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Bloomberg News

Bloomberg News

Jonathan Tirone, Stephen Stapczynski and Ari Natter

(Bloomberg) — Sanctions targeting Moscow’s nuclear industry that are being weighed by the Biden administration are fraught with risk for U.S. and European utilities that rely on reactor fuel from Russia.

The White House is considering sanctions on Russia’s state-owned atomic energy company, Rosatom Corp. — the world’s biggest supplier of nuclear fuel and reactors — as the Kremlin’s war against Ukraine enters its third week. The administration is consulting with the nuclear power industry about the potential impact, people familiar with the matter said Wednesday.

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Rosatom is a delicate target because the company and its subsidiaries account for more than 35% of global uranium enrichment and has agreements to ship the nuclear fuel to countries across the world. Sanctions would have to be carefully calibrated to avoid damaging other U.S. diplomatic efforts, including ongoing nuclear negotiations with Iran, which foresee continued supply of Russian fuel. 

“The utility fuel buyers will definitely be busy to find alternatives and it is bound to feed back through the fuel cycle,” said Jeremy Gordon, the chief executive officer at Fluent in Energy, a U.K. consultancy that advises the atomic industry. Depending how the sanctions are structured, “it might not be easy to figure out” which part of the uranium fuel cycle are being targeted, he said. 

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Read More: U.S. Weighs Sanctions on Russian Uranium Supplier Rosatom

It’s uncertain what the sanctions would mean for U.S. nuclear plants and importers of fuel. Russia accounted for 16.5% of the uranium imported into the U.S. in 2020 and 23% of the enriched uranium needed to power the fleet of U.S. commercial nuclear reactors. The reactors typically need to refuel every 18 to 24 months, and utilities buy fuel years in advance and maintain significant inventories.

Constellation Energy Corp., the largest U.S. nuclear plant operator, said it would support any limits the U.S. government puts on Russian uranium. “We have enough fuel to support all our refueling needs for multiple years,” the company said in an emailed statement. Constellation said it’s working with suppliers to head off any potential disruptions.

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Among the companies with exposure to potential sanctions against Rosatom is Bethesda, Md.-based Centrus Energy Corp., an importer of enriched uranium. One of its key suppliers is a Rosatom subsidiary, the company said in a filing last year. A Centrus spokesman didn’t immediately respond to a request for comment.

The U.S. had been a world leader in enrichment capabilities and was the monopoly supplier to much of the world in the ’70s, stemming from its work developing an atomic bomb with the Manhattan Project. But it failed to keep up with new centrifuge technology developed by Urenco Ltd. and Russia that eventually made the U.S.’s gaseous fusion technology obsolete, said Clark Beyer, a principal with consultant Global Fuel Solutions. 

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“The U.S. was stuck with diffusion long after it was no longer cost competitive,” said Beyer, who previously was managing director for Rio Tinto Plc’s uranium subsidiary. “The U.S. has not been able to develop a comparable centrifuge yet.”

The U.S. only has one remaining commercial enrichment facility, in New Mexico, which is owned by Urenco Ltd., a British, German, and Dutch consortium. Centrus is constructing an enrichment facility in Ohio.

“We are caught with our pants down,” said Chris Gadomski, a nuclear industry analyst with Bloomberg NEF. “We are flat-footed on this whole approach.”

The U.S. signed an agreement with Russia in 2013 to supply low-enriched uranium through the end of this year. That deal replaced a 20-year facility that sent about 500 metric tons of Russian highly-enriched uranium from bombs to the the U.S., where it was diluted and turned into reactor fuel. Since then, the Russian and U.S. industries have grown more entwined. 

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Despite American sanctions imposed over the Kremlin’s annexation of Crimea in 2014, Rosatom has signed fuel deals with General Electric and gained control over a key U.S. uranium mine. In the past, Moscow has threatened retaliation in response to U.S. economic punishments. 

There would be significant technical hurdles for utilities to overcome if they were to be shut off from Russian fuel supplies, according to Mark Hibbs, a nuclear analyst at the Carnegie Endowment for International Peace. Utilities swapping out Russian fuel for an alternative would need to overcome intellectual property rights that protect the fuel assemblies that power reactors.

“Fuelmakers work hand in glove with reactor vendors and operators,” Hibbs said. “Intellectual property is a major obstacle that has to be overcome and Rosatom has been joined at the hip with reactor operators for decades.”

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European Market

The world’s No. 2 nuclear fuelmaker, the British-Dutch-German joint venture Urenco Ltd., said Thursday that it expects “geopolitical uncertainties” to continue under the Biden administration, which may require geographically diverse supply chains. 

While some countries — most notably Ukraine — have sought to find alternative fuel suppliers for their Russian-built reactors, the process requires years of engineering. Westinghouse Electric Co. currently supplies about half of Ukraine’s reactors with redesigned fuel but needs until 2025 to displace Rosatom completely. 

Slovakia, which generates more than half its power from Russian reactors and fuel, has also been looking at diversifying supply. Earlier this month, the country suggested it may collaborate with other Russian-reactor operators in Czech Republic, Hungary and Finland in order to speed a potential switch after its Rosatom contract expires in 2026.

It’s not clear if there could be any impact on fuel supplies to other European countries, where several plants procure uranium from Rosatom subsidiaries. Electricite de France SA and the U.K. have stockpiles of fuel that will last about two years but Fortum Oyj’s Loviisa plant has a contract with Rosatom that will run until 2027, unless it gets a new operating license. About 15% of Uniper SE’s supplies come from Rosatom but the company hasn’t commented on how it plans to diversify supplies if needed.

©2022 Bloomberg L.P.

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