Iran Triggers MENA Nuclear Programs

The revelation a decade ago of Iran’s extensive nuclear program (uranium enrichment) led not only to the contretemps with Europe and the United States about whether the Iranian nuclear program was purely for peaceful purposes, but also triggered strategic anxiety among its Arab neighbors.  This strategic unease among Arab nations in the Middle East and North Africa (MENA) in turn led to several of Iran’s neighbors moving toward their own nuclear programs and also has created an opening for Russia to expand its influence in the region through assisting countries develop nuclear power, as it did with Iran.

At present, Iran is the only MENA country with an operating nuclear power plant:  The Bushehr 1, 1000-MWe VVER reactor built by Russia’s Atomstroyexport, after several delays, finally started full commercial operation last September.  In February 2014 the Atomic Energy Organization of Iran (AEOI) announced that construction by Atomstroyexport of a similar unit—Bushehr 2—would begin this spring.  In addition, Iran operates uranium mining, milling, conversion and enrichment facilities and a heavy water production plant. A heavy water research reactor is under construction at Arak.

Research Reactors

A number of other MENA countries have had long-standing nuclear programs, generally operating one or more very small research reactors to provide nuclear training and medical radioactive isotopes.  Algeria commissioned a 1-MW Argentine unit in 1989 and a Chinese 15MW research reactor in 1992.  Egypt started up a USSR-supplied Egypt with a 2-MW in 1961.  A number of scholar’s believe that Egypt’s Atomic Energy Establishment (AEE), during the regime of President Gen. Gamal Nasser, developed technology and training in nuclear weapons.  Egypt did not bring its USSR reactor under International Atomic Energy Agency (IAEA) safeguards until the 1980s.

History has shown such research reactors can be less benign.  Israel bombed Iraq’s French-built Osirak 40-MW research reactor in 1981, just prior to first fuel loading, out of concern that Iraq planned to use the reactor for nuclear weapons’ fuel.  In 1991, the U.S. bombed a Russian reactor at the same site in the opening of the Desert Storm operation.  This despite Iraq’s having been a non-nuclear weapon state (NNWS) party to the Treaty on the Nonproliferation of Nuclear Weapons (NPT) since 1969. 

Also, in September 2007, Israel bombed and destroyed what Israeli and U.S. officials claimed was a Syrian plutonium production reactor.  Syria denied the claim, but failed to provide full IAEA access to the bombing site.  In May 2011, the IAEA said “It is very likely that the building…was a nuclear reactor which should have been declared to the Agency.”  Syria had signed the NPT in 1968 and ratified it a year later.  Syria also operates a 30KW Chinese-built miniature neutron source reactor, which went critical in 1996.

Israel itself maintains a policy of opacity regarding its nuclear program.  It is a party to neither the NPT nor the Missile Technology Control Regime.  It has signed, but not ratified, the CTBT.  Its nuclear program is centered at the Negev Nuclear Research Center, where a French plutonium production reactor reached criticality some 50 years ago.  While Israel does not acknowledge its nuclear weapons program, the Nuclear Threat Initiative notes that Israel is “believed to have produced enough weapons-grade plutonium for 100 to 200 nuclear warheads.” (http://www.nti.org/country-profiles/israel/)  Israel has no nuclear electric power generation reactors.

New Nuclear Power Programs

As mentioned above, the realization that Iran was covertly pursuing a nuclear program potentially capable of giving it a nuclear weapons capability, sharply aggravated existing geopolitical, religious and other tensions with Iran’s Arab neighbors.  The response, in part, focused on other countries pursuing nuclear power programs.

Algeria.  Between 2007 and 2010, Algeria signed nuclear cooperation agreements with Russia, the U.S., France, Argentina and South Africa.  Algeria told the IAEA in 2012 that it planned to have a nuclear power plant in operation by 2022, with a second by 2027.  In May 2013, Algerian Energy and Mines Minister Youcef Yousfi moved the target to 2025, while also establishing a Nuclear Engineering Institute to train Algerian personnel.  The country also is considering nuclear desalination.  Algeria has ratified the NPT and has had a full-scope safeguards agreement with the IAEA in place since 1995.  Algeria also is a party to the Treaty of Pelindaba (African Nuclear-Weapon-Free Zone).

