From gas to nuclear
Hussein Abdallah* lays out the energy choices and pitfalls which pave the road to Egypt's nuclear plans
The oil and gas consumed by the Egyptian electricity sector has risen over the period 1952-2006 from less than one million tonnes to more than 21 million tonnes of oil equivalent (toe), of which natural gas was around 18.7 million tonnes or 88 per cent of total fuel consumed by the electricity sector. Hydro-electricity accounts for only what is equivalent to three million toe.
Granted that a nuclear power plant which takes 10 yeas to build in an industrialised country, would take 12 years in Egypt, our first nuclear reactor may not be operating before 2020. Therefore, the crucial question becomes: how could we cross the gap from now to the year 2020?
Egypt is already a net importing country of both oil and gas due to the fact that our share of both sources is not enough to cover our domestic consumption which increased over the period 1975-2006 from 7.5 million toe to 52 million toe, at an average annual growth rate of 6.5 per cent.
The development of our oil and gas resources is carried out under production-sharing agreements which allows a foreign oil company to explore for oil and gas, and, if a commercial discovery is found, the agreement would be extended to nearly 35 years. The foreign partner, who undertakes all exploration and production costs, starts recovering their costs as soon as production begins. They first receive a share of 40 per cent of total output to be valued in terms of US dollars, at the export price of oil or gas. The total dollar value is then deducted from the balance of the foreign partner total expenditures. Year after year, this procedure is repeated until the total cost balance is recovered.
The foreign partner is further entitled to a net profit share of 25 per cent of the remaining output, which is equal to 15 per cent of total output before cost recovery. What remains after the 55 per cent received by the foreign partner represents the Egyptian share. Views differ between 50 per cent and 63 per cent of total output as the long-term overall share of the Egyptian partner. Either way, this share has in recent years fallen short of satisfying the domestic needs. For example, out of total production of oil and gas of 71 million tonnes in 2006, the Egyptian share would range between 35-47 million toe according to either estimate. Domestic consumption of both sources was 52 million toe. Therefore, at least five million tonnes had to be purchased from the foreign partner shares in order to fill the gap.
To answer the crucial question of how to cross the gap to 2020, the choice becomes one of two: either we could expand gas production as we did when it jumped from 23 million toe to 45 million toe in two years (2005-2007), at nearly 50 per cent growth rate per year, in which case we would not need to purchase from the foreign partner, or alternatively, we could limit the gas output growth rate to such a level as to match only the growth rate of our domestic consumption, estimated at five per cent annually on average. The first choice would deplete gas reserves in the shortest period, probably long before 2020. The second choice would conserve gas production and extend gas reserves until we cross the gap and catch up with nuclear power in 2020.
The main point of this argument is the following: according to production sharing agreements, Egypt is entitled to purchase from the foreign partner whatever is needed to meet domestic consumption at a maximum price of $2.65 per million British thermal units (MBtu). Nuclear power becomes competitive, as we will later explain, only when the price of gas is higher than $6 per MBtu. Therefore, it is more economical to use gas at home even if we have to buy the whole share of the foreign partner which we are legally entitled to. The export gas projects were not good choices, considering gas economics which give priority to use it at home, as was previously explained in an article published in Al-Ahram Weekly 28 June 2007 under the title "Veto on gas exports".
Now, we will turn our focus to the most important aspects of nuclear power, which should be taken into consideration in any feasibility study, under two subtitles: nuclear worries and nuclear economics.
NUCLEAR WORRIES AND CONCERNS: Nuclear power generation is an internationally-involved industry, as compared with most domestic industries which are national by nature and require little or no international involvement. The most important aspects of such involvement are:
Concerns have been raised about proliferation risks created by the further spread of sensitive nuclear technology, such as uranium enrichment and plutonium reprocessing. This is both a domestic problem and an international one. Proliferation continues to raise public concerns in many countries and hinders the development of new nuclear power reactors. On the other hand, this has to be resolved to the satisfaction of the world community. Otherwise, the project would be challenged as it happened in the case of Iran's uranium enrichment.
