Sunday, May 20, 2007
Iran is in a race to get its nuclear energy program to a point of no return making its acceptance a diplomatic fact of life and thus deterring future efforts by western powers to stop it. The New York Times reports Iran may be winning that race. In an exclusive interview this week with IAEA chief Mhamed ElBaradei, the paper reports Iran is making "rapid progress" in its nuclear program which is, in turn, creating new potential splits among members of the UN Security Council over ways to stop it. The more time the UN takes to make up its mind the more progress Iran makes with its nuclear program.
What triggered the current assessment is that IAEA inspectors showed up on short notice at Iran's main nuclear facility at Natanz last week and found 1,300 centrifuges in operation. Previous reports indicated that number were installed, but it was unclear how many were actually working.
ElBaradei told the New York Times, “Quite clearly suspension is a requirement by the Security Council, and I would hope the Iranians would listen to the world community,” he said. “But from a proliferation perspective, the fact of the matter is that one of the purposes of suspension — keeping them from getting the knowledge — has been overtaken by events. The focus now should be to stop them from going to industrial scale production, to allow us to do a full-court-press inspection and to be sure they remain inside the nonproliferation treaty.”
So far the main goal has been to get Iran to give up its uranium enrichment program, and, failing that, to convince the Iranian government through successive rounds of UN sanctions that the costs of pursuing its nuclear ambitions are too high. The UN has imposed two rounds of sanctions on Iran. There is plenty of debate over how effective the sanctions are, but some evidence indicates internal political problems are cropping up for the seemingly unstoppable Iranian nuclear bandwagon. An analysis by the Washington Institute for Near-East Policy says the financial sanctions are have some effect.
The results have been promising. Many non-US financial institutions and companies reduced or terminated commercial ties with Iran and early last year the Organisation for Economic Co-operation and Development raised its risk-rating for Iran. Months later the Iranian oil minister had to acknowledge that Iran was having trouble financing oil projects.
By the end of May the IAEA will submit a report to the UN Security Council on whether Iran has complied with previous resolutions ordering it to cease uranium enrichment. The short answer will be no. The long question will be what will the UN do next?
A third round of economic sanctions is clearly what the US has in mind. Nicholas Burns, the lead US State Department official on the issue, said that if the Iranians did not agree to suspend production by the time the leaders of the largest industrial nations meet next month, “we will move ahead toward a third set of sanctions.”
Hawks close to the Bush administration advocate military action, but that's unlikely given the question of how effective the strikes would be and the certainty of more political chaos in the Middle East as a result.
In June the UN Security Council must decide whether or how to impose a third round of sanctions against Iran over its continued pursuit of uranium enrichment. The threat is that Iran may have the components and know how to make a nuclear weapon. Together with its missiles which have a range of 1,200 miles, Iran could target cities in Russia and Europe. Even more to the point, if Iran has nuclear arms, they could provide an umbrella for a conventional arms attack against Israel by Arab countries making good on Mahmoud Ahmadinejad's threat to wipe Israel off the map.
There appear to be some cracks in the political front in Iran. According to the Jerusalem Post in a rare, if not unprecedented, conversation with an Israeli journalist, Mohammad Larijani, an Iranian politician and scientist whose brother Ali is his country's top nuclear envoy, told The Jerusalem Post on Friday that Iran was not bent on wiping Israel out and that his president had been misunderstood and misreported when purportedly expressing this genocidal ambition. The response in Israel so far to this press report is disbelief.
In a separate development, some of Iran's Middle East Arab allies told the Persian country's leaders to back off on its nuclear ambitions. According to the Associated Press, they harshly criticized Iran's growing influence in the Middle East, telling the country's top diplomat at a high-level conference in Jordon that it must stay out of the Israeli-Palestinian conflict and be more open about its nuclear ambitions. The "butt out" message is a real shot across Iran's bow.
Maybe the UN Security Council ought to spend more time talking to the Middle East countries in addition to talking to themselves about what to do next with Iran. Watch this space because the UN, with strong US backing, will likely head towards an unprecedented third round of economic sanctions because of Iran's persistence in pursuit of uranium enrichment and the potential to acquire the ability to make its own nuclear weapons as a result.
The New York Mercantile Exchange (NYMEX) has launched trading in uranium futures. Trading got underway last week. The trading contracts are be designed to offer operators of nuclear plants a way to hedge against rising prices. Also, it would shift the basis for bets on the rise and fall of uranium prices from the financial winds of fortune of firms that mine the metal.
Just in case you are wondering if trading in uranium futures will make the price of the metal more volatile, you're right. Spot prices in uranium were listed in April at $113/lb up from a mere $23/lb in April 2005.
"Nymex uranium futures will now make speculating in uranium fast and efficient," said Scott Wright, an analyst at financial-services company Zeal LLC. And "the price of uranium could really jump from today's levels with this new flow of capital."
Here are some points to keep in mind about futures trading in metals commodities.
- The prices at which the commodity futures are sold is not determined by the commodity exchanges. Prices are established on the demand and supply conditions. If the sellers are more than the buyers, the prices will decrease and vice versa. They are also determined by the buy and sell orders.
- Futures markets are considered clearing houses for the current demand and supply information. Buyers and sellers of financial instruments, agricultural commodities, petroleum products and metals meet in these markets.
- The primary purpose of a futures market is to provide an efficient method to manage the price risks.
Firms like Exelon are expected to retain long-term contracts for supply of uranium to their reactors rather than participating directly in a spot market. Energy traders agree with that assessment according to a round-up of opinion published in MarketWatch. Here are some highlights from two analysts.
- "It's about giving transparency to a very illiquid market," said Kevin Bambrough, a market strategist at Sprott Asset Management. "Since we are moving off the age of oil and into a nuclear era, it's about time we had some liquidity in the uranium market and some visibility into pricing in outer months."