Egypt.  Egyptian President Gamel Adbel Nasser created the Atomic Energy Commission in 1955.  Although Nassar was thought to have considered a nuclear weapons program, Egypt signed the NPT in 1968 and ratified it in 1981, followed in 1982 by a comprehensive safeguards agreement with the IAEA.  Egypt’s Inshas Nuclear Research Center outside Cairo has a USSR 2-MW research reactor, 22-MW Argentine light water research reactor, and fuel and waste facilities.  In 2006, the Mubarak government planned a program of 10 nuclear power reactors, which was supported by Mubarak’s successor Mohammed Morsi.  Any such program will have to await the view of the newly elected Egyptian president and an evaluation of whether the country, with its myriad economic challenges, can support an expensive nuclear power construction effort.

Iraq.  The United Nations Security Council in 2010, recognizing Iraq’s post-Saddam Hussein adherence to its nuclear nonproliferation commitments, lifted sanctions against a peaceful nuclear program.  Iraqi government officials reportedly contacted French nuclear industry officials about rebuilding one of the reactors bombed in 1991.  Iraq ratified the CTBT in Sept. 2013.  While some Iraqi government officials have stated support for a nuclear power program, no specific plans have been advanced as the country focuses on rehabilitating and expanding its oil and gas production and export capability.

Jordan.  A country that imports more than 95 percent of its energy, but has significant uranium resources, Jordan’s Committee for Nuclear Strategy has set out a program for nuclear to provide 30 percent of Jordan’s energy needs by 2030, plus potential power exports.  After a design and siting process involving seven offers from four reactor vendors, the Jordan Atomic Energy Commission (JAEC) in 2010 short-listed reactors from France’s Areva, Atomic Energy of Canada Ltd., and Russia’s Atomstroyexport.  In October 2013, JAEC selected Atomstroyexport to supply two 1000-MW AES-92 reactors, while Rusatom Overseas will operate the plant.  Russia will contribute at least 49 percent of the $10 billion project tab.  The first plant is targeted for operation in 2021, with the second in 2025.  Siting still is unresolved.  A 5-MW research reactor is being built by a South Korean consortium at the Jordan University for Science and Technology north of Amman, with low-enriched uranium to be supplied by Areva.

Kuwait.  Kuwait’s National Nuclear Energy Committee and Rosatom signed nuclear energy for peaceful uses memorandum of understanding and cooperation in 2010.  On March 27, 2014, Rosatom Deputy Director for International Activities Nikolai Spassky met in Moscow with Kuwait’s Ambassador Abdulaziz al-Adwani to offer assistance in the areas of national nuclear legislation, creation of supervisory and regulatory bodies, as well as construction of a nuclear research center and a nuclear power plant, when Kuwait reaches that point. [Itar-TASS]  Kuwait has signed (1968) and ratified (1989) the NPT and supports a Middle East Nuclear-Weapon-Free Zone (NWFZ).

Libya.  The USSR supplied Libya with a 10-MW IRT-1 research reactor in the 1980s.  Libya ratified the NPT in 1975, but pursued a clandestine nuclear weapons program with technology from the Pakistani AQ Khan network.  The renunciation of all Weapons of Mass Destruction (WMD) programs by Col. Muammar Qadhafi in 2003 ended Libya’s nuclear weapons program.  The following year Libya signed the Additional Protocol, to provide IAEA oversight of the dismantling of the program.  Prior to the overthrow of Qadhafi, the regime actively sought outside help for nuclear technology related to seawater desalination.

