Saturday, February 10, 2007

Iran Nuclear - Truth or Dare?

Sometime in the not too distant future, and probably before February 21st, Iran will claim it has made significant gains in industrial scale production of enriched uranium. This claim will be put to the test almost immediately and will place Iran under significant political and economic pressure. Recent reports in the New York Times and by the BBC have questioned whether Iran has really mastered the use of centrifuges to enrich uranium.

To use a poker metaphor the question here is whether Iran has made a big bluff with a weak hand. The NY Times reports, "The many setbacks and outright failures of Tehran's experimental program suggest that its bluster may outstrip its technical expertise."

Iran's diplomatic negotiating style has been to put its opponents in a position of making one of two bad choices. The shoe may be on the other foot. Iran's weak point is its domestic oil industry. According to the Los Angeles Times a new US diplomatic campaign to dry up financing for oil and gas production in Iran is having an impact. The LA Times report provides examples of how effective the US pressure has been on Iran's oil industry. For instance, foreign investment in the giant Azadegan oil field, which requires $2 billion, has failed to materialize and Japan recently pulled back on its stake in the project. Norway, a major exporter of oil field production expertise, also imposed sanctions on Iran limiting financial and technical investments in Persian oil facilities.

The International Energy Agency says Iran will need as much as $80 billion in new investments to boost its production to 7 million barrels a day by 2014. Currently, Iran pumps about 4 million barrels a day and exports about two-thirds of that production.

Iran's actions to promote its nuclear program may actually tighten the financial noose. Worse, Iran's internal oil production is increasingly going for internal use and not for export. Gasoline in Iran is subsidized at 35 cents/gal a price last seen in the US in the early 1970s. Iran put subsidized natural gas heating in its residential housing. Hossein Askarai, an expert on Middle East economies at George Washington University, says these fossil fuel subsidies cost the government 15% of its gross domestic product, a staggering number. Significant cuts to the subsidies because of declining oil export revenues, and inability to produce domestically, could destabilize the government. It is estimated that as much as 80% of Iran's revenues from exports are based on oil.

The beefed up US military presence in the Persian Gulf may have the objective of sending a message to risk adverse investors about the wisdom of providing new funds to Iranian oil projects. It's gun boat diplomacy right out of Theodore Roosevelt's playbook and it may work. Modernization and upkeep of oil production and refining operations is a key priority for Iran. If they don't get new infusions of cash from international sources, the pumps could stop working or at least slow down enough to cause significant domestic unrest. Nicholas Burns, the number two man at the US State Department, said Friday Feb 9th that Iran is "digging a hole deeper for itself" over its claims about its nuclear programs

All this pressure may be having an effect. On Saturday Feb 10th Iran dispatched one of its top diplomats to a meeting with officials from the European union. What's pushing things along is a February 21st deadline by the United Nations which requires Iran to stop enriching nuclear fuel or face further financial sanctions. The Iranian government defied a United Nations Security Council deadline of August 31, 2006, to halt its uranium enrichment activities. The Security Council voted on December 23, 2006, to impose sanctions on the country and gave Iran a two-month deadline for its nuclear work to be frozen.

The February 21, 2007, deadline is creating new tensions between the US and European countries. Watch for news on the Munich Security Conference which is where the the other shoe may drop in less than two weeks. The dance has begun and everyone knows there aren't enough chairs to go around when the music stops on February 21st. Iran must stop its uranium enrichment or it may pay an economic price that it cannot afford. If Iran can drive a wedge between members of the UN Security Council, it may continue to pump oil and pursue its nuclear dreams for a while longer.

Friday, February 9, 2007

Hocus Pocus - Where are the loan guarantees?

Alternate Energy Holdings Inc. (OTC:AEHI) announced a land purchase agreement, signed February 1, 2007, with an Idaho farmer for 4000 acres at a projected cost of $20M, located on the Snake River in southeastern Idaho. The land optioned by AEHI will be used as the construction site of the company's proposed 1,600 Megawatt light water nuclear reactor if and when it is built.

AEHI refused to name the farmer or the exact location of the site. As the crow flies the proposed site along the Snake River is likely within spitting distance of Mountain Home Air Force base located between the Danskin and Owyhee Mountains, 40 miles southeast of Boise. The base hosts the 366th Fighter Wing.

There is no SEC filing for AEHI and financial performance information is not available at online sites for the firm. Its stock became public in September 2006 and trades for less than $1.00. It is a "penny stock" but there is nothing penny ante about the impact of its announcement.

Response to the news from AEHI by anti-nuclear groups was swift. The Associated Press quotes Jeremy Maxand, executive director of the nuclear watchdog group Snake River Alliance, who said Thursday 2/8 any community where a project like this has been proposed deserves full disclosure up front on issues like water use and waste management.

Public Citizen, another nongovernmental organization, also issued a statement objecting to the plant on the grounds that it would only be feasible if the government offering significant subsidies.