Uranium is the prime source of fuel for nuclear reactors and it is explored for and found in nature. However, raw uranium has to be enriched to at least three per cent and manufactured to make the so-called "yellow cake" in order to be usable. Enrichment beyond 20 per cent makes uranium suitable to build an atomic bomb. Plutonium is a man- made material that could be used to generate electricity and/or make a bomb. Nuclear power advocates assure that uranium sources are abundant, widely distributed around the glob, and, therefore, they represent no constrain. However, there are strong indications that those resources may fall short in supply at a near point in future, as is the case with oil and gas. While the International Energy Agency (IEA) states that proven uranium reserves are sufficient beyond 2030, it also states that investment in uranium mining capacity and nuclear fuel manufacture capacity must increase significantly to turn "uranium in the ground into yellowcake" and to meet world increasing demand. The underlying assumption is that expected expansion is only that of the countries already using nuclear generation (31 countries). The new tendency of the West to let developing nations go nuclear is not accounted for in this forecast. In either case, the industrialised countries do not have to worry about nuclear security, because they already hold the major bottlenecks of this industry, including the hardware technology and uranium enrichment and fabrication. Therefore, if their nuclear interests conflict with those of the developing countries, it will be theirs which win.
Driven partly by rising expectations for nuclear power worldwide, uranium spot prices continued to rise in 2006, to nine times their historic 2000 low, reaching $72 per bound U3O8. However, in what may be taken as mitigating factor in this respect is a proposal submitted to the International Atomic Energy Agency (IAEA) by Russian President Vladimir Putin to create "a system of international centres providing nuclear fuel cycle services, including enrichment, on a non-discriminatory basis and under the control of the IAEA". Several additional proposals to assure supplies of enriched uranium in the event of political supply interruptions have demonstrated the will of states to develop new, international approaches to the nuclear fuel cycle.
Nevertheless, the IAEA conference, which considered the above proposals for assuring supplies of uranium-based nuclear fuel at one stage in a longer- term multilateral framework, has recognised that establishing such a fully developed, multilateral framework that is equitable and accessible to all users of nuclear energy, is a complex endeavour and requires a phased approach for both natural and low enriched uranium, as well as spent fuel management.
As for nuclear safety, indicators, such as those published by the World Association of Nuclear Operators, have improved dramatically in the 1990s. However, in some areas improvement has stalled in recent years. Also the gap between the best and worst performers is still large. The IAEA has developed, in cooperation with 28 of its members, the International Project on Innovative Nuclear Reactors and Fuel Cycles (INPRO) which completed a methodology that member states can use to evaluate and select innovative nuclear systems (INS) for development.
Safety of nuclear waste disposal is another crucial aspect of world nuclear concerns. Annual discharges of spent fuel from the world's reactors total about 10 500 tonnes of heavy metal (t HM) per year. By the end of 2004, approximately 280 000 tonnes of spent fuel had been discharged globally. Two different management strategies are being implemented for spent nuclear fuel. In the first strategy, spent fuel is reprocessed (or stored for future reprocessing to extract usable material (uranium and plutonium). Approximately one third of the world's discharged spent fuel has been reprocessed leaving about 190 000 t HM of spent fuel in storage. In the second strategy, spent fuel is considered as waste and is stored pending disposal. Based on more than 50 years of experience with storing spent fuel safely and effectively, there is a high level of confidence in both wet and dry storage technologies and their ability to cope with rising volumes pending implementation of final repositories for all high radioactive wastes. China, France, India, Japan, Russia and the UK either reprocess, or store for future reprocessing, most of their spent fuel. France has set goals for a reversible deep geological repository by 2015 and to open the facility by 2025. Canada, Finland, Sweden and the US have currently opted for direct disposal. The Finnish, Swedish and US repository programmes continue to be the most developed, but none is likely to have a repository in operation before 2020. The world's one operating geological repository is the Waste Isolation Pilot Plant (WIPP) in the US, but it will receive only waste generated by research and the production of nuclear weapons; no waste from civilian nuclear power plants.
Most countries have not yet decided which strategy to adopt. They are currently storing spent fuel and keeping abreast of developments associated with both alternatives. Therefore, developing nations, should carefully consider the disposal of nuclear waste in their feasibility studies, from both the technical and financial aspects.
If the Egyptian nuclear programme is to start operating, at best, by 2020 with expected economic life of 60 years, then decommissioning may not occur before 2080. This is a long period and many of the present day variables may drastically change. Since the technical and economic feasibility studies of a nuclear reactor must be calculated based on the length of its production life, then careful attention should be given to the above considerations. For example, capital costs of construction, decommissioning and waste disposal, which are the major component of total nuclear cost, are depreciated on the basis of electricity units produced over the life span of the reactor.
To conclude this chapter, it was anticipated that nuclear generation would decline, as ageing nuclear reactors (especially among the OECD nations) were expected to be taken out of operation and not to be replaced. But the role of nuclear power in meeting future electricity demand has been reconsidered more recently, given concerns about rising fossil fuel prices, energy security, and greenhouse gas emissions. In Europe, nuclear power is the largest source of electricity in eight countries and represents more than half electricity produced in four countries: France, Belgium Lithuania and Slovak Republic. However, many European countries had opted to phase out part or all of their nuclear capacity. For example, Lithuania and Slovak Republic agreed with the EU to shut down their capacity, and Belgium is to phase out its capacity.