Saudi Arabia.  Following a 2006 decision by the Gulf Cooperation Council to study peaceful uses of nuclear energy, in 2010 a royal Saudi degree stated that “…atomic energy is essential to meet the Kingdom’s growing requirements for energy…“ and the King Abdullah City for Nuclear and Renewable Energy (KA-CARE) commissioned a series of studies that, inter alia, short listed three potential sites for nuclear power plants:  Jubail on the Gulf, and Tabuk and Jizan on the Red Sea.  The Kingdom plans construction of 16 nuclear power plants over the next 20 years, costing more than $80 billion.  It expects the first reactor to commence operations in 2022.  GE Hitachi Nuclear Energy, Toshiba/Westinghouse, and Areva all have expressed interest in supplying nuclear technology.  Saudi Arabia has signed nuclear cooperation agreements with France, Argentina, South Korea and China, and is negotiating with Russia, the Czech Republic, the U.K. and the U.S.  Saudi Arabia is a NNWS party to the NPT and has a Comprehensive Safeguards Agreement with the IAEA.  Riyadh supports a Middle East Nuclear-Weapon-Free-Zone.

Turkey.  Turkey is not an Arab country, but shares a 499-kilometer (310 mile) border with Iran.  Turkey has explored nuclear power since the 1950s, but only in 1996 tendered for a 2000 MW plant at Akkuyu on the Mediterranean coast near Mersin.  Westinghouse with Mitsubishi, Atomic Energy of Canada Ltd., and France’s Framatome with Germany’s Siemens all submitted bids, but after years of delay in April 2000 Turkey abandoned the effort due to economics.  Turkey re-tendered in March 2008 and accepted the only bid, which came from Atomstroyexport, for four 1200 MW VVER reactors.  The Russians will finance the build, own and operate facility, and Rosatom expects to retain at least 51 percent, while Turkish entities can purchase part of the $20 billion project.  Construction permits are expected this year, with the plants coming online annually starting around 2020

Last year, Turkey accepted a proposal from a consortium led by Mitsubishi Heavy Industries and Areva, with Itochu, for four 1200 MW Atmea1 nuclear reactors to be built at Sinop on the Black Sea.  France’s GdF Suez will be the operator.  The Turkish Atomic Energy Authority anticipates construction to start on the first Atmea1 reactor in 2017, with operation beginning 2023.  ENEC contracted with Uranium One (Canada), Rio Tinto (UK), Areva and Techsnabexport (Tenex—Russia) for uranium concentrates supply; with Areva, Tenex and Converdyn (U.S) for conversion services; and with Areva, Tenex and the European Urenco for enrichment. 

United Arab Emirates (UAE).  Another member of the 2006 Gulf Cooperation Council nuclear energy studies decision, the U.A.E. has moved most quickly.  After the publication in 2008 of a comprehensive nuclear policy document, The Emirates Nuclear Energy Corp. (ENEC) was established to evaluate and implement U.A.E. nuclear power plans.  In 2009, it short-listed consortia from France and Korea, as well as GE-Hitachi, finally selecting Korea for four reactors.  Korea Electric Power Co. (KEPCO), with Samsung, Hydundai and Doosan will construct four Westinghouse APR-1400 reactors, for some $20 billion, at Barakah on the Gulf coast.  Construction commenced on unit 1 in July 2012 and unit 2 in May 2013; unit 3 is expected to start build this year.  Operation of the four units is projected for 2017, 2018, 2019 and 2020.

The U.A.E. is a NPT signatory and ratified a safeguards agreement with the IAEA in 2003, and signed the Additional Protocol in 2009.  In 2009 the U.A.E. also concluded a “Section 123” nuclear cooperation agreement with the U.S. foregoing nuclear fuel enrichment and reprocessing.

Conclusion. 

Many countries in the Middle East and North Africa can justify nuclear programs for desalination and electric power by either their lack of energy resources or by their need to maintain hydrocarbon production for export and to minimize global climate impacts of rapidly growing hydrocarbon combustion.  Nonetheless, concern about Iran’s ambitious atomic energy program clearly motivated many to move beyond mere consideration of nuclear power to actively pursuing it. 