- Nymex has "correctly identified that the nuclear power industry is undergoing a renaissance with tremendous growth ahead, as the world struggles to deal with strong emerging market and Asian growth, while facing the reality of peak oil and an energy-constrained world," Bambrough said.
- His firm predicts that "the combination of high energy prices, pollution and global warming will compel the world to attempt to build as many nuclear reactors as possible going forward."
- "You can say what you want about nuclear power but you're if worried about global warming, one of the ways to deal with that is nuclear power," said Phil Flynn, a senior analyst at Alaron Trading.
That separation from the physical market could end up being one of its biggest flaws. Gene Clark, chief executive at TradeTech, told MarketWatch the people who have the most experience in uranium markets appear to be the most skeptical of the futures exchange. He says the market has to have a physical link to the commodity being traded. Linkage to the physical market is "nearly universally the case in other futures markets," he said. And "with the Nymex futures market being purely a financial instrument, it runs the danger of diverging significantly from the physical market."
As a commodity, it has been, in many ways, invisible to the public over the years, said Clark. Uranium has traditionally been traded only between end users, such as electric utility fuel managers and uranium producers, he said. "Private ownership of uranium has been legal in the USA only for the past 40 years, and physically possessing it requires a license from the various regulatory bodies," Clark said. And there is "really only one use commercially for uranium: the generation of electricity,"
The worldwide inventory of uranium accounts for about 67,000 metric tons a year according to the World Nuclear Association. About two-thirds of that amount comes from mining and the rest from extra supplies let to the open market by government nuclear programs. There is still a shortfalls which is the cause of the rapid run-up of prices. Canada and Australia lead the world in mining uranium account for 44% of production. Long-term odds are that uranium prices will stay north of $100/lb. The price premium will remain until more uranium is mined and becomes available on the open market.
Nuclear power plant operators who don't have long-term contracts could be facing a pricing nightmare. Worse, according to Scott Wright at Zeal LLC, as quoted in MarketWatch, uranium futures could potentially "create large price swings" and "sharper corrections." Both Wright and Flynn believe these radical shifts are less likely over time for several reasons including better information to hedge long-term risks and the participation of a wider spectrum of investors.
Local economic development groups in Richland, WA, want to re-start the Fast Flux Test Facility (FFTF) and complete two unfinished nuclear power plants at Energy Northwest as part of a proposal for a new nuclear reprocessing plant, advanced reactor, and R&D labs under the Global Nuclear Energy Partnership (GNEP). The groups got a federal grant to do a site study under the GNEP program, and has pulled out all the stops to make a compelling case for all three GNEP facilities.
The FFTF is a 400-megawatt sodium-cooled, fast neutron flux nuclear test reactor owned by the Department of Energy. The facility is located at the Hanford Site in southeastern Washington State. Currently, the FFTF is undergoing deactivation and shutdown.
Local opposition to the plan by the Tri-City Development Council (TRIDEC) and its partners centers on a desire to see cleanup at Hanford retain first priority for funding and government action. Like the situation at Piketon, OH, environmentalists worry once spent nuclear fuel comes to Hanford under the GNEP program it will never leave even if some of it is reprocessed.
Then there are some folks who think nothing will happen under GNEP at Hanford. They say that by the time Energy Secretary Samuel Bodman makes a decision in June 2008 on where the GNEP plants will go, and Congress considers whether to fund them in 2009, a new Democratic President and Congress could kill the whole GNEP program.
Although he is not a presidential candidate, former Vice-President Al Gore has been rallying his party to oppose nuclear energy funding by the federal government. Gore was instrumental during the Clinton administration in drastically reducing federal nuclear money for the Department of Energy. More recently, he criticized the re-opening of the Browns Ferry nuclear plant. He told an energy conference in Toronto, "Spending billions fixing a broken nuclear reactor you had to fix anyway, is not “going green.”
Ohio Rep. Jean Schmidt, a Republican, in who's district lives the Piketon Gaseous Diffusion Plant is no stranger to nuclear issues. She also knows the plant is a candidate for one or more Department of Energy (DOE) fuel reprocessing facilities under the nascent Global Nuclear Energy Partnership (GNEP). Which is why it is interesting that this week Schmidt introduced legislation that puts severe limits on what DOE can do at Piketon with its GNEP program.
Schmidt introduced the Nuclear Waste Storage Prohibition Act that if enacted into law would prevent the government from using any GNEP money to create a permanent storage facility for spent nuclear fuel or high level radioactive waste at Piketon. Schmidt has plenty of political reasons to introduce the bill. She got major league heat in the last election from her opponent over support for GNEP.
Democrat Victoria Wulsin leveled the charge that Schmidt's support to make Piketon a GNEP plant would turn the facility into a permanent nuclear dump and that once spent fuel was shipped there it would never leave, or at least not in the lifetime of any of Schmidt's constituents. What's more Wulsin is going after Schmidt's seat again in 2008 having lost by just 2,500 votes in 2006.
Schmidt is no dummy. To spike Wulsin's charge, Schmidt got two Ohio Democrats to co-sponsor her bill. They are Rep. Zack Space and Rep. Charlie Wilson. All three are all in favor of getting a GNEP plant, or two, at Piketon. They just want to make sure that when nuclear garbage comes in, it also goes out. A local economic development group got $674,000 from DOE to do a site study for the Piketon plant. The group submitted it to DOE on May 1st along with 10 other groups seeking GNEP plants at 13 sites.
The way it looks now Schmidt has got the best of both worlds. She's fired a rhetorical shot across DOE's bow about not making Piketon a nuclear dump and she gets to keep supporting the place as a GNEP site and all the jobs it might bring if it ever gets funded.