, two additional scenarios,

NSD%new discovery and NSD%restrictive policy, also were

considered for the analysis of projected uranium cost

savings to nuclear power generating companies. The

NSD%new discovery scenario was used to analyze the

effects of uranium being supplied from a hypothetical

discovery of low-cost reserves that had not been

accounted for in the NSD scenario. The maximum

production capacity for this new hypothetical discovery

is assumed to be 14 million pounds U3O8 per year, a

quantity equal to the 1997 output for Key Lake in

Canada, the world’s largest uranium mine.199 To allow

for required government approvals, the lead time

between discovery of reserves and production startup is
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

72 Materials, Policies, and Market Effects

200 While in power between 1983 and 1996, the Australian Labor Party had implemented a policy, known as the “three-mine policy,”

whereby uranium production was limited to three named production centers. With the closure of Nabarlek, Australian uranium

production was limited to Olympic Dam and Ranger. In 1996, the newly elected coalition of the Liberal and National parties abolished

the three-mine policy. 201 R. Godfrey, Counselor (Nuclear), Embassy of Australia, personal communication (April 21, 1998)

0.0

0.2

0.4

0.6

0.8

1.0

R Squared Value

Contract-Specific Market-Related All Contracts

Figure 22. Results of Regression Analysis of the

Relationship Between Contract Prices

and Spot-Market Price, 1982-1996

 Source: Spot-market price&annual average of Exchange 

Value for the restricted U.S. market reported in TradeTech,

The Nuclear Review (October 1997); all other prices&Energy

Information Administration, Uranium Industry Annual, 1993,

DOE/EIA-0478(93) (Washington, DC, September 1993),

Table 28; and Uranium Industry Annual 1996, DOE/EIA0478(96) (Washington, DC, April 1997), Table 14.

assumed to be seven years. Assuming no significant

delays, a discovery made in 1998 would produce at 50-

percent capacity in 2005 and full capacity in 2006 and

subsequent years. The rate of production for the new

discovery variant is modeled in the UMM as a first step

of the uranium supply curve. However, this increment

of supply could represent an aggregation of two or more

new discoveries of low-cost reserves.

The NSD%restrictive policy scenario considers the uncertainties regarding whether or not prospective uranium

mines will receive government approval to operate. This

scenario assumes a hypothetical reinstatement of a

former Australian government policy that had restricted

uranium production to three mines.200 In early 1998, the

Australian government indicated that it might call for

elections to be held in the later part of 1998.201 The

Australian Labor Party (ALP), a contending party, has

indicated that as a ruling party it would implement

restrictions on the development of new uranium mines.

For this analysis, future Australian production is

assumed to be limited to two currently operating

mines&Olympic Dam and Ranger, and one prospective

mine&Jabiluka. Also, the government policy scenario

assumes that Jabiluka will receive an export license

before a change in government would be implemented.

Based on these assumptions, restrictions on the

development of new Australian uranium mines would

preclude the availability of up to 15 million pounds U3O8

per year that would have been sold under the No

Surplus Defense scenario.

For this analysis, projections from the NSD scenario are

assumed to most likely represent the supply and price

trends for uranium without the commercialization of

U.S. and Russian surplus defense inventories. The new

discovery and restrictive policy scenarios were modeled

to examine the effects of uncertain events on the

availability of supply. Discoveries of new low-cost

reserves made after 2003 would not likely supply

uranium to the market during the forecast period. On

the issue of restrictive government policies, the

Australian government could become more supportive

of new uranium mine development should the level of

uranium spot-market price rise to that projected for the

no surplus scenario. Ultimately, the effects of additional

new discoveries and delays or cancellations in the

startup of prospective mines due to government policies

throughout the world could largely offset each other.

Incremental Cost Analysis

Transactions in the uranium market are made up of

contracts of different durations. Thus, a share of future

requirements is always covered by existing contracts.

Rather than considering absolute prices for a multitude

of contracts, this analysis focuses on the incremental

change in the price of all uranium deliveries (U3O8,

natural UF6, and EUP) based on the movement in spotmarket price. Using data collected by EIA for the period

1982 to 1996, the change in price for contract-specific and

market-related contracts between U.S. utilities and

suppliers shows a close linear relationship to the change

in spot-market price (Figure 21). A simple regression

analysis provides statistical inferences about such a

relationship. The results of the regression analysis show

that much of the change in the various contract prices

can be explained by a change in spot-market price

(Figure 22). For example, the aggregation of contract-
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 73

202 Energy Information Administration, Nuclear Power Generation and Fuel Cycle Report 1997, DOE/EIA-0436(97) (Washington, DC,

September 1997), Table F1.

1997 1999 2001 2003 2005 2007 2009

0

2

4

6

8

10

12

Dollars per Pound U3O8

NSD -- New Discovery

No Surplus Defense (NSD)

NSD -- Restrictive Policy

Figure 23. Incremental Rise in Projected Uranium

Spot-Market Price: Three No Surplus

Defense Scenarios Versus Reference

Case, 1997-2010

specified and market-related contract prices was found

to have an R-squared value of 0.79 percent, meaning that

79 percent of the change in contract prices can be

explained by the change in spot-market prices. This

relationship is especially useful, because the UMM

provides forecasts of spot-market prices.

While the trend in price movements has been consistent

over the last 15 years, the average prices for longer term

contracts and the spot-market price converged in the

1990s (Figure 21). The decline in average contract prices

with relation to the average spot-market price reflects

the expiration of much higher price contracts executed

in the 1970s and early 1980s. Some of these contracts

were in place for 10 years or more. Because U.S. utilities

are no longer burdened by higher price contracts, the

average contract price for uranium is not expected to

deviate appreciably from the average spot-market price

projected through 2010.

From the relationship described above, it is assumed

that an incremental change in projected spot-market

price for U3O8 approximates the incremental change that

would take place for the price of all uranium delivered

in a given year. Without commercialization of U.S. and

Russian surplus defense inventories, additional increments of uranium would have to be produced in

Western countries to meet demand. The U3O8 spotmarket price would be expected to rise to cover the

marginal cost of the more expensive increments of

production required to meet demand. The incremental

production would come from many regions, including

Australia, Canada, Central Africa, South Africa, and the

United States. 

To calculate the incremental change in price for uranium

delivered, the differences in projected spot-market price

between the three scenarios that assume surplus defense

inventories are unavailable and the Reference, Lower

HEU Feed, and Upper HEU Feed cases were calculated.

For example, the incremental change between the NSD

scenario and the Reference Case rises from just over

$1.00 per pound U3O8 in 1997 to over $6.00 per pound

U3O8 in 2002 (Figure 23). The relatively low price

differential projected over the next few years results

from the availability of excess commercial inventories

and CIS imports. To develop an estimate of the

incremental costs savings per year, the incremental price

is multiplied by EIA’s projections of uranium

requirements for U.S. reactors.202

Certain assumptions made about uranium supply affect

projections of uranium spot-market price. For the new

discovery scenario, the incremental rise in uranium spotmarket is reduced by around $3.00 per pound U3O8

when compared to the NSD scenario as an additional 14

million pounds U3O8 becomes available in 2005 (Figure

23). With an assumed restriction of Australian uranium

output to three production centers, up to 15 million

pounds U3O8 per year would be precluded from the

market. A similar quantity of uranium from prospective

Australian mines is assumed to have been sold in the

NSD scenario. Thus, the estimated incremental change

in uranium spot-market price for the restrictive policy

scenario increases by as much as between $5.00 and

$6.00 per pound U3O8 when compared to the NSD

scenario (Figure 23).

 Assumptions: No Surplus Defense (NSD)&U.S. and

Russian surplus defense inventories are not available as a fuel

supply for commercial nuclear power reactors, and the

schedules for future uranium mine production are the same as

used in analyzing the effects of surplus defense inventories on

uranium spot-market price; NSD%New Discovery&uranium

from a hypothetical discovery of low-cost uranium reserves not

accounted for in the NSD scenario is produced and sold in the

market at an annual rate of 7 million pounds U3O8 in 2005 and

14 million pounds U3O8 in 2006 and subsequent years;

NSD%Restrictive Policy&hypothetical reinstatement of the

former Australian government’s policy restricts uranium

production to three mines, thereby precluding the availability

of 15 million pounds U3O8 from potential new mines assumed

to be sold in the NSD scenario.

 Note: These projections show the yearly differences in price

between the three No Surplus Defense scenarios and the

Reference Case.

 Source: Energy Information Administration, Uranium Market

Model, runs 1997_73, 1997A_21, 1997A-46, and 1997A-98.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

74 Materials, Policies, and Market Effects

1997 1999 2001 2003 2005 2007 2009

0

1

2

3

4

Billion 1996 Dollars

Lower HEU Feed Case

Reference Case

Upper HEU Feed Case

Figure 24. Estimate of Most Likely Potential

Cumulative Savings in Uranium

Procurement Costs for U.S. Nuclear

Power Generating Companies from the

Assumed Market Penetration of U.S. and

Russian Surplus Defense Inventories,

1997-2010

Note: It is assumed that changes in all contract prices are

highly correlated to changes in the projected spot-market

price. The estimation of potential cumulative savings is based

on the projected decline in uranium spot-market price as a

result of the penetration into the marketplace of U.S. and

Russian surplus defense inventories assumed for the three

specific cases compared to the No Surplus Defense scenario.

Source: Projected spot-market price&Energy Information

Administration, Uranium Market Model, runs 1997_60,

1997_73, 1997_82, and 1997A_21.

Projected Cost Savings

Based on the analysis described above, U.S. nuclear

power generating companies would incur lower fuel

costs with access to competitively priced uranium from

U.S. and Russian surplus defense inventories than the

costs they would incur for newly produced uranium.

Estimates of cumulative savings in uranium procurement costs were made for the range of supply

assumptions described in the previous section on

uranium market analysis scenarios (Table 15). Based on

the most likely NSD scenario, the potential cumulative

savings in uranium procurement costs to U.S. nuclear

power generating companies through 2010 are estimated

to be between $2.9 billion and $3.4 billion in 1996 dollars

(Figure 24).

Conclusions

Analytical Results

Nonproliferation objectives and financial considerations

are expected to provide the U.S. and Russian governments with considerable incentives for making surplus

inventories available to the commercial nuclear fuel

market. LEU derived from blending down Russian

HEU has been delivered to U.S. utilities since 1995. The

U3O8 component of this LEU began to displace uranium

supplied from more traditional sources in 1997. Natural

uranium (U3O8 and conversion) from U.S. surplus

defense inventories also began entering the market in

1997. Trade restrictions and other national policies and

certain market factors, however, will limit sales of

equivalent U3O8 from U.S. and Russian surplus defense

inventories to end users in the near term. For the

Table 15. Estimates of Potential Cumulative Savings in Uranium Procurement Costs for U.S. Nuclear Power

Generating Companies from the Assumed Market Penetration of U.S. and Russian Surplus Defense

Inventories Based on Different Assumptions About Uranium Supply, 1997-2010

(Billion 1996 Dollars)

U.S. and Russian Surplus

Defense Inventories

No Surplus Defense (NSD) Scenarios

NSD%New Discovery NSD NSD%Restrictive Policy

Lower HEU Feed Case . . . . . . . . . . . . . . . . . . 2.1 2.9 4.9

Reference Case . . . . . . . . . . . . . . . . . . . . . . . . 2.3 3.1 5.0

Upper HEU Feed Case . . . . . . . . . . . . . . . . . . 2.6 3.4 5.3

 Note: It is assumed that changes in all contract prices are highly correlated to changes in the projected spot-market price. The

estimation of potential cumulative savings is based on the projected decline in uranium spot-market price as a result of the

penetration into the marketplace of U.S. and Russian surplus defense inventories assumed for the three specific cases

(Reference, Lower HEU Feed, and Upper HEU Feed) compared to three No Surplus Defense scenarios based on various

assumptions about uranium supply (No Surplus Defense (NSD), NSD%new discovery, and NSD%restrictive policy). 