Now, nuclear power is accounting for 16 per cent of world electricity production which was 2750 TWh (Tera or trillion Watts-hour) in 2006. At the end of 2006, there were 31 countries operating 435 nuclear reactors with installed capacity of 370 Giga-Watts (GW) (giga is a billion). A Reference Scenario forecasts world nuclear capacity to increase to 416 GW in 2030 at an average rate of 0.5 per cent annually. An Alternative Policy Scenario, which assumes greater use of nuclear power and lower CO2 emissions, forecasts nuclear capacity to grow to 519 GW in 2030 at an average growth rate of 1.4 per cent annually. Approximately 70 per cent of this growth will come from developing countries which account for 17 of the 29 reactors now being built, mainly in Asian countries. Non-OECD Asia is poised for a robust expansion of nuclear generation. For example, in China, electricity generation from nuclear power is projected to grow at an average annual rate of 7.7 per cent from 2004 to 2030, and in India it is projected to increase by an average of 9.1 per cent per year.
ECONOMICS OF NUCLEAR POWER: Concerns over surging fossil prices and rising CO2 emission revived nuclear power which is proven technology for large scale baseload generation. The existing plants in OECD countries and the countries of non-OECD Europe and Eurasia (including Russia) are expected to be granted extensions to their operating lives to 60 years.
As shown above, economics are not the only factors affecting nuclear generation. Yet, economics, as in all other sources of energy, play crucial roles, most important of which are:
Nuclear power is capital intensive because building a reactor would cost between $2-3.5 billion. The discount rate (interest on loans) plays a major role in nuclear financing. The long lead period of preparation and construction (10-12 years) requires spending with no output to sell. Moreover, as the loan period extends, the discount rate becomes higher. Therefore, government has to reduce investment risk in order to support the nuclear economics.
The most important factor affecting competitiveness of nuclear power is the investment cost as represented by the discount rate and plant economic life. Depending on various factors of the economic components, capital cost would range between $2000- 2500 per one kW installed capacity. By comparison, the capital cost of using the combined cycle gas technology (CCGT) in electricity generation is only $550-650.
In developing countries, including Egypt, more than 70 per cent of nuclear capital and operating expenditures have to be spent in foreign exchange, because most of the project components are provided by industrialised countries.
Fuel cost is a small component of nuclear power total production cost, accounting for only $0.4-0.6 per million Btus (MBtu), while it ranges in CCGT between $5-7 MBtu in 2006. Therefore, nuclear power cost is less vulnerable to fuel-price change than coal or gas-fired generation. Uranium cost is around five per cent of total cost and becomes 15 per cent after treatment (enrichment and fabrication), while gas fuel represent 75 per cent of total cost. Therefore, increases in gas and coal prices improve the nuclear competitive position. A 50 per cent increase in uranium, gas and coal prices would cause costs to rise by only three per cent in nuclear power and by 20 per cent in coal and by 38 per cent in CCGT. This would endow nuclear costs with greater stability and predictability and make it more attractive to heavy users of electricity. In Finland and France, electricity- intensive industrial users expressed interest in long- term fixed price contract of electricity which, in turn, facilitate finance investment in new nuclear plants.
In a scenario of high discount rate, where nuclear generating costs are between 6.8-8.1 cent kWh, nuclear power would be competitive with gas-fired generation if long-term gas price is above $6.60 MBtu (corresponding to $65 a barrel of oil). There are other scenarios which expect construction and operating risks to be mitigated and the new nuclear cost to be 4.9-5.7 cents per kWh. In such cases nuclear would be cheaper than gas-fired electricity if gas price is above $4.70-5.70 MBtu.
The introduction of a value for limiting carbon emission also improves the competitiveness of nuclear power. In Europe and the US where coal is the major fuel for electricity generation, $10 per tonne of CO2 emitted make nuclear compete with coal. It is the more so, considering that average value of CO2 tonne in EU Emission Trading Scheme in 2005 was 18.3 euro per tonne ($23 and above).
Regional differences, size of reactor, site location and whether it contains one reactor or more, all affect costs. No one approach to nuclear energy supply carries the same costs and benefits for different countries. Therefore, we have to be very careful in studying and selecting the best approach that really suits our needs within an integrated and comprehensive strategy for energy.
* The writer is a consultant in energy economics.
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