Tuesday, December 13, 2011

Areva suspends work on Idaho enrichment plant

The firm slashes investments globally in the wake of the Fukushima disaster last March

Areva CEO Luc Oursel
The Associated Press reports that Areva, the French state-owned nuclear giant, is making massive cuts in its global investment program including the Eagle Rock Enrichment Plant in Idaho.

Curtis Roberts, a spokesman for Areva in the U.S., told this blog in a telephone call early this morning that design work would continue on the plant, "but construction work will not proceed."

He promised updates as the U.S. office comes to grips with the details of Oursel's statement to investors in Paris which took place at 2 AM eastern time.

He added that Areva is continuing to seek capital to build the plant.

"It is strong on our radar screen in the U.S.  We have contracts in place for production."

But Roberts also cautioned that Areva has "no date in the future where we could commit capital to build the plant even though it remains a viable project."

These comments were echoed later in the day by a blog post at Areva's North American web site.

Areva losses drive decisions

Oursel said Areva posted financial losses of {e}1.6 billion in 2011. Factors which contributed to the losses include bad investments in uranium mines in Africa and uncontrolled cost overruns at a nuclear power plant under construction in Finland and another one in France.

In briefing slides distributed to the media, Oursel showed that demand for enriched uranium worldwide is expected drop by 2-3% in 2011 compared to previous estimates.

Capital spending slashed

In total, Areva hopes to reduce its new capital investment by a third to 7.7 billion euros. In recent years the firm has struggled to raise investment capital.

Oursel said Areva would cut its total investments by 34% to {E} 7.7 billion over the 2012-2016 period, down from {e}11.6 billion invested during 2007-2011.

Europe has been embroiled in a financial crisis over the fate of the euro.  Oursel's decision is likely driven by the reality there would be cutbacks for all French government spending due to the crisis, which includes rising interest rates for debt, and the general economic recession that grips the continent.

Areva is also facing political challenges as the Socialist and Green Parties are critical of French President Nicolas Sarkozy's strong commitment to nuclear energy. The elections are slated to take place next May.

Idaho plant was ready to break ground

Oursel's move to stop work in Idaho at the Eagle Rock plant abandons an effort which includes an NRC license gratned in October to build and operate the plant and a conditional commitment by the U.S. Department of Energy for a $2 billion loan guarantee.

The total cost of the plant is estimated to be between $2.5 and $3 billion.  Had construction gotten underway, the plant would have begun producing enriched uranium for commercial nuclear fuel in 2014.

The federal loan guarantee covers $2 billion of the costs. Oursel says that if the project is economically viable, investors will be found for the remaining $1 billion.

In October Areva postponed ground breaking to spring 2012. Its U.S. office assured the media that it planned to move ahead with the project saying that it was too late in the year to mobilize a contractor in the face of the oncoming harsh Idaho winter.

Economic development leaders in Idaho Falls were skeptical having long experience with that environment. However, they had little choice but to accept the firm's explanation.  And the combination of the NRC license and loan guarantee made the plant look like a sure thing from a financial perspective.

Had the project gone forward it would have created several thousand construction jobs and 700 permanent jobs. Plus, Areva was pursuing a strategy of asking some of its key suppliers to co-locate facilities at the plant site some 18 miles west of Idaho Falls, ID.

Critics of Oursel's decisions point out he is more of a bureaucrat in the French government than an entrepreneur and that he does not understand the competitive opening he is providing to other firms such as URENCO,  USEC and TENEX.

Demand for enriched uranium in 2013, for existing nuclear power plants in the U.S. is expected to be about 12 million SWU.  The Eagle Rock plant was expected to earn about a 25% market share, or 3 million SWU/year, once it came online.

Areva boasted at industry conferences that it had signed up 70% of the plant's capacity in future contracts.  The long-term contract price for SWU, according to Ux Consulting is $148.

That makes the U.S. market worth about $1.78 billion a year with a 25% market share, or 3 million SWU, worth $444 million.

The price of uranium has dropped holding steady this week at about $52/lb for short-term contracts of U3O8 according to Ux Consulting. That's down from a high in February 2011 of $69.75/lb.

Demand for reactors rising globally despite closures in Europe

Reuters reported that Oursel said that Areva is still the world's biggest manufacturer of nuclear reactors and that he "shrugged off predictions of a nuclear winter".  He said demand was still there for its new generation reactors, which meet international safety standards.

"Regarding the new reactors, some say that the nuclear market has stopped. I want to say it's quite the contrary," Oursel told investors.

The firm will cut 1,500 jobs in Germany which is closing its 17 nuclear power plants.  Work in that country reportedly represents 6% of total revenues. Another 1,200 jobs will be lost in France.

Investments in new nuclear reactors are rising in China, India, Vietnam, and the U.K.  The firm is building two  reactors in China and has signed a contract to build a fuel reprocessing facility. It is expected to break ground in 2012 in India to build two reactors. It has plans to supply up to four reactors to partner EDF for multiple sites in the U.K.

Efforts to break into the U.S. market have been disappointing with the latest setback being the apparent loss of the opportunity to build at Calvert Cliffs in Maryland,  A pending merger of Constellation, which owns the site, with Exelon will likely end that effort. Exelon CEO John Rowe has dismissed prospects for the project saying a merchant economic model isn't viable given the long time it takes to build a new reactor.

Even if the merger does not go through, Constellation walked away from negotiations with the U.S. Department of Energy for a loan guarantee saying the cost of the credit risk premium was too high.

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Anonymous said...

We are licking our chops out here in Eddy and Lea County New Mexico. With the demise of the Eagle Rock facility as well as Yucca Mountain, we stand ready to pick up the pieces where others have failed. WIPP and the National Enrichment Facility stand to gain where others were too timid to venture.

Anonymous said...

It is not called the National Enrichment Facility, but URENCO.

Dan Yurman said...

Urenco has changed the name at least twice. What will it be next year?