 Source: Projected spot-market-price&Energy Information Administration, Uranium Market Model, runs 1997_60, 1997_73,

1997_82, 1997A_21, 1997A_46, and 1997A_98.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 75

Reference Case, the annual rate of market penetration is

assumed to approximate current government commercialization schedules early in the next decade. By 2002,

the equivalent of 35 million pounds U3O8 derived from

surplus defense inventories is expected to penetrate the

market annually. This quantity is approximately equivalent to the combined annual production capacity of the

world’s two largest uranium mines currently under

development.

More than 80 percent of the uranium considered under

currently scheduled commercialization programs would

be supplied from the blending down of Russian HEU.

This uranium is considered Russian-origin; its delivery

to U.S. consumers is restricted by the USEC Privatization

Act and the Suspension Agreement with Russia. As

more uranium derived from Russian HEU is permitted

to enter the U.S. market, the differential between the

restricted and unrestricted spot-market price is expected

to diminish, possibly disappearing altogether. It is not

likely that reciprocity in the quantities of U.S. and

Russian HEU down-blended for commercial use will be

achieved by 2010.

The U.S. Government is required by the USEC

Privatization Act to determine whether its commercial

sale of uranium from surplus inventories would have an

adverse effect on the domestic uranium industry. The

unlikely introduction of additional uranium derived

from U.S. HEU at levels equivalent to the commercialization of Russian HEU would displace supply from

relatively higher cost producers, including those in the

United States. Because of the anticipated oversupply,

Russia would be expected to realize a lower price for its

uranium sales. To pursue nonproliferation objectives

while at the same time not contributing to an oversupply

in the commercial marketplace, it is anticipated that the

United States would allow increased international

inspections of its nuclear materials stockpiles through

the auspices of the IAEA.

At present, a gap between Western world requirements

and primary production is filled by commercial inventories and imports from the Commonwealth of Independent States. Over the next several years, surplus

defense inventories are expected to become the second

most important source of uranium, behind primary

production. Nevertheless, an increase in primary

uranium production is projected even though the annual

quantity of uranium supplied from surplus defense

inventories is assumed to increase. To induce additional

increments of production, the spot-market price would

have to rise above the marginal costs of the incremental

producers. 

The average annual spot-market price in the U.S. market

is expected to be between $14.00 and $17.00 per pound

U3O8 by the middle of next decade. The lower price

would result from marginally higher rates of market

penetration by the uranium feed contained in LEU

derived from the blending down of Russian HEU. The

higher price would result from decreased availability to

Western consumers of the uranium from Russian HEU.

For this analysis, Russia is assumed to take back onethird of the uranium feed in order to fill domestic

requirements and longstanding supply commitments

with neighboring countries. Based on estimates of

marginal costs for the additional production needed to

fill the Western supply shortfall, the spot-market price is

projected to rise by less than $2.00 per pound U3O8 from

the projected price in the Reference Case. At this price

level, and taking into account competition from other

producers worldwide, U.S. production is projected to

reach 11 million pounds U3O8 per year by 2010.

The Western uranium market could be strongly affected

by two events: (1) the timing and extent by which Russia

makes the natural uranium feed component of HEU

available to Western consumers and (2) construction

deferrals and early retirements of nuclear power generating capacity. Declining nuclear power generating

capacity would decrease demand for uranium. Russian

use of uranium from HEU would decrease the West’s

supply of competitively priced uranium. Taken together,

these events would tend to have offsetting effects on the

market. Thus, projections based on less optimistic

assumptions about the growth of nuclear power would

be consistent with the range of projections for uranium

spot-market prices and supply developed in this

analysis.

The enrichment services market, with current excess

production capacity, is less likely to be subjected to the

price volatility that has recently been seen in the U3O8

market. Enrichment (SWU) derived from U.S. and

Russian surplus defense inventories will largely be

controlled by USEC, a producer of enrichment services.

USEC is expected to act in an economically rational

manner that will not disrupt pricing in a way that would

affect its own business, selling through long-term contracts rather than on the spot market. USEC also could

use the SWU it receives to optimize enrichment capacity,

including closing one of its aging gaseous diffusion

enrichment plants. The closure of existing enrichment

capacity, however, is not likely until privatization of the

company takes place and sizable inventories of LEU are

accumulated to mitigate possible disruptions in future

deliveries of LEU derived from Russian HEU.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

76 Materials, Policies, and Market Effects

With the acquisition of U.S. and Russian surplus defense

inventories, USEC would have access to competitively

priced natural uranium feed and economical enrichment

capacity to position itself as a marketer of EUP. For the

same reasons, Russia could also become a major supplier

of EUP. Restrictions on trade, however, limit the penetration of Russian-origin uranium in the Western

market. Although it accounts for a relatively small share

of existing contract volume, EUP could gain appreciable

market share as nuclear power generating companies

look for more flexible or less costly ways of managing

fuel procurement.

Without commercialization of U.S. and Russian surplus

defense inventories, increases in price would be required

to induce uranium producers with higher marginal costs

of production to enter the market to meet projected

demand. The penetration of surplus defense inventories

into the marketplace is therefore expected to provide

nuclear power generating companies with a benefit of

lower uranium procurement costs. Historical data over

the past 15 years show a strong correlation between

movements in contract and spot-market prices. Thus,

the incremental change that would take place for the

price of all uranium delivered in a given year can be

estimated from projections of spot-market price. Using

this methodology, EIA estimates the potential cumulative savings in uranium procurement costs between 1997

and 2010 to be between $2.9 and $3.3 billion in 1996

dollars. The projected savings would be one consequence of arms reduction agreements between the

United States and Russia and other national policies,

enabling nuclear materials formerly held for defense

purposes to be made available for civilian use. The

estimate of potential cumulative savings is considered

the most likely from a broad range projected between

$2.1 billion and $5.3 billion dollars in 1996 dollars.

Savings in the higher end of the range would be realized

if the development of known low-cost reserves is

restricted through government policy. On the other

hand, the savings could be less than the most likely

estimate if new low-cost reserves are discovered and put

into production during the forecast period.

The total effect of commercializing U.S. and Russian

surplus defense inventories on nuclear power generating

companies’ fuel costs would also depend on the

behavior of the enrichment services market. (Because

conversion services make up about 5 percent of the cost

of fuel reloaded into a core of a typical light-water

reactor, changes in the price of conversion services due

to the availability of UF6 from surplus defense

inventories would have only a marginal effect on total

fuel costs.) Under the current condition of worldwide

enrichment overcapacity, USEC is expected to sell the

SWU it receives as U.S. Executive Agent for the Russian

HEU Agreement in a market neutral manner. It is

assumed that most of the potential effect of

commercializing surplus defense inventories on fuel

procurement costs could be measured by changes in the

price of uranium. Should USEC elect to close one of its

enrichment plants, the price of SWU could rise as

considerable excess capacity is eliminated. However,

any rise in SWU price is anticipated to be restrained

by the magnitude of lower cost enrichment capacity that

would remain in the world. Thus, a possible increase in

the cost of enrichment services is expected only to

partially offset the impact of lower uranium price on

reducing total fuel procurement costs.

Uncertainties

Market projections are subject to considerable uncertainty. As with other commodities, the uranium and

other nuclear fuel cycle markets are affected by demand

and supply relationships. Unlike many other markets,

however, the trading of uranium has been significantly

restricted by government policies. Trade restrictions

have been implemented in the United States and

European Union in part to support domestic industries

or to ensure a diversity of supply for civilian nuclear

power programs. For the same reasons, deliveries of

uranium derived from surplus defense inventories are

restricted by the USEC Privatization Act. It is not certain,

however, whether existing restrictions on the sale of

commercial supplies of uranium, such as specified by

the Suspension Agreement with Russia, will be extended

beyond their current statutory limits.

On the demand side, the economics of nuclear power

generation could delay the construction of new plants or

force the retirement of existing plants. Political and economic factors that would affect future operable nuclear

generating capacity, especially related to the restructuring of the electric power industry in the United States

and other countries, and the recent financial crisis in the

Far East, are not fully understood at this time. A decline

in operable generating capacity would result in a decline

in demand for nuclear fuel. Assuming that surplus

defense inventories will be made available to the market

under current plans, less uranium production would be

required, and prices would decline. In addition, the

extent to which MOX fuel and new enrichment technologies, such as Atomic Vapor Laser Isotope Separation

(AVLIS), are utilized would also affect the demand for

uranium and enrichment services.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 77

203 Energy Information Administration, Annual Energy Outlook 1998, DOE/EIA-0383(98) (Washington, DC, December 1997), p. 54. 204 B.W. Jamieson & S.E. Frost, “The McArthur River Project: High Grade Uranium Mining,” in Uranium and Nuclear Energy 1997,

Proceedings of the Twenty-Second Annual Symposium of the Uranium Institute (London, September 1997), p. 75.

A key uncertainty on the demand side is the anticipated

early retirements of nuclear power plants. For the

analysis developed in this report, only 8 of the 110

nuclear power reactors operating in the United States as

of December 31, 1996, were assumed to be retired before

their license expiration dates. By 2005, early retirements

are projected to decrease net generating capacity in the

United States by about 5 percent. This assessment of

operable capacity in the United States is relatively optimistic when compared with other more recent

projections. For example, EIA assumed that 24 reactors

would be subject to early retirement in the reference case

presented in the Annual Energy Outlook 1998.

203 The

projected increase in early retirements was based on

utility announcements and an analysis of operating costs

and other factors. 

Uncertainties about quantities of excess commercial

inventories and the timing by which new uranium mines

would receive operating licenses historically have complicated assessments of uranium supply. The plans to

make available U.S. and Russian surplus defense

inventories have superimposed additional uncertainties

on the uranium market. Unanticipated events could ultimately change the longer term supply and demand

relationships presented in this report. Moreover, because

of the variety of uncertainties, the uranium market is

likely to experience short-term volatility. Volatility

would produce perturbations in spot-market price over

relatively short periods that would not be apparent in

the projections developed for this analysis. Short-term

perturbations in the spot-market price present a

challenge to the nuclear industry&long-term decisions

are often based on short-term events.

Because of nonproliferation and other political aspects,

the commercialization of U.S. and Russian surplus

defense inventories cannot be explained solely in terms

of market economics. Political aspects control the timing

and quantities of uranium and plutonium that may

ultimately be made available for the production of

commercial nuclear fuel. Thus, the commercialization

programs could be affected by changes in political

leadership, internal policies, or diplomatic relations

among the nations participating in the programs.

The quantity of uranium derived from Russian HEU that

ultimately will become available for use by Western consumers is not known at this time. Because little official

information is available on Russian civilian nuclear fuel

activities, it is not possible to estimate Russia’s capability

for supplying uranium without considerable uncertainty. A decline in supply capability could lead Russia

to use uranium derived from blending down HEU for its

domestic requirements, making a smaller quantity

available for consumption by the Western world. In that

event, prices on the Western market would be expected

to rise above those projected in this analysis.

Finally, larger than anticipated sales of uranium from

surplus defense inventories over the next few years

could convince Western producers to postpone the

development of new mines. New uranium mines are

likely to require five to ten years before receiving

government approval to operate. For example, development of the McArthur River mine in Canada was

approved in May 1997 after the plan had been initially

submitted to government authorities in February 1991.204

With long lead times required for the startup of new

mines, new production might not be available to avert a

supply shortfall in the event that schedules are not met

for commercializing surplus defense inventories in later

years. In response, a sharp price increase could take

place. On the other hand, additional unspecified

quantities of surplus defense inventories could be

released to the commercial market later in the forecast

period, displacing relatively higher cost uranium

production and causing prices to decline.
Appendix A

Chronology of the

Commercialization of

Russian Highly

Enriched Uranium

1991-1997
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 81

Table A1. Chronology of the Commercialization of Russian HEU, 1991-1997

Date Event

1991

 September President Bush calls for United States to explore with the Soviet Union “joint technical cooperation on the

safe and environmentally responsible storage, transportation, dismantling, and destruction of nuclear

weapons.”

