Monday, October 03, 2005

China wants a slice of the uranium cake

Asia Times Online :: China News, China Business News, Taiwan and Hong Kong News and Business.

By Alan Boyd

SYDNEY - Through the darkest days of the Cold War, the world's largest uranium reserves stayed mostly untouched in their underground deposits, in a silent warning of the dangers of nuclear proliferation.

But a different kind of fright factor has dredged up a new debate over what to do with thousands of tons of Australian uranium. If the deposits are now opened to all-comers, the biggest slice could go to countries that were on the other side during the ideological standoff - especially China.

Canberra wants to lift decades-old restrictions on the mining of uranium to counter the threat of global warming, which is raising the political heat on dirty fossil fuels like coal and oil. And it has

found an unlikely ally in the trade union movement.

An estimated 40% of the world's proven uranium reserves are found in Western Australia, Queensland, South Australia and the Northern Territory. Sprawling Roxy Downs, in South Australia, alone accounts for one-third of known deposits. But only two of dozens of potential mines are in operation and they produce a modest 20% of the global supply, thanks to a 1984 accord between unions and the Labor Party government of the time that severely restricted export sales.

Australia is the only major uranium producer that doesn't have nuclear-fired power stations - another legacy of the labor pact and strong opposition by environmental groups. [1] But this could now change.

In the first break in labor ranks, the powerful Australian Workers Union (AWU) has called on the Labor government in Queensland to end its opposition. Queensland and Western Australia both have blanket bans on mining.

"I think we should have a practical debate about this and not an emotional one," said AWU national president Bill Ludwig. "We've got no in-principle opposition to nuclear power, provided it is done in a responsible way."

The AWU was motivated by recent studies by the scientific community that argued nuclear fission offered the only realistic means of Australia meeting its future energy needs without relying on fossil fuels. Prime Minister John Howard had already come to the same conclusion - publicly at least - though some might want to question his sincerity on the global warming issue, given the government's patchy record.

Australia was one of only two developed nations - the other was the US - that did not sign the Kyoto Treaty on reducing greenhouse gases. Instead, it has helped found a breakaway movement that critics charge could undermine that pact.

In July, Canberra drew up the Asia-Pacific Partnership on Clean Development and Climate with the US, Japan, South Korea, China and India, aiming to confront global warming through the softer option of technology transfers. Together these countries account for almost half of the world's greenhouse gas emissions.

While Japan and Korea ratified the the Kyoto Treaty, India and China were both exempt as its provisions applied only to developed countries.

Washington and Canberra cited the absence of big Third World polluters like China and India as their prime reason for not signing the treaty. The critical element of the breakaway agreement is that it encourages the two Asian giants to progressively switch to cleaner fuels, including nuclear energy.

China obtains only 2.2% of its power from nuclear energy, mostly relying on domestic coal supplies that are cheap but of notoriously poor quality. It has nine operating reactors, with two more under construction and a further 27 in medium-term growth plans.

State-owned China National Nuclear announced in July that $64 billion would be invested in nuclear power between 2005 and 2020, boosting output from reactors by almost 400%.

Most Indian power output also comes from non-renewable sources and there are plans for a major escalation of nuclear power. Currently 2.8% of energy is derived from 18 reactors and another 32 are either under construction or proposed.

Beijing has been lobbying Canberra for years to retract the uranium export restrictions. It finally broke through in August, when the federal government quietly opened exploratory negotiations on an export license without telling the labor movement.

And it may not stop there. A consortium of Chinese companies also wants to take direct shareholdings in Australian uranium mines as part of a $7.5 billion package of minerals investment aimed at ensuring long-term raw material supplies for industry.

There are already low-level Australian exports to 28 countries, headed by the US, western Europe, Japan and Korea. Much of the US and European uranium has traditionally been used in weapons systems.

The most obvious objection to a broader export policy is a security one: how to ensure that China - and possibly India, further down the track - do not divert their shipments for military use, which could draw Canberra into tensions over Taiwan and Kashmir.

Australia's policy is that uranium oxide - yellowcake, the exportable form of the mineral - is sold only for power generation, scientific research or medical needs, and exclusively to countries that have ratified the United Nations' nuclear Non-Proliferation Treaty (NPT). This immediately excludes India and Pakistan, which are not NPT members.

The NPT signatories are bound by a system of safeguards against the onward sale or diversion of nuclear materials that might be used by other states to produce weapons. Nuclear weapons states face additional checks.

Shipped uranium may not be sent to a third party, reprocessed or generally enriched beyond 20% uranium-235, the level needed to transform yellowcake into fissionable material. Other leading producers, including Canada and the US, have similar export codes.

An accounting system follows the ore from the time it is mined until it is reprocessed or stored as nuclear waste. But in practice, it has proved almost impossible to ensure that material is not diverted, as there are no identifying characteristics that distinguish particular uranium shipments.

The International Atomic Energy Agency, which monitors the NPT, lacks enforcement powers, relying instead on a raft of diplomatic, political and economic measures that were found wanting in North Korea, Iraq and Iran. As China is Australia's biggest trading partner, it is likely the mining companies will prevail.

Before negotiations begin in earnest, Canberra will have to convince a skeptical electorate, especially in resource-rich Queensland and Western Australia, that national interests would be served by bringing the Chinese in as junior partners in an industry that already has equity from European and North American firms.

Howard's dilemma is that the two big mining states already earn billions for dollars from coal exports to the same countries that would be targeted for uranium shipments. Hence the reluctance to commit to emission controls under the Kyoto Treaty that might affect coal sales.

Not all labor unions are on side, and nor are the two bigger state governments. Production could be stepped up in South Australia and the Northern Territory, which don't have coal deposits, but eventually a national policy will be needed.

Canberra doesn't have a lot of time to work on public opinion, as Australian producers could miss the export boat if they don't gear up production soon.

Global spot prices for uranium oxide have surged by 200% in the past two years as reserve stockpiles, mostly accumulated from decommissioned Soviet nuclear weapons and recycled material, have become depleted. Mine output only meets 50% of demand by the power sector.

In Australia's absence, Canada has cornered the biggest market share with a far smaller resource base, though Australian exports are expected to triple by 2010 with or without the restrictions.

Mining conglomerates, which won't put serious money in until the political dust has cleared, want Canberra to remove uncertainties over the security issue by taking the lead in upgrading international safeguards on the handling of uranium.

"Australia has some fairly stringent standards in terms of the mining of uranium, as well as the export licenses that go with that," Arafura Resources chief Alastair Stevens said after his firm raised $1.5 million in a shares offer to fund more exploration. "We are a responsible member of the international community, especially in radioactive sources, so were seeing that as being a role that Australia could foster."

[1] Lucas Heights near Sydney has been the center of the Australian government's nuclear operations since 1956. The focus of the facility has changed from preparing for nuclear power in Australia to a broader range of nuclear activities including nuclear power, uranium mining , nuclear medicine and nuclear research, industrial uses, and environmental management of former uranium mining sites. Two nuclear reactors have been built at Lucas Heights.

Alan Boyd, now based in Sydney, has reported on Asia for more than two decades.


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