“This land grab in Idaho by AEHI is obviously an effort to get in on federal taxpayer handouts,” said Michele Boyd, legislative director of Public Citizen’s Energy Program. “But the reality is that there are already numerous companies in the Southeast lined up with their hands out. In fact, the billions in federal subsidies are not enough to make nuclear power cost-competitive, so those companies have snookered local communities into ponying up hundreds of millions more. I doubt that is what Idahoans have in mind.”

Nobody seems to have asked if the capacity of the electric transmission grid in southwestern Idaho can carry the output of a 1,600 megawatt nuclear power plant from the extremely rural area to customers throughout the Pacific Northwest.

It's not known whether AEHI has approached anyone for funding in Idaho or the federal government for subsidies. In fact, it is a question whether AEHI or any nuclear plants would benefit from a loan guarantee even if they got one. Further, any utility, including AEHI, that wants government subsidies and loan guarantees must apply to the NRC for a license for the new plant, which is a step that could cost $50M. Someone has to be sure they are going to build one before spending that kind of money.

Platts Energy News, an industry trade news service, reported that in its FY2008 budget DOE will seek $9 billion in authority for loan guarantees for advanced energy technologies. Under the Energy Act of 2005 DOE could provide as much as $13 billion in financial backing for projects for ethanol and bio-diesel production, clean coal technologies, nuclear energy and electricity transmission. DOE would start issuing the guarantees "as early as this fall," says Clay Sell, the #2 man at the agency.

That's the good news. Here's the bad news. Platts also issued a report to its subscribers on Feb 7th saying that the Department of Energy's (DOE) loan guarantee programs for new nuclear power plants are so restrictive that investors won't be interested in financing them. The Nuclear Energy Institute (NEI) told reporters this past week the major problem is that DOE is limiting coverage to 80% of the debt rather than 80% of the cost of new plants. NEI said this stipulation would significantly limit the value of the government's loan guarantees.

Another problem, according to NEI, is that commercial debt would be ranked second relative to debt guaranteed by the government. This requirement would have the effect of limiting investor debt for a new nuclear plant to the amount that would be covered by the government and no more. Given the huge costs associated with a new plant, no investor is going to provide funding and stand in second place if the plant goes bust before it can generate any electricity.

While the federal government plans to offer billions in loan guarantees and subsidies for nuclear plants, the program may be delayed a year before DOE implements it. Testifying before the House Energy and Commerce Committee this week on the administration's FY2008 budget, Energy Secretary Bodman said, "if we could get it done a year from now, we would be doing well." As many as 30 new reactors are in the planning stages.

Peter Bradford, a former member of the Nuclear Regulatory Commission, says DOE should forget about subsidies and loan guarantees altogether. Bradford, who was speaking on behalf of the Union of Concerned Scientists, told the Dallas Morning News, the government ought to just build the first few new nuclear power plants and operate them until investors are confident nuclear energy is a safe bet.

None of this has stopped the nuclear energy industry from exploring the future. Joe Colvin, a past president of NEI, told a Miami, FL, Chamber of Commerce meeting on Feb 7th, that Florida is "well-positioned for new nuclear plants." He said the reasons why utilities will build them are that demand for electricity will outstrip supply from fossil sources, coal will come under increasing regulation due to global warming, and natural gas prices are too volatile. As a result he said 14 companies and consortia have announced that they are preparing to submit license applications to the Nuclear Regulatory Commission to build up to 32 new reactors. These companies are selecting technologies from two NRC-certified reactor designs, and two more designs that are under review by the NRC.

As an aside I can't help but wonder what AEHI is doing in Idaho when it is clear the industry has its eye on Florida? It's a lot closer to Virginia and certainly is warmer.

I guess the one conclusion you could draw from this situation is to recall Admiral David Farragut's famous command, "Damn the torpedos full speed ahead" at the battle of Mobile Bay, August 5, 1864. In the winter of 2007 could the nation's nuclear fleet's version of Farragut's command be "damn the subsidies, full speed ahead?" I don't think so.

Readers are reminded that history tells us despite Farragut's bravery, Confederate torpedoes sank more than two dozen union ships during the course of the Civil War. The utilities in the nuclear energy industry is going to want those federal loan guarantees and so will their investors. How or whether they get them will determine if any plants, including AEHI's, get built.

Thursday, February 8, 2007

Top nuclear experts in Idaho Falls 2/20-21

An extraordinary group of nuclear experts will hold a two-day meeting in Idaho Falls later this month to discuss the current status of and prospects for the Global Nuclear Energy Partnership (GNEP), Next Generation of Nuclear Power, Nuclear Power 2010; and, the INL.

Members of the Nuclear Energy Research Advisory Committee NERAC will meet at University Place in Idaho Falls. The committee includes nuclear energy experts from industry, universities, government agencies, trade associations, and nonproliferation organizations.