 October Weapons-to-fuel proposal advanced to U.S. Executive Branch Agencies.

 First discussion of idea with Soviet officials at Federation of Atomic Scientists (FAS)/Natural Resources

Defense Council arms control meeting in Washington.

 Thomas Neff, Massachusetts Institute of Technology, writes “Grand Uranium Bargain” proposal published

as Op-Ed in New York Times (October 21).

 November Senate Bill S. 2011 proposed by Senators Cranston and Pell, encourages purchase of blended down fissile

nuclear material “to stabilize the transfer of Soviet weapons uranium to civilian use through the U.S.

Department of Energy (DOE).” Legislation not considered.

 December Breakup of Soviet Union; the Commonwealth of Independent States established. Most of the former Soviet

nuclear weapons complex is under control of the Russian Federation. Nuclear weapons in other CIS

states except Ukraine, are transferred to the Russian Federation (Russia).

 Weapons-to-fuel proposal discussed in Moscow at Russian invitation. Meeting under aegis of FAS.

1992

 February Detailed discussion of U.S. purchase of uranium from weapons with Russian officials at FAS meeting in

Washington.

 July Russian initiative in discussions with U.S. officials.

 August President Bush announces United States and Russia have agreed in principle for U.S. purchase of Russian

highly enriched uranium (HEU).

 October Energy Policy Act of 1992 authorizes transfer of DOE’s uranium enrichment activities to a new Government

corporation&the United States Enrichment Corporation (USEC); it is to be ultimately privatized within 2

years. USEC is “authorized to negotiate the purchase of all HEU made available by any State of the former

Soviet Union under a government-to-government agreement or shall assume the obligations of the DOE

under any contractual agreement that has been reached with any such State or any private entity before

the transition date.” Transition date set for July 1, 1993.

 Agreement suspending the anti-dumping investigation on uranium from the Russian Federation signed by

the Russian Federation; natural uranium feed component of Russian HEU is not to be sold in market, but

rather is to be used to overfeed DOE enrichment plants.

1993

 February The United States and Russian Federation sign The Agreement between the Government of the United

States and the Government of the Russian Federation Concerning the Disposition of Highly Enriched

Uranium Extracted from Nuclear Weapons (Russian HEU Agreement) at the summit meeting between

Presidents Clinton and Yeltsin. It covers the purchase of 500 metric tons of HEU extracted from nuclear

weapons. Agreement includes purchase of 10 metric tons per year of first 5 years, 30 metric tons per year

thereafter. Executive Agents are to conclude implementing contract within 6 months. Parties may conclude

additional implementing contracts as needed. Terms, including price are subject to Parties’ approval.

 April-May Initial discussions of pricing between U.S. Department of State and the Ministry of Atomic Energy of the

Russian Federation (MINATOM): low-enriched uranium (LEU) priced at $780 per kilogram. 
Table A1. Chronology of the Commercialization of Russian HEU, 1991-1997 (Continued)

Date Event

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

82 Materials, Policies, and Market Effects

1993 (continued)

 May U.S. Department of State and MINATOM sign the basic principles of the HEU contract at ceremonies in

Vancouver, Canada. Principles include: partnerships&neither side subsidizes the other, prices and costs

are adjusted for inflation and changes in market conditions, Russian gains access to existing U.S.

customers, and Russian converted HEU will not be used to undercut Russia in new markets.

 Draft implementation contract is signed by DOE and MINATOM. Contains all essential terms of the final

contract and it calls for payment for uranium feed component only “as used or sold” by the United States.

 July USEC takes over the uranium enrichment business of the DOE.

 September Memorandum of Understanding is signed between the United States and Russian Governments

concerning arrangements to ensure that purchased LEU is derived from HEU from nuclear weapons

dismantled in Russia (the so-called transparency issue).

1994

 January Trilateral Agreement signed by the Presidents of the United States, Russia, and Ukraine at the Presidential

Summit in Moscow. Ukraine agrees to dismantle nuclear weapons and send the nuclear materials to

Russia for deconversion in return for supply of commercial nuclear fuel.

 HEU implementation contract for the Russian HEU Agreement signed by USEC and Techsnabexport

(TENEX) at the summit meeting between Presidents Clinton and Yeltsin in Moscow. Contract essentially

unchanged from May version. Addendum transfers contract from DOE to USEC. Initial deliveries expected

in 5 months.

 March Amendment to the Suspension Agreement with the Russian Federation signed. It sets “matched sales”

quotas, whereby imports must be matched with U.S.-origin uranium.

 Transparency agreement signed, as required under HEU deal.

 April At U.S. Government’s direction, USEC advances first $15 million of $60 million against future LEU from

HEU deliveries in connection with Ukraine trilateral agreement.

 October No agreement on prices at the scheduled annual review between TENEX and USEC.

 U.S.-Canadian consultations following Canadian challenge under the North American Free Trade

Agreement. U.S. agrees to limit amount of Russian uranium that will enter the U.S. market, as stated in

amendment to the Russian Suspension Agreement.

 December USEC seeks DOC action to close enrichment “bypass.” Closure would make Russian-origin uranium an

export of Russia regardless of whether enrichment took place in another country.

1995

 February Protocol signed by USEC and TENEX summarizes commercial differences between parties to

implementation contract. TENEX proposes to count both U and SWU in LEU against repayment of $60

million advance. USEC proposes to pay $82.10/SWU for first 10 metric tons HEU, with one-half applied

to $60 million debt, but to reduce the SWU price to $68 for second 10 metric tons HEU (1996 delivery),

and no payment for uranium on first 20 metric tons; uranium to be returned to TENEX.

 Exchange of letters between United States and Canada recording agreements.

 May Senator Pete Domenici introduces legislation, Senate Bill S.755, to allow forward sales in the United States

of uranium content of LEU from Russian HEU and to permit Russia to regain title from USEC, ensuring

payment for feed component of Russian HEU (proposal was later modified to allow phased-in sales

approach with earlier revenue for Russia.)
Table A1. Chronology of the Commercialization of Russian HEU, 1991-1997 (Continued)

Date Event

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 83

1995 (continued)

 June Protocol signed by USEC and MINATOM summarizes commercial differences between parties to

implementation contract. USEC offers to pay for uranium content if it obtains change in U.S. law to permit

USEC to sell it in the United States without restriction, as per “Administration proposal supported by

USEC.” Proposal conflicts with that introduced by Domenici. Parties disagree on repayment of $60 million

and on basis for setting future prices. MINATOM to receive $100 million “advance payment”; USEC

receives four months to secure changes in laws and agreements. Implementation of contract-start date

reset at FY95 (FY96 to be second year of contract.)

 June First shipment of LEU from Russian HEU to United States.

 July-August Compromise on legislative approach to HEU and USEC Privatization negotiated between Administration,

USEC, and Congress.

 September Senate passes revised S.755, setting terms to improve HEU deal.

 November USEC makes first shipment of Russian LEU to a customer.

1996

 April USEC Privatization Act signed, setting maximum annual sale in the market of uranium feed from Russian

HEU and requiring the President to monitor and report on USEC’s actions annually with regard to the effect

Russian LEU deliveries have on U.S. uranium, conversion and enrichment industries. The USECMINATOM implementing contract must be amended to state that the Russians have the right to ask that

feed be returned immediately for sale under the provisions of the Act or be auctioned by USEC with

proceeds to be paid to the Russians.

 August USEC turns down Russians’ offer to increase the level of deliveries of LEU from HEU to 18 MT in 1997

from the 12 MT now being delivered. This action prompts Senator Domenici to write a letter to Deputy

Energy Secretary Charles Curtis, raising question of whether USEC is more interested in maximizing

profits than in meeting national security goals and suggesting that USEC be removed as executive agent.

 September USEC and TENEX begin first round of negotiations on price to be paid for 1997 and 1998 deliveries of LEU

from Russian HEU. Russian HEU Agreement amended to eliminate USEC’s requirement to pay for natural

uranium component of LEU purchased from Russia.

 October Russian Suspension Agreement further amended to close enrichment bypass in exchange for allowing

Russia to sell SWU to the United States in quantities unused in previous years’ quotas.

 November Russians bring the Siberian Chemical Enterprise complex online to increase HEU blending capacity.

Amendment to Russian HEU Agreement is finalized, establishing contract obligations for the next five

years. Deliveries of Russian HEU are to start at 18 metric tons in 1997 and rise to 24 metric tons in 1998

and 30 metric tons in 1999 through 2001.

 December USEC transfers to DOE the equivalent of about 14 million pounds of U3O8 representing the natural uranium

component of Russian LEU derived from the blending down of 18 metric tons of HEU it purchased during

1995 and 1996 under the Russian HEU Agreement. This transfer was directed by the USEC Privatization

Act.

1997

 April Representatives from Pleiades meet with U.S. State Department officials to discuss Pleiades’ interest in

purchasing the natural uranium component of LEU derived from Russian HEU. 

 July President Clinton approves the initiation of USEC privatization.
Table A1. Chronology of the Commercialization of Russian HEU, 1991-1997 (Continued)

Date Event

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

84 Materials, Policies, and Market Effects

1997 (continued)

 August Cameco Corp., Cogema, and Nukem Inc. sign an agreement in principal with MINATOM for the purchase

of the natural uranium component of LEU derived from Russian HEU. Cameco and Cogema each will have

access to 45 percent of an unspecified quantity to be made available by MINATOM; Nukem’s share will

be 10 percent.

 October DOC proposes procedures to administer and enforce the U.S. quotas for the natural uranium component,

as provided by the USEC Privatization Act.

 December Cameco Corp., Cogema, and Nukem, Inc. announce that discussions with MINATOM concerning the

purchase of the natural uranium component of LEU derived from Russian HEU have been suspended.

USEC reports purchases from 1995 through 1997 pursuant to the Russian HEU Agreement have totaled

1,038 metric tons of LEU produced from blending down 36 metric tons of HEU taken from Russian surplus

nuclear weapons.

 Sources: Neff, Thomas, Speech presented at the Nuclear Energy Institute’s Nuclear Fuel Supply Forum (Washington, DC,

January 28, 1997); United States Enrichment Corporation, “Chronology of the Megatons to Megawatts Contract (as of January

27, 1997)” (Bethesda, MD, January 1997) and “Megatons to Megawatts Program Progress Status” (Bethesda, MD, December

1997); The Ux Consulting Company, LLC, Analysis of World Nuclear Fuel Inventories (Marietta, GA, April 1997), Appendix A;

updated by Energy Information Administration, Office of Coal, Nuclear, Electric and Alternate Fuels.
Appendix B

Key Milestones in the

Disposition of U.S.

Government Surplus

Highly Enriched

Uranium, CommercialGrade Uranium, and

Plutonium, 1992%1997
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 87

Table B1. Key Milestones in the Disposition of U.S. Government Surplus Highly Enriched Uranium

(HEU), Commercial-Grade Uranium, and Plutonium, 1992%1997

Date HEU and Commercial-Grade Uranium Plutonium

1992 U.S. Government ends all HEU production.

 April U.S. Government announces intent to end

reprocessing of spent fuel from plutoniumproduction reactors.

 May President Bush’s National Security Advisor

commissions the U.S. National Academy of

Sciences (NAS) to study the disposition of

surplus weapons plutonium.

 October Energy Policy Act of 1992 (EPACT) signed into

law. It directs the Secretary of Energy to

determine the availability of uranium materials,

including HEU, for conversion to commercial

use and to provide plans for such conversion.

EPACT authorizes transfer of DOE’s uranium

enrichment activities to a new government

corporation&the United States Enrichment

Corporation (USEC).

1993

 June U.S. Department of Energy (DOE) announces “up to approximately 50 metric tons of plutonium”

and “25 to 100 metric tons” of HEU could be made available for civil use.

 September President Clinton announces Nonproliferation and Export Control Policy.

