In an article entitled, “Uranium Prices Are Through the Roof as the War Shifts Thinking on Nuclear Power,” Barron’s notes that “(u)ranium prices have gained as much as 40% since Russia’s invasion of Ukraine, touching levels the market hasn’t seen in more than a decade—even though the war has little immediate impact on global supplies of the fuel used to generate nuclear energy.” While it is true that uranium prices are up dramatically and thinking has changed toward nuclear power, it is not correct to say that there has been little immediate impact on nuclear fuel.

Nuclear fuel for light water reactors, which account for vast majority of reactors, uses both uranium and enrichment. Further, uranium and enrichment are substitutable to a large degree. Russia is by far the world’s largest enricher, accounting for more than a third of the world’s supply, so any movement away from Russian enrichment or Russian enriched product has a direct impact on uranium demand and prices.

Earlier last year, I co-authored a paper with Dr. Lydia Hsieh entitled “Enrichment’s Critical Role in Nuclear Fuel Supplies.” That paper was originally published in the IAEE Energy Forum and was posted to the research section of our website. As the title suggests, this paper documents the importance of enrichment to nuclear fuel supplies, from an historical, modeling, and policy standpoint.

I believe that the uranium-enrichment link is still not well appreciated on the part of investors and perhaps even by some in the nuclear industry. Substitution away from uranium by utilities relying on more enrichment (which is in effect a substitution of technology for resources) was one of the reasons that the uranium price rise of 2004-2007 was eventually blunted. Moreover, it was a major factor behind the uranium price decline in the post-Fukushima era.

Once reactor demand fell off following Fukushima, the market was left with considerable excess enrichment capacity. This capacity was of the lower-cost centrifuge variety, since by this time all the energy-intensive gaseous diffusion enrichment plants had been phased out. Since it is difficult for centrifuge enrichers to cut back on output (the centrifuges need to be kept spinning), enrichment prices dropped while supply availability increased, squeezing out uranium demand.

Not only was enrichment substituted for uranium in creating enriched uranium in the first instance, but excess enrichment capacity was also used to enrich tails material to create additional uranium equivalent supplies. Both developments, as well as the work-off of then-existing uranium inventories, greatly reduced the need for newly mined uranium and uranium prices suffered.

The uranium-enrichment dynamic that was in force following Fukushima is now positioned to operate in reverse. To the extent that utilities move away from Russian enrichment and Russian nuclear fuel in general, there is less enrichment available to substitute for uranium in the West. Enrichment prices will rise, and uranium demand will increase. Importantly, there are several components to the increase in uranium demand. One is the desire to substitute away from more expensive enrichment in the production of nuclear fuel. Another is inventory-driven demand on the part of utilities seeking to hedge against higher prices and to ensure future supply availability (this will include enriched uranium as well). Still another is inventory buying on the part of investors who look to capitalize on uranium price increases.

There may be other demand drivers for higher uranium prices, especially the anticipation that Russia’s invasion of Ukraine will result in a desire for more nuclear energy. But uranium demand associated with new nuclear capacity is further in the future (the exception to this would be reactor restarts or delays in announced shutdowns), while the demand effects discussed here are already taking place. Specifically, they relate to the impact that the invasion is having on nuclear fuel supplies, which are heavily impacted by enrichment supply availability.

The situation is even more complex than can be described in this brief article, but hopefully this highlights the uranium-enrichment dynamics that are in play today.

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Jeff Combs is founder, owner, and Chairman of UxC, LLC (UxC) and is a leading expert in the nuclear fuel market, with over 45 years of experience providing economic analysis and forecasting for the front-end of the nuclear fuel cycle. He has extensive and varied expertise, overseeing UxC market reports, providing strategic consulting to major commercial companies in the nuclear fuel industry, and advising governments and international organizations on market and policy issues. Under his management, UxC has grown to become the world’s pre-eminent nuclear fuel market information and analysis company, issuing reports and publishing prices for all front-end nuclear fuel markets. In 2007, UxC teamed with CME/NYMEX to introduce the world’s first uranium futures contract. That same year UxC began reporting on the backend of the fuel cycle. In 2018, Mr. Combs created the website to advance understanding of peaceful uses of the atom in today’s world. During his career, Mr. Combs has presented papers at a variety of nuclear industry and energy economics conferences throughout the world. In addition, he has had his work published in academic and public policy journals. Mr. Combs earned a bachelor's degree in Economics at the University of Virginia, where he also completed his doctoral course work in economics. He is a charter member of the International Association of Energy Economics and is a member of the American Nuclear Society.