The Trump administration’s recent Nuclear Fuel Working Group report provides a sobering view of the national security threat posed by Russia’s aggressive global strategy to dominate the nuclear power and fuel industry to extend its geopolitical influence. The report warns of Russia’s efforts to increase its market share of the U.S. nuclear fuel industry and the threat that its below-market prices pose to the survival of the U.S. nuclear fuel sector. If this is left unchecked, the U.S. may find itself dependent on Russia for its nuclear fuel.
Russia’s steps to boost its nuclear fuel market share are taking place at a perilous time. The market for nuclear fuel in the United States has weakened considerably in the past decade and the country’s production facilities are in danger of being driven out of business. The global industry has been hit with a one-two punch of decreased demand and increased supply; Japan and Germany have greatly reduced their nuclear power generation, and Russia’s state-owned nuclear enterprise has expanded production and marketing without regard to profit in a bid to obtain a dominant market share here and around the world.
As a result, domestic nuclear fuel prices today are one-third of what they were a decade ago. That is good news for utilities that operate nuclear power plants, but it is bad news for the U.S. nuclear fuel industry, which is struggling to remain viable. U.S. mining activity is virtually nonexistent, the only U.S. conversion facility closed two years ago, and the nation’s only nuclear enrichment facility has written off about one-third of its value and is under threat from Russia’s expansion attempts.
Russia’s imports into the U.S. have been capped at 20 percent of the market, thanks to the International Trade Administration’s renegotiation of the Russian Suspension Agreement in 2008, which Sen. Pete Domenici (R-N.M.) codified into law to ensure that the Russian government could not exit the agreement.
That agreement and the statutory codification of those caps expire at the end of this year, and there is every reason to think that Russia has accelerated the same market-grabbing strategy in anticipation of expiring restrictions. Indeed, market intelligence suggests the Russians are signing contracts post-2020 that may amount to as much as 40 percent of the U.S. market.
Allowing the domestic nuclear power industry — which produces one-fifth of U.S. energy — to become dependent on the vicissitudes of a wholly-owned subsidiary of the Russian government would be a geopolitical disaster.
Congress is considering legislation to extend the market cap for Russian nuclear fuel and the Commerce Department is trying to get the Russians to the table to extend the trade agreement. Absent an extension of the caps, there’s a good chance that prices will fall even further in 2021 once Russia is able to dump increased volumes of cheap enriched uranium into the U.S. market. Trump’s Nuclear Fuel Working Group found that the agreement capping Russia’s market share is the sole buffer preventing Russia from forcing all enrichment services out of the United States. The consequences of such an outcome would be disastrous.
The European Union also is wary of developing any foreign dependency, and since 2002 has directed the Euratom Supply Agency to ensure that 80 percent of nuclear fuel required by power reactors comes from European sources. Even Russia keenly recognizes the importance of having a strong domestic nuclear fuel market; it bans the import of nuclear fuel altogether.
Russia’s export strategy of aggressively undercutting competition has proven to be successful, and in the past few years its global market share has increased considerably.
In the United States, the International Trade Commission looks for situations where a foreign producer sells a good below production costs. The fear is that a foreign entity may undercut the market to drive out domestic competition, which would allow it to raise prices above the original market price and take advantage of its market power. But a strategy of below-cost price-cutting works only if the foreign entrant is able to deter competitors — foreign or domestic — from entering the market after they see a firm earning robust profits.
That’s usually difficult or impossible, but that dictum does not apply here because Russia’s state-owned nuclear fuel producer has evinced no concern about earning a profit. Its express goal is to become the major supplier of nuclear fuel across the globe to attain an oligopsony position in the market and give Russia yet another lever with which it can pursue its geopolitical machinations — much like it does with its natural gas pipeline in Ukraine and Western Europe and its oil in the rest of the world. The collapse of oil prices earlier this year was a result of Russia’s strategy to try to slow U.S. shale oil production.
The nuclear fuel market is costly to enter, even for former producers. Starting up a mothballed plant would cost billions, so once domestic production disappears it could be gone forever, absent a hefty government subsidy.
U.S. electricity generators that operate nuclear power plants understandably want cheaper fuel prices to enable their nuclear business units to compete against their own natural gas, wind and solar electric generating sources, whose prices have been falling for over a decade. However, marginally lower costs for nuclear energy producers would come at a significant cost — namely, reduced national security. It is worth noting that fuel costs are a much smaller share of energy production for nuclear power than for coal, oil or natural gas, so the industry benefits would be slight.
A Russia that controls half of the U.S. nuclear fuel market and drives out domestic competitors would have some leverage over the U.S. economy and be incredibly problematic for the country. It also would be at odds with 50 years of our “all of the above” energy strategy.
Allowing Russia’s nuclear import caps to expire would provide only minimal benefit to the struggling U.S. power industry and come at a great cost to future U.S. security. Congress should renew the Domenici Amendment and the Department of Commerce should conclude negotiations with Russia, to continue the caps and ensure that Russia never can dominate this energy market.