1994

 January NAS Committee on International Security and

Arms Control issues Management and

Disposition of Excess Weapons Plutonium. It

proposes disposition of surplus weapons-grade

plutonium by (1) irradiation as mixed-oxide fuel

(MOX) in commercial nuclear power plants

(“reactor option”), and (2) immobilization and

storage (“immobilization option”).

 Secretary of Energy initiates Fissile Materials Disposition Project to develop and implement plans

to dispose of weapons-usable fissile materials.

 June DOE announces its intent to prepare “Storage and Disposition of Weapons-Usable Fissile

Materials Programmatic Environmental Impact Statement” (S&D PEIS); it considers the storage

and disposition of both HEU and plutonium.

 August-October DOE holds public workshops to gather input regarding the proposed PEIS.

 September United States submits HEU and plutonium under International Atomic Energy Agency Safeguards;

it becomes first nuclear weapons state to submit surplus defense materials for verification.

 November DOE and the U.S. Enrichment Corporation

(USEC) sign a Memorandum of Understanding,

whereby DOE will transfer at no cost 13 metric

tons of HEU to USEC.
Table B1. Key Milestones in the Disposition of U.S. Government Surplus Highly Enriched Uranium

(HEU), Commercial-Grade Uranium, and Plutonium, 1992%1997 (continued)

Date HEU and Commercial-Grade Uranium Plutonium

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

88 Materials, Policies, and Market Effects

1995

 March President Clinton declares as surplus approximately 200 metric tons of weapons-usable HEU and

plutonium.

 April DOE announces intent to publish separate EIS

for HEU disposition (HEU EIS).

 July NAS Panel on Reactor-Related Options issues

Management and Disposition of Excess

Weapons Plutonium: Reactor-Related Options;

it recommends “dual-track” approach using

reactor and immobilization options in parallel.

 October DOE issues HEU Draft EIS.

 December DOE, through announcement in Federal

Register solicits comments on potential interest

by utilities to participate in reactor option.

1996

 February As part of Openness Initiative, Secretary of Energy discloses that the United States holds

approximately 213 metric tons of surplus fissile materials (174.3 metric tons HEU and 38.2 metric

tons plutonium).

DOE releases Plutonium: The First 50 Years, a

detailed account of the production, acquisition,

uses, and inventories as part of its Openness

Initiative.

DOE issues S&D Draft PEIS for plutonium

disposition and HEU and plutonium storage.

 April Group of Seven Industrialized Nations,

including United States, and Russia adopt

“spent fuel standard” for plutonium disposition.

Canada agrees in principal to the concept of

using Canadian reactors to meet reactor option.

United States Enrichment Corporation

Privatization Act signed into law; it directs DOE

to transfer specific quantities of surplus HEU

and natural uranium to the USEC, as well as

prescribes how USEC may sell the uranium

received from DOE. DOE is also given the

authority to sell surplus natural uranium and

low-enriched uranium (LEU). DOE may directly

market enriched uranium only after USEC is

privatized.

 June DOE issues HEU Final EIS.
Table B1. Key Milestones in the Disposition of U.S. Government Surplus Highly Enriched Uranium

(HEU), Commercial-Grade Uranium, and Plutonium, 1992%1997 (continued)

Date HEU and Commercial-Grade Uranium Plutonium

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 89

1996 (continued)

 July DOE issues Record of Decision for HEU EIS.

DOE proposes to sell surplus inventories of

natural uranium and LEU.

 September DOE issues HEU Disposition Plan. Interim report of the U.S.-Russia Independent

Scientific Commission recommends that the

United States and Russia move quickly to

implement both immobilization and reactor

options for disposition.

 October DOE issues final Environmental Assessment

DOE Surplus Natural and Low Enriched

Uranium (EA). The EA proposes to commence

selling as soon as possible natural uranium and

LEU from DOE inventories and the natural feed

component of Russian LEU transferred from

USEC.

 December Clinton Administration announces dual-track

approach for disposition as “preferred

alternative.”

DOE issues S&D Final PEIS.

1997

 January Memorandum of Understanding signed 

between DOE and Tennessee Valley Authority

(TVA) for the demonstration and utilization by

TVA of LEU from “off-spec” U.S. HEU.

DOE issues Record of Decision for S&D PEIS.

 March DOE issues Secretary’s Determination; DOE’s

proposed sale during Fiscal Year 1997 of

surplus natural uranium and LEU “will not have

an adverse material impact on the domestic

uranium mining, conversion, or enrichment

industry.”

 May DOE publishes Program Acquisition Strategy

for Obtaining Mixed Oxide Fuel Fabrication and

Reactor Irradiation Services (PAS).

 September DOE receives qualified bids for natural uranium

offered for sale

 Sources: Holdren, J., Ahearne, J., Garwin, R., Panofsky, W., Taylor, J., and Bunn, M., “Excess Weapons Plutonium: How to

Reduce a Clear and Present Danger,” in Arms Control Today (November/December 1996), pp. 3-9; Public Law 104-134, Balanced

Budget Down Payment Act, Subchapter A-USEC Privatization Act (April 26, 1996); U.S. Department of Energy, Plutonium: The First

50 Years (Washington, DC, February 1996), 82 p.; U.S. Department of Energy, Office of Fissile Materials Disposition, documents

announcements related to programs for the disposition and storage of weapons-usable fissile materials (highly enriched uranium

and plutonium); Office of Nuclear Energy, Science and Technology and Office of the Secretary, documents and announcements

related to plans to sell surplus natural uranium and low-enriched uranium.
Appendix C

Principal Documents

Prepared by the U.S.

Department of Energy

for the Storage and/or

Disposition of U.S.

Government Surplus

Highly Enriched 

Uranium, Plutonium,

Natural Uranium, and

Low-Enriched Uranium

in Accordance with the

National Environmental

Policy Act, June 

1994%May 1997
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 93

Table C1. Principal Documents Prepared by the U.S. Department of Energy for the Storage and/or Disposition

of U.S. Government Surplus Highly Enriched Uranium (HEU), Plutonium, Natural Uranium, and

Low-Enriched Uranium (LEU) in Accordance with the National Environmental Policy Act,

June 1994%May 1997

Storage and Disposition of Weapons-Usable Fissile Materials

(Office of Fissile Materials Disposition)

Sale of Natural Uranium and LEU

(Office of Nuclear Energy,

Science and Technology)

1994

June. Notice of Intent to prepare S&D PEIS published in Federal Register (June 21)

(Considers the storage and disposition of both HEU and plutonium); scheduled

workshops for August-October, 1994, which included the soliciting of public input

HEU Disposition

Plutonium Disposition, HEU and

Plutonium Storage

1995 1995

April. Notice of Intent to prepare a separate

EIS for HEU disposition published in the

Federal Register (April 5)

March. Implementation Plan for S&D PEIS

issued (DOE/EIS-0229-IP)

June. Implementation Plan for HEU EIS

issued (DOE/EIS-0240-IP) (note)

October. HEU Draft EIS issued (DOE/EIS0240-D)

October. Notices of Availability of the HEU

Draft EIS published separately by both DOE

(October 26) and EPA (October 27) in the

Federal Register; public comment period

open to December 11, 1995

November. DOE, responding to public

requests, publishes a Notice in the Federal

Register (November 24) extending the

comment period for HEU Draft EIS to January

12, 1996

1996 1996 1996

June. HEU Final EIS issued (DOE/EIS-0240)

on June 28; Notices of Availability published

separately by both DOE and EPA (June 28) in

the Federal Register

February. S&D Draft PEIS issued (DOE/EIS0229-D)July. Notice of Intent to prepare Uranium EA

published in the Federal Register (July 9)

July. Record of Decision for HEU Final EIS

issued on July 29, published in the Federal

Register on August 5, 1996

March. Notices of Availability of the S&D

Draft PEIS published separately by both DOE

and EPA in the Federal Register (March 8);

public comment period open to May 7, 1996

August. Uranium Draft EA issued (DOE/EA1172)

May. DOE, responding to public requests,

publishes a Notice in the Federal Register

(May 13) extending the comment period for

S&D Draft PEIS to June 7, 1996

August. Notice of Availability of the Uranium

Draft EA published in the Federal Register

(August 12); public comment period open to

September 11, 1996
Table C1. Principal Documents Prepared by the U.S. Department of Energy for the Storage and/or Disposition

of U.S. Government Surplus Highly Enriched Uranium (HEU), Plutonium, Natural Uranium, and

Low-Enriched Uranium (LEU) in Accordance with the National Environmental Policy Act,

June 1994%May 1997 (continued)

Storage and Disposition of Weapons-Usable Fissile Materials

(Office of Fissile Materials Disposition)

Sale of Natural Uranium and LEU

(Office of Nuclear Energy,

Science and Technology)

Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

94 Materials, Policies, and Market Effects

HEU Disposition

Plutonium Disposition, HEU and

Plutonium Storage

1996 1996

December. S&D Final PEIS issued (DOE/EIS0229) on December 13; Notices of Availability

published separately by both DOE (December

19) and EPA (December 13) in the Federal

Register

October. Uranium Final EA issued (DOE/EA1172)

October. Uranium FONSI issued on October

14-determines that proposed action does not

require the preparation of an Environmental

Impact Statement; published in the Federal

Register (October 22)

1997

January. Record of Decision for S&D Final

PEIS issued on January 14, published in the

Federal Register on January 21, 1997

May. Notice of Intent to prepare Surplus

Plutonium Disposition EIS published in the

Federal Register (May 22)

 Note: DOE code in parenthesis, such as (DOE/EIS-0240-IP), refers to published document.

Explanation: S&D PEIS-“Storage and Disposition of Weapons-Usable Fissile Materials Programmatic Environmental Impact Statement;” HEU EIS-

“Disposition of Surplus Highly Enriched Uranium Environmental Impact Statement;” Uranium EA-“Environmental Assessment DOE Sale of Surplus

Natural and Low Enriched Uranium;” Uranium FONSI-“DOE Sale of Surplus Natural and Low Enriched Uranium Finding of No Significant Impact.”

 Sources: HEU disposition-U.S. Department of Energy, “Record of Decision for the Disposition of Surplus Highly Enriched Uranium Final

Environmental Impact Statement,” in Federal Register, Vol. 61 (August 5, 1996), pp. 40616-40619; Storage and disposition-U.S. Department of

Energy, “Record of Decision for the Storage and Disposition of Weapons-Usable Fissile Materials Final Programmatic Environmental Impact

Statement,” in Federal Register, Vol. 62 (January 21, 1997), pp. 3014-3030; LEU and natural uranium-U.S. Department of Energy, “Sale of Surplus

Natural and Low Enriched Uranium Finding of No Significant Impact,” in Federal Register, Vol. 61 (October 22, 1996), pp. 54780-54781.
Appendix D

Description of the

Uranium Market

Model
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 97

Appendix D

Description of the Uranium Market Model

Overview

Most of the uranium projections in this report were generated by the Uranium Market Module (UMM). UMM

is a microeconomic model in which uranium supplied by

the mining and milling industry is used to meet the

demand for uranium by electric utilities with nuclear

power plants. Uranium is measured on a U3O8 concentrate equivalent basis. The input data encompass every

major production center and utility in the world. The

model provides annual projections for each major

uranium production and consumption region in the

world. Sixteen regions were used in this study: (1) the

United States, (2) Canada, (3) Australia, (4) South Africa,

(5) Other Africa, (6) Western Europe, (7) Latin America,

(8) the East, (9) Other, (10) Eastern Europe, (11) Russia,

(12) Kazakhstan, (13) Uzbekistan, (14) Ukraine, (15)

Kyrgyz Republic, and (16) Other Former Soviet Union.

Uranium Demand

Uranium demand is assumed to equal near-term unfilled requirements on the part of utilities. Unfilled

requirements are determined by subtracting current

contract commitments at firm (non-spot) prices and

inventory drawdown from total reactor requirements

plus any assumed inventory buildup. Contract commitments calling for price to equal the future spot prices

with no firm floor price are thus included in the

calculation of uranium demand. In this way, demands

may be placed on the market by uranium producers

with such contracts when the spot price falls below the

production costs of these producers.