The committee will tackle some of the most complex scientific and technical issues facing the Department of Energy's nuclear programs. It's a high powered meeting with key officials from the agency and the Idaho lab in the mix.

The meetings are open to the public (2/20 2-6 PM; 2/21 8AM-2 PM), and there will be a brief opportunity for public comment. Meeting times and agenda may change.

More info: Dr. John Boger, Department of Energy, Tel: 301 903-4495
or email: john.boger@hq.doe.gov

Pelosi does u-turn on nuclear energy

The Wall Street Journal reports today (2007-02-08) that House Speaker Nancy Pelosi (D-Ca) has changed her mind about nuclear power. The Speaker's remarks came at the beginning of a hearing of the House Committee on Science and Technology.

“The technology has changed, and I bring a more open mind to that subject now, I have a different view on nuclear than I did 20 years ago,” . . . “I would not … be an active opponent. I think it has to be on the table.”

Only last month the Speaker was touting the value of ethanol as a solution to the nation's energy problems. This is strong stuff because California is also home to the Sierra Club and Senator Barbara Boxer, Chairwoman of the Senate Environment & Public Works Committee. Both the club and the Senator are deeply skeptical of government supported investments in nuclear energy.

Not everyone was happy with Pelosi's remarks which is often the way things go in Washington, DC. However, a comment from one of the environmental groups sort of boggles the mind.

Michele Boyd, legislative director for Public Citizen’s Critical Mass Energy and Environment Program, said in an interview. “We can pour more money into nuclear, or we can address climate change. We can’t do both.”

I suppose she means we will find some other source of energy to meet the nation's need for baseload demand for electricity.

Tuesday, February 6, 2007

Off to the Races - GNEP EIS Meeting March 15th

The Department of Energy has kicked off a grand tour of 13 potential sites for facilities to support the Global Nuclear Energy Program (GNEP). The purpose of the tour, with meetings in 11 cities, is to get public input on potential environmental impacts of the three nuclear plants that could be built.

It hasn't gone unnoticed by anti-nuclear groups. The Nuclear Information and Resource Service (NIRS), based in the Washington, DC, area, issued an alert to its members on February 5th asking them to attend the scoping meetings.

There are two sites proposed in Idaho. One is a site at Atomic City led by EnergySolutions Inc. in Salt Lake City. The other is a site at the Idaho National Laboratory led by the Regional Development Alliance, an economic development organization in Idaho Falls. The Idaho Falls meeting is March 15th at the Red Lion Inn (aka Westbank) from 6:00-9:30 PM.

DOE reminds the public that what's on the line are efforts to design, build, and operate three, new major league nuclear facilities.

  • A nuclear fuel recycling center, which would separate spent nuclear fuel into reusable and waste components and then manufacture new nuclear fast reactor fuel using the reusable components.
  • An advanced recycling reactor, which would destroy long-lived radioactive elements in the new fuel while generating electricity.
  • An advanced fuel cycle research facility, which would perform research and development into spent nuclear fuel recycling processes and other advanced nuclear fuel cycles.
In addition to the proposed domestic nuclear plants, GNEP has two international components.

  • Provide nuclear fuel and recycling services in return for other countries giving up nuclear enrichment and potential bomb making processes
  • Development of proliferation-resistant nuclear power reactors suitable for use in developing economies. (such as India)
While the government and non-governmental organziations (NGOs) are sharpening their wits for the environmental scoping meetings, the Bush administration unveiled its FY2008 budget for the Department of Energy. It includes a big increase for the GNEP program pegging the request at $405M.

In FY2007 the government asked for $250M for GNEP, but the current House mark in the omnibus appropriation bill this week puts its funding at less than half that amount. The proposed $395M in the FY2008 request for GNEP's "Advanced Fuel Cycle Initiative" represents two fold increase over FY2006 in funding for the Office of Nuclear Energy bringing it to a total of $802M.

The Idaho National Laboratory has a significant stake in the outcome of the budget process for DOE. It would receive a $60M increase in FY2008 for the Advanced Fuel Cycle Initiative over the FY2006 funding level. FY2007 numbers still aren't in due to the inability of Congress to get past a continuing resolution funding the government at FY2006 levels.

It is likely the Democrats, who now hold majorities in both chambers, will question the Department of Energy's GNEP plans. The fight won't be just over the amount of the appropriation for GNEP. New Mexico Senator Jeff Bingaman, who is chairman of the Senate Energy & Natural Resources Committee, thinks the money requested for GNEP might be better spent on energy efficiency and solar power.

Energy policy on the House side, as led by Speaker Nancy Pelosi (D-Ca), focuses on ethanol which plays big in midwestern states that grow a lot of corn, like Iowa, which is where the first Democratic primaries will take place for the 2008 presidential election.

There's enough excitement here to ask where's the tee-shirt for the GNEP 11-city tour?