The demand for uranium by electric utilities with

nuclear power plants is a key parameter. Annual

projections of reactor requirements are from EIA

forecasts (see Chapter 3 for domestic forecasts). In the

model, individual utility requirements were combined

into regional totals. These projections are assumed to be

inelastic with respect to uranium prices, separative work

unit prices, and tails assays. Scenarios with varying

demands can be determined by using alternative inputs

for projected reactor requirements. 

In addition to reactor requirements, most utilities also

maintain a uranium inventory as a contingency against

possible disruptions in supply. The desired degree of

forward inventory coverage varies by country, due to

such factors as national policies, contracting approaches,

and regulatory treatment of inventory costs. These

variations are incorporated in the model. Inventory

demand is a function of future reactor requirements and

future uranium prices which change annually. This

demand is elastic with respect to the spot price and, in

line with market behavior, decreases as the price falls

and increases as the price rises.

Contract commitments, between both producers and

electric utilities and between utilities and enrichment

suppliers, are taken into account exogenously. Commitments between producers and electric utilities are

considered in two ways. The first is an estimate of the

overcommitments by utilities to purchase uranium in

excess of their annual reactor requirements. The second

represents producer-utility contracts by specifying the

commitments made by producers to deliver uranium

from a specific production center to a particular utility.

Contracts between utilities and enrichment suppliers can

also lead to overcommitments in terms of the utility

buying uranium for committed deliveries to enrichment

plants that exceed the utility's reactor requirements.

Uranium Supply

Uranium supply is represented by an annual short-run

supply curve consisting of increments of potential production and the supply of excess inventories which are

assumed to be available at different market prices. Production centers are defined as mine-mill combinations,

if there is conventional production, and as processing

facilities for nonconventional production. Also included

are producers in Western countries, Eastern Europe, the

Former Soviet Union, and China that are potential net
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

98 Materials, Policies, and Market Effects

205 Loans of uranium among the various suppliers and users are not modeled as such. Borrowing and lending activities do not alter

the total inventories of uranium, but they do delay the purchase of newly produced uranium. This effect can be modeled by assuming that

the inventories of uranium that are not held by utilities or producers remain constant at their current level. 206 In projecting production in the United States and other regions, the modeling system considers only those contract commitments

that are tied to specific production centers at firm prices. For this reason, the model in some instances projects production at lower levels

than contract commitments.

exporters. In general, production centers come on line,

produce uranium, and deplete their reserves depending

on a number of geological, engineering, market, and

political conditions. Producers that are able to produce

and sell uranium most cheaply generally occupy the

lower portions of the supply curve. Production costs are

estimated exogenously, taking the following into

account: the size of the reserves; annual production

capacity; ore grade; type of production; capital, labor,

and other costs; and taxes and royalty requirements. A

fair market rate of return is also assumed. Government

subsidies, variations in exchange rates, floor prices,

supply disruptions, or other factors may affect the shape

of the supply curve each year.

Some excess utility inventories are also treated as

sources of potential supply that may be drawn down or

sold in the secondary market. The size of these yearly

drawdowns and sales depends on the utility's desired

level of contingency stocks, spot-market prices, and the

utility's general propensity to draw down its stocks or to

sell uranium in the secondary market. Thus, each

utility's inventory level varies annually depending on its

projected reactor requirements, its contract commitments with producers and enrichment suppliers, the

trend in market prices, its own inventory planning

strategy, and the sales of excess inventories held by

suppliers and governments.

Market-Clearing Conditions

Equilibrium is achieved in the forecasts when the supply

of uranium meets the demand for uranium. Supply

comes from production centers; utilities' inventories,

which may already be at levels sufficient to satisfy inventory demand; excess inventories held by suppliers

and governments; and utilities' excess inventories which

are drawn down or are sold in the secondary market.205

Demand consists of utility reactor requirements, contingency inventory demand, and any additional market

demand resulting from contract over commitments with

either producers or enrichment facilities.

The market projections in any given year are determined

by activities in previous years, such as market prices and

decisions to defer production of reserves. Projected

demand levels are affected by reactor requirements in

future years. Unanticipated changes in future

demand may be introduced exogenously so that market

activities in any forecast year may be constrained by

actions taken in previous years.

Under free-market conditions with a single world market, utilities may draw down their inventories either for

their own use or for sale in the secondary market; production is allocated to satisfy contract commitments;

and remaining demand is met by producers with

uncommitted reserves and by other suppliers with

holdings of uranium. The intersection of this supply

curve with the unfilled demand identifies the particular

production and other supply increments that are sold in

the market and defines the equilibrium spot-market

price for that year. These sales, together with those from

contract commitments, are tabulated to give projections

of production in the United States and in other

regions.206 The equilibrium spot-market price and the 1-

year lagged spot-market price are used to compute a

projected spot-market price. Projected prices for new

contracts are estimated as a function of the projected

spot-market price. The net imports of a country are

calculated from its utilities' reactor requirements,

contingency inventory demand, contract commitments,

inventory use, and its producers' sales.
Appendix E

U.S. Customary Units

of Measurement,

International System of

Units (SI), and Selected

Tables and Figures in

SI Metric Units
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 101

Appendix E

U.S. Customary Units of Measurement,

International System of Units (SI), and Selected

Tables and Figures in SI Metric Units

Standard factors for interconversion between U.S. customary units and the International System of Units (SI)

are shown in the table below. These factors are provided

as a coherent and consistent set of units for the

convenience of

the reader in making conversions between U.S. and

metric units of measure for data published in this report.

Conversion factors are provided only for the U.S. units

of measurement quoted in this report.

Conversion Factors for U.S. Customary Units and SI Metric Units of Measurement

To convert from: To: Multiply by:

pounds U3O8 kilogram U 0.384 647

million pounds U3O8 thousand metric tons U 0.384 647

$per pound U3O8 $ per kilogram U 2.599 786
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

102 Materials, Policies, and Market Effects

Table E1. U.S. Restrictions on Selling the Uranium Feed Component of Low-Enriched Uranium (LEU)

Produced from Blending Down Russian Highly Enriched Uranium (HEU) After January 1, 1997

Delivery Year

HEUa

(metric tons)

Feed Contained

in LEU

Produced from HEUb

(thousand metric tons U)

Direct Quota

to U.S. End Usersc

(thousand metric tons U)

Russian

Matching Scheduled

(thousand metric tons U)

1997 . . . . . . . . . . . . . . . . 18 5.5 -- 1.0

1998 . . . . . . . . . . . . . . . . 24 7.3 0.8 1.4

1999 . . . . . . . . . . . . . . . . 30 9.2 1.5 1.6

2000 . . . . . . . . . . . . . . . . 30 9.2 2.3 1.6

2001 . . . . . . . . . . . . . . . . 30 9.2 3.1 1.6

2002 . . . . . . . . . . . . . . . . 30 9.2 3.8 1.9

2003 . . . . . . . . . . . . . . . . 30 9.2 4.6 1.7

2004 . . . . . . . . . . . . . . . . 30 9.2 5.4 --

2005 . . . . . . . . . . . . . . . . 30 9.2 6.2 --

2006 . . . . . . . . . . . . . . . . 30 9.2 6.5 --

2007 . . . . . . . . . . . . . . . . 30 9.2 6.9 --

2008 . . . . . . . . . . . . . . . . 30 9.2 7.3 --

2009 and beyond . . . . . . . 30 9.2 7.7 --

a

Likely capacity for blending Russian HEU down to low-enriched uranium; the quantity for 1997-2001 pursuant to an agreement

between the U.S. Enrichment Corporation and Techsnabexport, November 1996. For 2002 and later years, it is assumed that

30 metric tons of HEU will be blended down to LEU.

b

The equivalent U3O8 contained in low-enriched uranium (LEU) produced from blending HEU having a 235U content of 90 percent

with slightly enriched uranium having a 235U content of 1.5 percent. For example, the LEU produced from 18 metric tons of HEU

would contain the equivalent of 5.5 metric tons U in the following combination: 4.0 metric tons U in the HEU feedstock and 1.6

metric tons U in the slightly enriched uranium blendstock.

c

Pursuant to the USEC Privatization Act (April 26, 1996), Section 3112(b). d

The Amendment to the Suspension Agreement with the Russian Federation (March 11, 1994) provides for a schedule whereby

Russia can sell uranium at specified quantities to U.S. end users as long as the sales are matched with newly produced U.S.-

origin uranium.

Sources: Quota and schedule-See footnotes c and d; Uranium feed contained in LEU-Energy Resources International, Inc.,

“1997 Nuclear Fuel Cycle Supply and Price Report” (Washington, DC, May 1997), Table 4-18.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 103

Table E2. Equivalent Natural Uranium Feed and SWU Components of Low-Enriched Uranium (LEU) Derived

from U.S. Highly Enriched Uranium (HEU) Based on the U.S. Department of Energy’s Plans to

Transfer Surplus HEU to the United States Enrichment Corporation (USEC) and the Tennessee

Valley Authority (TVA)

HEU

 Quantity

 (metric tons)

 Average 235U

Assay

(percent)

Uranium Feed Component

(thousand metric tons U)

Enrichment Component

 (million SWU)a

Recipient and

HEU Time of Transfer b

Blended LEU

Product c HEUb

Blended LEU

Product c

13 75.7 2.4 3.7 2.1 2.3 USEC: 1993d

50 41.3 5.0 5.4 4.2 3.4 USEC: 1998-2003

38e 66.0 6.0 6.8 5.2 4.3 TVA: 2003-2015f

a

The separative work units (SWU) of enrichment required to produce equivalent LEU, assuming enrichment tails at 0.30 percent 235U.

b

The equivalent U3O8 or SWU contained in HEU with the following average 235U assays: 13 metric tons, 75.7 percent; 50 metric

tons, 41.3 percent; 38 metric tons, 66.0 percent. c

The equivalent U3O8 or SWU contained in LEU bended down from HEU. Different blendstock assays are assumed for each HEU

class as follows: 13 metric tons HEU-LEU (2.0 percent 235U), 50 metric tons HEU-natural uranium (0.71 percent 235U), 38 metric

tons HEU-slightly enriched uranium (1.25 percent 235U) and natural uranium (0.71 percent 235U). d

USEC expects to complete the blending of highly enriched uranium hexafluoride (UF6) to low-enriched UF6 by 1998. e

The actual amount may be less depending on the final characterization of the HEU.

f

TVA expects to use a small amount of LEU derived from HEU as a lead fuel assembly demonstration scheduled for 1999.

 Source: R. Schmidt, personal communication, (DOE HEU Disposition Program Office, Oak Ridge, TN, March 3, 1998).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

104 Materials, Policies, and Market Effects

Table E3. Status of the U.S. Department of Energy’s (DOE) Plans to Dispose of Surplus Commercial-Grade

Natural Uranium and Low-Enriched Uranium (LEU), as of October 31, 1997

Planned

Action

Quantity

(thousand

metric tons

(TMT) U

equivalent) Schedule

Secretarial

Determinationa

Transactions

to Date Comments

Sell DOE

Surplus

Natural

Uranium

(as UF6)

b

7.8 Sell all between 1996 and 2004 for

domestic of foreign end use after

Secretarial Determination; for FY97c

not to exceed 0.8 TMTU if all LEU is

sold (see below). Total sales of

natural uranium and LEU cannot

exceed 1.2 TMTU per year

March 12, 1997;

sales authorized

for FY97

In August 1997, DOE invited

bids for 0.4 TMTU equivalent

and 382,781 kg U conversion

for delivery by September 30,

1999. Contracts completed

between DOE and the winning

bidders during October 1997.

Natural uranium to be sold

as follows:

  Competitive sealed

bids

  Uranium and

conversion

components offered

separately

  Award to highest

bidder

  If bids not adequate,

some uranium could

be retained for later

sale

Sell DOE

Surplus

LEU

0.5 Sell all for domestic or foreign end

use in FY97, if possible, after

Secretarial Determination

March 12, 1997;

sales authorized

for FY97

None LEU expected to be sold or

transferred to USEC in lieu

of contractual obligations

Sell

Russian

HEU Feed

Transferred

to DOE

from USECd

(as UF6)

5.5 Sell about half to Russia for use in

matched sales to domestic end

users (only 1.0 TMTU of matched

salese

 allowed in calendar 1997). 

Sell remaining material for

overfeeding, foreign end use, or in

2001 for domestic end use after

2002

Not required DOE and Global Nuclear

Services and Supply (GNSS)

signed contract on December

12, 1996; DOE to provide

GNSS with uranium for use in

matched sales. First delivery

made to GNSS on December

30, 1996

Transfer

DOE

Surplus

Natural

Uranium to

USECf

 (as

UF6)

Up to 7.0 Pending Not required None  Transfer to include 50

metric tons HEU; total

UF6 and HEU

equivalent to 12.0

TMTU

  USEC not permitted to

sell transferred

material until January

1, 1998, only at a rate

of 10 percent per year

not exceeding 1.5

TMTU (including HEU)

a

The Secretary of Energy must determine that the sale of material will not have an adverse material impact on the domestic uranium mining,

conversion, and enrichment industry pursuant to USEC Privatization Act (April 26, 1996), Section 3112 (d). b

UF6 is the chemical formula for uranium hexafluoride; it is used as feedstock for producing LEU. c

FY97: Fiscal Year 1997-October 1, 1996 to September 30, 1997.

d

Natural uranium component of LEU derived from Russian HEU, transferred from the U.S. Enrichment Corporation (USEC) to the DOE pursuant

to USEC Privatization Act (April 26, 1996), Section 3112 (b). e

Sales of Russian uranium to U.S. end users must be matched with newly produced U.S.-origin uranium pursuant to the Amendment to the

Suspension Agreement with the Russian Federation (March 11, 1994). f

DOE is directed to transfer to the U.S. Enrichment Corporation (USEC) without cost up to 7,000 metric tons of natural uranium and 50 metric tons

of EU pursuant to the USEC Privatization Act (April 26, 1996), Section 3112(c).

Sources: Sales of natural uranium and LEU%U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental

Assessment DOE Sale of Surplus Natural and Low Enriched Uranium, DOE/EIA-1172 (Washington, DC, October 1996); George, R.M., “Status Report

on DOE’s Surplus Uranium Sales Program,” speech presented at the Nuclear Energy Institute’s Nuclear Fuel Supply Forum (Washington, DC, January

28, 1997); U.S. Department of Energy, Determination Pursuant to the United States Enrichment Corporation Privatization Act for the Sale of Excess

Department of Energy Uranium During Fiscal Year 1997 (Washington, DC, March 12, 1997); Transfer of natural uranium to USEC-U.S. Department

of Energy Office of Fissile Materials Disposition, Disposition of Surplus Highly Enriched Uranium Final Environmental Impact Statement,

DOE/EIS-0240-D (Washington, DC, June 1996); R. George, personal communication (Office of Nuclear Energy, Science and Technology, Germantown,

MD, September 30, 1997).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 105

Table E4. Potential Commercial Availability of U.S. and Russian Surplus Defense Inventories, 1997-2010,

Based on Schedules Contained in Government Disposition Plans as of March 31, 1997

Thousand Metric Tons

Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU a . . . . . . . . . . . . . . . . 5.5 7.3 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 123.2

Russian HEU: Pre-1997 b . . . . . . . 1.0 1.4 0.3 0.0 0.0 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 5.5

Total Russian HEU Feed . . . . . . . . 6.6 8.7 9.5 9.2 9.2 10.3 10.3 9.7 9.2 9.2 9.2 9.2 9.2 9.2 128.7

U.S. HEU Transfer 13MT c . . . . . . . 1.2 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.4

U.S. HEU Transfer 50MT d . . . . . . 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 5.0

U.S. HEU 40MT “Off-spec” e . . . . . 0.0 0.0 0.0 0.0 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 5.8

Total US HEU Feed . . . . . . . . . . . . 1.2 1.7 0.5 0.5 1.1 1.1 1.1 1.1 1.1 1.1 1.1 0.6 0.6 0.6 13.2

U.S. Natural U Transfer f . . . . . . . . 0.0 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.0 0.0 0.0 7.0

U.S. LEU & Natural U Sales g . . . . 1.2 1.2 1.2 1.2 1.2 1.2 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.3

Total U.S. Natural U and LEU . . . . 1.2 2.0 1.9 1.9 1.8 1.8 1.8 0.7 0.7 0.7 0.7 0.0 0.0 0.0 15.3

Total Government Inventories 9.0 12.4 11.9 11.6 12.1 13.3 13.3 11.4 11.0 11.0 11.0 9.8 9.8 9.8 157.2

Assumptions: a. As of June 30, 1997, the Russia Executive Agent had not sold any of the uranium feed component returned to it by USEC. Assuming

that sales had begun later in 1997, approximately 50 percent of the uranium feed contained in LEU derived from blending down 18

metric tons of HEU (Russian feed) will be sold in the market during 1997. In subsequent years, it is assumed that 100 percent of

Russian feed returned to the Russian Executive Agent will be sold in the market. The quantity of Russian feed corresponds to the

schedule for blending down HEU from 1998 through 2001 established by the amendment to the Russian HEU Agreement, signed

in November 1996. For 2002 and later years, it is assumed that 30 metric tons of HEU will be blended down each year. The uranium

content is equivalent to the feed contained in LEU assaying at 4.4 percent 235U. The LEU is to be derived from HEU and blendstock,

with 235U assays of 90 percent and 1.5 percent, respectively

b. Russian feed derived from LEU purchased by USEC in 1995 and 1996. The sale of this uranium is regulated by the USEC

Privatization Act. All EIA cases contain the assumption that 7.0 million pounds of U3O8 will be sold through matched sales contracts,

the annual quantity limited by quotas provided for by the Suspension Agreement between the United States and Russia. The

remaining 7.2 million pounds U3O8 will be sold by DOE beginning in 2002.

c. USEC plans to add this HEU to its production stream during 1997-1999. Uranium assumed to be made available to the market in

the year that the corresponding quantity of HEU is blended down into LEU assaying at 4.95 percent 235U. The LEU is to be derived

from HEU and LEU blendstock, with 235U assays of 75.7 percent and 2.0 percent, respectively. However, only the uranium contained

in the HEU is considered for this analysis because the blendstock would have been sold in the market regardless of the decision

to blend down HEU.

d. Schedule pursuant to USEC Privatization Act. HEU is to be blended down to LEU assaying at 4.95 percent 235U. The LEU is to be

derived from HEU and natural U blendstock, with average 235U assays of 41.3 percent and 0.71 percent, respectively. However,

only the uranium contained in the HEU is considered for this analysis because the blendstock would have been sold in the market

regardless of the decision to blend down HEU.

e. Schedule pursuant to DOE's HEU disposition plan, September 1996. HEU is to be blended down to LEU assaying at 4.60 percent 235U. The LEU is to be derived from HEU having an average assay of 66.0 percent 235U and depleted uranium blendstock with an

average assay of 0.30 percent 235U. However, only the uranium contained in the HEU is considered for this analysis because

depleted uranium blendstock is currently stored as waste.

f. Schedule pursuant to USEC Privatization Act.

g. DOE is assumed to sell the quantity proposed in the Secretary's Determination, March 1997.

 MT=Metric tons.

 Sources: Uranium contained in Russian HEU feed and transfer of natural uranium-Energy Resources International, Inc., “1997 Nuclear Fuel Cycle

Supply and Price Report,” (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt, personal correspondence, (HEU Disposition

Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and natural uranium by DOE-U.S. Department of

Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of Surplus Natural and Low Enriched Uranium,

DOE/EA-1172 (Washington, DC, October 1996).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

106 Materials, Policies, and Market Effects

Table E5. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Reference Case

Thousand Metric Tons U

Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 1.5 3.1 4.6 7.7 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 9.2 109.2

Russian HEU: Pre-1997 . . . . . . . . . 1.0 1.4 0.3 0.0 0.0 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 5.5

Total Russian HEU Feed . . . . . . . . 2.6 4.5 4.9 7.7 9.2 10.4 10.4 9.7 9.2 9.2 9.2 9.2 9.2 9.2 114.7

U.S. HEU Transfer 13MT . . . . . . . . 0.0 0.6 0.6 0.6 0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.4

U.S. HEU Transfer 50MT . . . . . . . . 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 5.0

U.S. HEU 40MT “Off-spec” a . . . . . 0.0 0.0 0.0 0.0 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 5.8

Total US HEU Feed . . . . . . . . . . . . 0.0 1.1 1.1 1.1 1.7 1.2 1.1 1.1 1.1 1.1 1.1 0.6 0.6 0.6 13.2

U.S. Natural U Transfer . . . . . . . . . 0.0 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.0 0.0 0.0 7.0

U.S. LEU & Natural U Sales . . . . . 0.4 1.2 1.2 1.2 1.2 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 8.3

Total U.S. Natural U and LEU . . . . 0.4 2.0 1.9 1.9 1.9 1.9 1.9 1.2 0.7 0.7 0.7 0.0 0.0 0.0 15.3

Total Government Inventories 3.0 7.5 7.9 10.7 12.8 13.5 13.4 12.0 11.0 11.0 11.0 9.8 9.8 9.8 143.2

Assumptions: For the Reference Case, EIA assumes that the sales of uranium derived from U.S. and Russian Government surplus inventories will

be delayed due to programmatic and market conditions. See Table 6-1 for assumptions used in determining the equivalent amount of

uranium contained in the inventories.

 a

 Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT=Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU and transfer of natural uranium&Energy Resources International, Inc., “1997

Nuclear Fuel Cycle Supply and Price Report,” (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt, personal

correspondence, (HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and natural

uranium by DOE-U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of Surplus

Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 107

Table E6. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Lower HEU Feed Case

Thousand Metric Tons U

Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 1.5 3.1 4.6 7.7 9.2 9.2 9.2 9.2 9.2 7.7 6.2 6.2 6.2 6.2 95.4

Russian HEU: Pre-1997 . . . . . . . . . 1.0 1.4 0.3 0.0 0.0 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 5.5

Total Russian HEU Feed . . . . . . . . 2.6 4.5 4.9 7.7 9.2 10.4 10.4 9.7 9.2 7.7 6.2 6.2 6.2 6.2 100.9

U.S. HEU Transfer 13MT . . . . . . . . 0.0 0.6 0.6 0.6 0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.4

U.S. HEU Transfer 50MT . . . . . . . . 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 5.0

U.S. HEU 40MT “Off-spec” a . . . . . 0.0 0.0 0.0 0.0 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 5.8

Total US HEU Feed . . . . . . . . . . . . 0.0 1.1 1.1 1.1 1.7 1.2 1.1 1.1 1.1 1.1 1.1 0.6 0.6 0.6 13.2

U.S. Natural U Transfer . . . . . . . . . 0.0 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.0 0.0 0.0 7.0

U.S. LEU & Natural U Sales . . . . . 0.4 1.2 1.2 1.2 1.2 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 8.3

Total U.S. Natural U and LEU . . . . 0.4 2.0 1.9 1.9 1.9 1.9 1.9 1.2 0.7 0.7 0.7 0.0 0.0 0.0 15.3

Total Government Inventories 3.0 7.5 7.9 10.7 12.8 13.5 13.4 12.0 11.0 9.5 7.9 6.7 6.7 6.7 129.4

Assumptions: Russia will take back 3.1 thousand metric tons U of Russian feed per year for internal use, beginning in 2002. Sales of Russian HEU

feed is anticipated to remain at 9.2 thousand metric tons U per year until 2006, due to the availability of Russian HEU feed not sold in

previous years. See Table 6-1 for assumptions used in determining the amount of uranium contained in the surplus inventories.

 a

 Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT=Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU (Russian feed) and transfer of natural uranium&Energy Resources

International, Inc., “1997 Nuclear Fuel Cycle Supply and Price Report,” (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt,

personal correspondence, (HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and

natural uranium by DOE-U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of

Surplus Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

108 Materials, Policies, and Market Effects

Year

Total

World

Western

World

Western

World With

MOX Use

2000 .... 61.0 53.6 51.7

2005 ..... 63.7 55.1 52.4

2010 ..... 63.4 54.4 51.3

MOX=mixed oxide fuel.

Note: Western World does not include China or the

Commonwealth of Independent States.

Sources: Total and Western World uranium

requirements&Energy Information Administration, International Nuclear Model PC Version (PCINM), “Reference

Case 1997;” MOX use-The Uranium Institute, The Global

Nuclear Fuel Market: Supply and Demand 1995-2015,

1996, Table 8.3.

Table E8. Projected Uranium Requirements for

2000, 2005, and 2010

(Thousand Metric Tons U)

Table E7. Assumed Market Penetration of U.S. and Russian Surplus Defense Inventories in the

Uranium Market, 1997-2010, Upper HEU Feed Case

Thousand Metric Tons U

Equivalent 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total

Russian HEU . . . . . . . . . . . . . . . . . 1.5 3.1 4.6 7.7 9.2 10.0 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 122.3

Russian HEU: Pre-1997 . . . . . . . . . 1.0 1.4 0.3 0.0 0.0 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 5.5

Total Russian HEU Feed . . . . . . . . 2.6 4.5 4.9 7.7 9.2 11.2 11.9 11.2 10.8 10.8 10.8 10.8 10.8 10.8 127.8

U.S. HEU Transfer 13MT . . . . . . . . 0.0 0.6 0.6 0.6 0.6 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.4

U.S. HEU Transfer 50MT . . . . . . . . 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.0 0.0 0.0 5.0

U.S. HEU 40MT “Off-spec” a . . . . . 0.0 0.0 0.0 0.0 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 5.8

Total US HEU Feed . . . . . . . . . . . . 0.0 1.1 1.1 1.1 1.7 1.2 1.1 1.1 1.1 1.1 1.1 0.6 0.6 0.6 13.2

U.S. Natural U Transfer . . . . . . . . . 0.0 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.0 0.0 0.0 7.0

U.S. LEU & Natural U Sales . . . . . 0.4 1.2 1.2 1.2 1.2 1.2 1.2 0.5 0.0 0.0 0.0 0.0 0.0 0.0 8.3

Total U.S. Natural U and LEU . . . . 0.4 2.0 1.9 1.9 1.9 1.9 1.9 1.2 0.7 0.7 0.7 0.0 0.0 0.0 15.3

Total Government Inventories . . 3.0 7.5 7.9 10.7 12.8 14.3 14.9 13.5 12.5 12.5 12.5 11.3 11.3 11.3 156.3

Assumptions: Russian feed will be sold in excess of 9.2 thousand metric tons U equivalent per year, beginning beginning in 2002. Sales of Russian

feed are anticipated to remain at 10.8 thousand metric tons U per year beginning in 2003. See Table 6-1 for assumptions used in

determining the amount of uranium contained in the inventories.

 a

 Since the analysis was completed, the U.S. Department of Energy has revised the quantity and timing for the commercialization of “off-spec” HEU.

These changes are anticipated to have only a marginal impact on projections of supply and spot-market price.

 MT=Metric tons.

 Sources: Uranium contained in LEU blended down from Russian HEU (Russian feed) and transfer of natural uranium&Energy Resources

International, Inc., “1997 Nuclear Fuel Cycle Supply and Price Report,” (Washington, DC, May 1997); uranium contained in U.S. HEU feed&R. Schmidt,

personal correspondence, (HEU Disposition Program Office, Oak Ridge, TN, September 24, 1997); uranium contained in proposed sales of LEU and

natural uranium by DOE-U.S. Department of Energy, Office of Nuclear Energy, Science and Technology, Environmental Assessment DOE Sale of

Surplus Natural and Low Enriched Uranium, DOE/EA-1172 (Washington, DC, October 1996).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 109

2000 2005 2010

Western Production . . 31.6 36.7 39.5

 Australia . . . . . . . . . . 8.6 10.1 10.8

 Canada ........... 13.5 16.2 16.2

 Central Africaa . . . . . . 1.5 0.8 0.8

 Namibia . . . . . . . . . . . 2.7 3.8 3.8

 South Africa . . . . . . . . 1.2 1.2 1.6

 United States . . . . . . . 2.9 3.2 4.2

 Otherb . . . . . . . . . . . . 1.2 1.4 2.0

CIS Production ...... 4.6 4.6 5.1

China Production .... 0.6 0.0c 0.0

Surplus Defense

 Inventories ........ 10.8 11.1 6.7

 Russian HEU . . . . . . . 7.7 9.2 6.2d

 U.S. HEU, LEU, and U 3.1 1.9 0.6

Commercial 

Inventories ......... 4.1 0.0c 0.0

Total Supply ........ 51.7 52.4 51.3

a

Higher cost production supported by contract

commitments from France.

b

Includes production centers in Western Europe, Latin

America, India, Mongolia, and Pakistan.

c

China is expected to utilize production for domestic

reactor requirements.

d

Russia is assumed to take back for internal uses onethird of the equivalent 24 million pounds U3O8 feed

contained in the LEU produced from Russian HEU (Russian

HEU feed). 

e

In 2005, 24 million pounds U3O8 equivalent of Russian

HEU feed are assumed to be sold from inventories held by

Western commercial firms. In this paper, however, sales of

Russian HEU are counted under surplus defense

inventories.

CIS=Commonwealth of Independent States.

Note: Totals may not equal sum of components because

of independent rounding.

Source: Energy Information Administration, Uranium

Market Model Run 1997_60, July 1997.

Table E9. Projected Supply for Western Reactor

Requirements for Lower HEU Feed Case,

2000, 2005, and 2010

(Thousand Metric Tons U Equivalent)
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

110 Materials, Policies, and Market Effects

1997 1999 2001 2003 2005 2007 2009

0

2

4

6

8

10

Thousand Metric Tons U Equivalent

 Available to U.S. End Users

 Not Available to U.S. End Users

Figure E1. Potential Availability of Uranium Feed

from the Blending Down of Russian

Highly Enriched Uranium to Low-Enriched

Uranium During 1997-2010

 Assumptions: (1) availability to U.S. end users based

on direct quota authorized by the USEC Privatization

Act; (2) annual quantity of uranium feed reflects likely

capacity for blending down Russian HEU to LEU, the

quantity for 1997-2001 was determined by an agreement

between the United States Enrichment Corporation

(USEC) and Techsnabexport, November 1996; (3) for

2002 and later years, it is assumed that 30 metric tons

of Russian HEU will be blended down to LEU per year;

and (4) does not consider uranium feed contained in the

LEU derived from 18 metric tons of Russian HEU that

was purchased by USEC in 1995 and 1996.

 Source: U.S. quota-USEC Privatization Act (April 26,

1996), Section 3112 (b).

1997 1999 2001 2003 2005 2007 2009

20

25

30

35

40

45

50

1996 Dollars per Kilogram U

0

Reference Case

Upper HEU Feed Case

Lower HEU Feed Case

Figure E2. Projected Spot-Market Prices for the

Restricted U.S. Uranium Market,

1997-2010

Note: A two-tiered market was developed at the end of

1992 as a result of the suspension agreements that restrict

U.S. imports from the Commonwealth of Independent States.

Source: Energy Information Administration, Uranium Market

Model runs 1997_60, 1997_73, and 1997_82 (July 1997).
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 111

Glossary

Assembly: An array of rods containing uranium or

MOX fuel that is loaded into the core of a nuclear power

reactor. The core of a typical light water reactor would

contain around 300 fuel assemblies.

Blendstock: Material used to dilute the concentration of

fissile materials (principally 235U or 239Pu) when blended

with a feedstock containing relatively high

concentrations of fissile materials. Also referred to as

diluent.

Burnup: A measure of the amount of energy obtained

from fuel in a reactor. Typically, burnup is expressed as

the amount of energy produced per unit weight of fuel

irradiated or “burned.” Burnup levels are generally

measured in units of megawattdays thermal per metric

ton of initial heavy metal (MWDT/MTIHM).

Canadian Deuterium-Uranium Reactor (CANDU): A

reactor that uses heavy water or deuterium oxide (D2O),

rather than light water (H2O) as the coolant and

moderator. Deuterium is an isotope of hydrogen that

has a different neutron absorption spectrum from that of

ordinary hydrogen. In a deuterium-oxide-moderated

reactor, fuel made from natural uranium (235U concentration of natural uranium is 0.71 percent) can sustain a

chain reaction.

Capacity: The load for which a generating unit is rated,

either by the user or by the manufacturer. In this report,

“capacity” refers to the utility's design electrical rating.

Centrifuge Process: The enrichment process whereby

the concentration of the 235U isotope contained in natural

uranium is increased to a level suitable for use in nuclear

power plants (generally 3 to 5 percent) by rapidly

spinning cylinders containing the uranium in the form of

gaseous uranium hexafluoride (UF6). Due to differences

in the masses of isotopes, the rapid spinning separates

the 235U isotope from 238U the principal isotope contained

in natural uranium.

Chain Reaction: The process whereby neutrons released

from a fission lead to further fissioning of fertile

materials. In civilian nuclear power reactors, the chain

reaction is controlled and sustained. To produce a

explosion from nuclear weapons, the chain reaction is

magnified to produce a sudden and intense release of

energy.

Commercial Operation: The phase of reactor operation

that begins when power ascension ends and the operating utility formally declares that the nuclear power

plant is available for the regular production of

electricity. This declaration is usually related to the satisfactory completion of qualification tests on critical

components of the unit.

Contract-specified price: The delivery price determined

when a contract is signed. It can be a fixed price or a

price escalated according to a given formula.

Conversion: The chemical processing of uranium concentrate (U3O8) into uranium hexafluoride (UF6). UF6 is

used as the feedstock for uranium enrichment, part of

the fuel cycle for light-water reactors. In preparing fuel

for Canadian deuterium-uranium reactors, U3O8 is converted to UO2, a form of uranium oxide that can be

fabricated directly into fuel without enrichment.

Conversion does not change the 235U concentration of

natural uranium.

Core: The portion of a nuclear reactor containing fuel

elements and usually a moderator.

Criticality: The condition in which a nuclear reaction is

just self-sustaining (i.e., the rate at which fissioning

remains constant.)

Depleted Uranium: Uranium having a concentration of

the 235U isotope less than 0.711 percent (by weight), the

concentration for naturally occurring uranium.

Depleted uranium is a residual product from the

enrichment process (see Enrichment Tails).

Discharged Fuel: Irradiated fuel removed from a reactor

during refueling. (See Spent Nuclear Fuel.)

Enriched Uranium Product (EUP): Low-enriched uranium that is bought or sold in the market. A nuclear
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

112 Materials, Policies, and Market Effects

power generating company can purchase EUP directly

from suppliers, without having to enter into separate

transactions for procuring each component: U3O8,

conversion, and enrichment. 

Enrichment Tails: The relatively depleted fissile

uranium (235U) remaining from the uranium enrichment

process. The natural uranium “feed” that enters the

enrichment process generally contains 0.711 percent (by

weight) U-235. The “product stream” contains enriched

uranium (greater than 0.711 percent 235U) and the

“waste” or “tails” stream contains depleted uranium

(less than 0.711 percent 235U). At the historical

enrichment tails assay of 0.2 percent, the waste stream

would contain 0.2 percent 235U. A higher enrichment

tails assay requires more uranium feed (thus permitting

natural uranium stockpiles to be decreased), while

increasing the output of enriched material for the same

energy expenditure.

Fabricated Fuel: Fuel assemblies composed of an array

of fuel rods loaded with (1) uranium dioxide pellets,

manufactured after conversion of enriched uranium

hexafluoride to uranium dioxide; or (2) mixed oxide fuel

comprised of oxides of plutonium and uranium.

Fast Breeder Reactor: A reactor in which the fission

chain reaction is sustained primarily by fast neutrons

rather than by thermal or intermediate neutrons. Fast

reactors require little or no use of a moderator to slow

down the neutrons from the speeds at which they are

ejected from the fissioning nuclei. This type of reactor

produces more fissile material than it consumes.

Fertile Material: Material that is not itself fissionable by

thermal neutrons but can be converted to fissile material

by irradiation. The two principal fertile materials are

238uranium and 232thorium.

Fissile Material: Material that can be caused to undergo

atomic fission when bombarded by neutrons. The most

important fissionable materials are 235uranium and 239plutonium.

Fission: The process whereby an atomic nucleus of appropriate type, after capturing a neutron, splits into

(generally) two nuclei of lighter elements, with the

release of substantial amounts of energy and two or

more neutrons.

Forward Coverage: Amount of uranium required to

assure uninterrupted operation of nuclear power plants.

Gaseous Diffusion Process: The enrichment process

whereby the concentration of the 235U isotope contained

in natural uranium is increased to a level suitable for use

in nuclear power plants (generally 3 to 5 percent) by

passing the uranium in the form of gaseous uranium

hexafluoride (UF6) through a series of porous

membranes. In the process, the lighter 235U isotope passes

more easily through the membranes than does the

heavier 238U the principal isotope contained in natural

uranium, resulting in progressively higher concentrations

of 235U.

Generation (Electricity): The process of producing

electric energy from other forms of energy. 

Geologic Repository: A facility that has an excavated

subsurface system for the permanent disposal of spent

fuel and high-level waste.

Graphite-Moderated Reactor: A reactor that uses

graphite as its moderator (see moderator).

Heavy Water: Water containing a significantly greater

proportion of heavy hydrogen (deuterium) atoms to

ordinary hydrogen atoms than is found in ordinary

(light) water. Heavy water is used as a moderator in

some reactors because it slows neutrons effectively and

also has a low cross-section for absorption of neutrons.

High-level Waste: As defined by the Nuclear Waste Policy

Act of 1988, the highly radioactive material resulting from

the reprocessing of spent nuclear fuel or other highly

radioactive material that the U.S. Nuclear Energy

Commission, consistent with existing law, determines by

rule to require permanent isolation.

Highly Enriched Uranium (HEU): Uranium enriched to

at least 20 percent 235U(by weight). HEU is used

primarily for national security purposes, principally for

the producing nuclear weapons and fuel for reactors to

propel naval submarines and other vessels. Weaponsgrade HEU contains at least 90 percent 235U.

Interim Storage Site: A site where spent nuclear fuel or

other nuclear wastes are temporarily stored pending

transfer to a geologic repository or other permanent

disposal site. Interim storage sites for civilian spent fuel

are storage pools or dry cask storage facilities, usually

located at the reactor sites, licensed by (or proposed to be

licensed by) the Nuclear Regulatory Commission.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 113

Irradiated Nuclear Fuel: Nuclear fuel that has been

exposed to radiation in the reactor core at any power

level.

Light Water: Ordinary water (H2O), as distinguished

from heavy water or deuterium oxide (D2O).

Light-Water Reactor (LWR): A nuclear reactor that uses

water as the primary coolant and moderator, with

slightly enriched uranium as fuel. There are two types

of commercial light-water reactors&the boiling-water

reactor (BWR) and the pressurized-water reactor (PWR).

Long-Term Contract Price: Delivery price determined

when contract is signed; it can be either a fixed price or

a base price escalated according to a given formula.

Low-Enriched Uranium (LEU): Uranium enriched in

the isotope 235U, from 0.711 percent (by weight) in

natural uranium up to 19 percent. LEU is used in this

report to indicate enrichment between 3 and 5 percent

235U, the average required for fueling commercial lightwater reactors.

Low-level Waste: As specified in the Low-level

Radioactive Waste Policy Amendments Act of 1985 (Public

Law 99-240), radioactive waste not classified as highlevel waste, spent nuclear fuel, or by-product material

specified as uranium or thorium tailings or waste.

Marginal Cost: The cost to the producer of providing

the next (marginal) increment of uranium, conversion,

enrichment, or fabricated fuel, irrespective of sunk costs.

Market-price Contract: A contract in which the price of

uranium is not specifically determined at the time the

contract is signed but based instead on the prevailing

market price at the time of delivery. A market-price

contract may include a floor price, that is, a lower limit

on the eventual settled price. The floor price and the

method of price escalation generally are determined

when the contract is signed. The contract may also

include a price ceiling or a discount from the agreedupon market price reference.

Matched Sales: A legal procedure whereby specified

quantities of natural uranium or enriched uranium

product could be imported from Russia for end use in

the United States as long as they are matched with equal

quantities of newly produced U.S.-origin uranium. 

Matched sales are the result of an agreement between

the United States and the Russian Federation.

Megawatthour (Mwh): One million watts of electric

energy.

Megawattday (Mwd): Twenty-four Mwh’s or 24 million

watthours of electric energy.

Metric Ton: One thousand kilograms or 1.1 short tons

(2,205 pounds).

Metric Tons of Initial Heavy Metal (MTIHM): The

weight of the initial fuel loading (in metric tons) used in

an assembly.

Mixed Oxide (MOX) Fuel: A fuel fabricated from oxides

of plutonium and uranium. Typically, MOX fuel

contains up to 5 percent fissile plutonium, with the

remainder consisting of depleted or natural uranium. 

Moderator: A material such as ordinary water, heavy

water, or graphite, used in a reactor to slow down highvelocity neutrons, thus increasing the likelihood of

further fission.

Natural Uranium: Uranium with the 235U isotope present

at a concentration of 0.711 percent (by weight), that is,

uranium with its isotopic content exactly as it is found in

nature.

Nuclear Power Plant: A single- or multi-unit facility in

which heat produced in a reactor by the fissioning of

nuclear fuel is used to drive a steam turbine(s).

Nuclear Reactor: An apparatus in which the nuclear fission chain can be initiated, maintained, and controlled so

that energy is released at a specific rate. The reactor apparatus includes fissionable material (fuel) such as

uranium or plutonium; fertile material; moderating

material (unless it is a fast reactor); a heavy-walled

pressure vessel; shielding to protect personnel; provision

for heat removal; and control elements and instrumentation.

Nuclear Weapons: Atomic or hydrogen weapons that

could produce a nuclear explosion.

Plutonium (Pu): A heavy, fissionable, radioactive,

metallic element (atomic number 94). Plutonium is

produced as a byproduct of the fission reaction in a

uranium-fueled nuclear reactor and has been recovered

from irradiated fuel. It is used in preparing commercial

nuclear fuel and in manufacturing nuclear weapons.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

114 Materials, Policies, and Market Effects

Plutonium-Production Reactor: Reactor designed

specifically to produce weapons-grade plutonium by

neutron irradiation of the uranium isotope 238U.

Power Ascension: The period of time between a plant's

initial fuel loading date and its date of first commercial

operation (including the low-power testing period).

Plants in the first operating cycle (the time from initial

fuel loading to the first refueling), which lasts approximately 2 years, operate at an average capacity factor of

about 40 percent.

Pressurized-Water Reactor (PWR): A nuclear reactor in

which heat is transferred from the core to a heat

exchanger via water kept under high pressure, so that

high temperatures can be maintained in the primary

system without boiling the water. Steam is generated in

a secondary circuit.

Production Center: A conventional mill or processing

plant which produces uranium concentrate (U3O8) from

ores fed from one or more tributary mines and reserves.

Reprocessing: The process by which uranium and

plutonium are chemically separated from spent fuel.

Reprocessed uranium and plutonium have been

recycled for civilian and national security purposes.

Safeguards: Procedures put in place to verify that

nuclear materials have not been diverted for

unauthorized uses that could lead to the proliferation of

nuclear weapons. 

Separative Work Unit (SWU): The standard measure of

enrichment services. The effort expended in separating

a mass F of feed of assay xF into a mass P of product of

assay xP and waste of mass W and assay xW is expressed

in terms of the number of separative work units needed,

given by the expression SWU = WV(xW) + PV(xP) -

FV(xF), where V(x) is the “value function,” defined as

V(x) = (1 - 2x)ln[(1-x)/x].

Spent Nuclear Fuel: Irradiated fuel that is permanently

discharged from a reactor at the end of a fuel cycle.

Spent or irradiated fuel is usually discharged from

reactors because of chemical, physical, and nuclear

changes that make the fuel no longer efficient for the

production of heat, rather than because of the complete

depletion of fissionable material. Except for possible

reprocessing, this fuel must eventually be removed from

its temporary storage location at the reactor site and

placed in a permanent repository. Spent nuclear fuel is

typically measured either in metric tons of heavy metal

(i.e., only the heavy metal content of the spent fuel is

considered) or in metric tons of initial heavy metal

(essentially, the initial mass of the uranium before

irradiation). The difference between these two quantities

is the weight of the fission products.

Split Tails: Use of one tails assay for transaction of

enrichment services and a different tails assay for operation of the enrichment plant. This mode of operations

typically increases the use of uranium, which is relatively

inexpensive, while decreasing the use of separative work,

which is expensive.

Spot Market: The buying and selling of uranium for

immediate or very near-term delivery, typically

involving transactions for delivery of up to 500,000

pounds U3O8 within a year of contract execution.

Spot-Market Price: Price for material being bought and

sold on the spot market.

Tritium: A radioactive isotope of the element hydrogen

with 2 neutrons and one proton. Common symbols for

the isotope are H-3 and T. Tritium is used to produce

excess neutrons which would increase fissioning in

nuclear weapons. 

Unfilled Requirements: Requirements not covered by

usage of inventory or supply contracts in existence as of

January 1 of a given year.

Uranium (U): A heavy, naturally radioactive, metallic

element of atomic number 92. Its two principally

occurring isotopes are 235U and 238U. 235U is indispensable

to the nuclear industry because it is the only isotope

existing in nature to any appreciable extent that is

fissionable by thermal neutrons. 238U is also important,

because it absorbs neutrons to produce a radioactive

isotope that subsequently decays to 239Pu, an isotope that

also is fissionable by thermal neutrons.

Uranium Concentrate: A yellow or brown powder

produced from naturally occurring uranium minerals as

a result of milling uranium ores or processing of

uranium-bearing solutions. Synonymous with

“yellowcake,” U3O8, or uranium oxide.

Uranium Hexafluoride (UF6): A white solid obtained by

chemical treatment of U3O8, which forms a vapor at

temperatures above 56 degrees centigrade. UF6 is the

form of uranium required for the enrichment process.

Uranium Oxide: A compound (U3O8) of uranium. Also

referred to as “yellowcake” or concentrate when in pure

form.
Energy Information Administration/ Commercial Nuclear Fuel from U.S. and Russian Surplus Defense Inventories:

Materials, Policies, and Market Effects 115

Uranium Reserves: Estimated quantities of uranium in

known mineral deposits of such size, grade, and configuration that the uranium could be recovered at or

below a specified production cost with currently proven

mining and processing technology and under current

laws and regulations. Reserves are based on direct

radiometric and chemical measurements of drill hole

and other types of sampling of the deposits. Mineral

grades and thickness, spatial relationships, depths

below the surface, mining and reclamation methods,

distances to milling facilities, and amenability of ores to

processing are considered in the evaluation. The amount

of uranium in ore that could be exploited within the

forward cost levels are estimated according to conventional engineering practices, utilizing available

engineering, geologic, and economic data.

Weapons-grade Fissile Materials: The concentration of

fissile materials used in technologically advanced

weapons to sustain fast-neutron chain reactions required

for nuclear explosions. Weapons-grade HEU contains 90

percent or more of the fissile isotope 235U, while

weapons-grade plutonium contains more than 93 percent

fissile isotopes, principally 239Pu.