Jordan, Turkey and the United Arab Emirates all have awarded contracts for construction of nuclear electric power plants.   Algeria and Saudi Arabia have announced plans for significant nuclear power sector development, but have not moved to specific plans for plants.  Egypt, Iraq and Libya all have broached nuclear power development, but have much more pressing economic, social and political problems to resolve.  Kuwait has begun preparing for a possible nuclear energy sector.

The expanding interest by MENA countries in nuclear power has provided a double benefit for Russia.  First, it has moved quickly to expand its influence and intelligence gathering in the region by signing nuclear cooperation agreements with any and all comers.  Second, it sees the Middle East as critical to maintaining viability of the Russian nuclear technology, engineering and construction industry as domestic energy growth plateaus.  It already has contracts worth tens of billions of dollars to supply nuclear reactors to Jordan and Turkey.  It no doubt will try to use the nuclear research reactors the USSR built in Egypt, Iraq, Libya and Syria as further leverage.

So far, no other countries in the region appear interested in developing nuclear weapons programs.  Many have emphatically rejected their own nuclear weapons programs, as well as calling for Nuclear-Weapons-Free Zones in Africa and in the Middle East.  But the seeds are sown and will require increased U.S. vigilance. 

2013 Oil Market Outlook

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From Jan. 2012 oil outlook: “…Barring a major issue with Iran, which could send prices to $150 and above, prices should ratchet up slightly to track between $85 and $120 per barrel (WTI), averaging $105-110.”  Clearly too bearish--average actual WTI 2012 was about $94, with a weekly average range of $80 to $108.

 

  

For 2013, What the ‘pros” say:

USDOE.  EIA STEO Jan. 2013:  Brent and WTI crude oil spot prices to average $105 and $89.5 per barrel, respectively, in 2013. The projected WTI discount to Brent crude oil, which averaged $23 per barrel in November 2012, falls to an average of $11 per barrel by the fourth quarter of 2013.

Reuters’ annual survey of 26 analysts showed an average forecast of $108 for Brent in 2013, down from $112 in 2012, and WTI at $94.  Four put 2013 Brent above $115 in 2013, including Goldman Sachs, who calls for Brent at $130 and WTI $126, as capacity on the Seaway pipeline hits 400,000 b/d.

Upside Factors

Middle East

Iran.  Nuclear program--US, Europe sanctions; Iranian interference with Straits of Hormuz; this year Iran’s program could reach the point of triggering Israeli a/o U.S. military response.

Iraq, Syria and Egypt all placing strains on relations among ME countries and between them and the U.S.  Pipeline sabotage plagues Yemeni production and Syrian production unlikely to stabilize soon.

Global demand. The IEA sees continued sluggish demand in 2013, rising .865 mmb/d to 90.5.  Demand up .85 mmb/d in 2012 (vice 1.3 projected).

   Turnaround in economic growth rate could boost oil demand in China, the world’s 2d largest consumer.  India, Russia, Saudi Arabia and Brazil follow Japan in oil consumption and will see 2013 oil demand grow 2.5 to 4.5%, the IEA forecasts, as Japan’s demand slumps more than 3%. 

     The U.S. remains by far the world’s largest oil user at >18 mmb/d. 2013 oil demand growth >0.5%, mostly on freight shipments and industrial use.

Dollar. A declining U.S. dollar in 2013 will tend to push up oil prices. 

   Both U.S. economic growth and the dollar’s value are tied to resolution of long-term U.S. debt issues, but with opposite effects.

Downside Factors

Europe.  Demand in 2012 contracted sharply, -6.0% in 3Q12.   In 2013, European oil demand will decline less rapidly, weighted to the first half. The IEA also foresees North Sea oil output declining some 0.18 mmb/d.

MENA.  Increasing production by Libya and Iraq would depress prices, but Saudi will offset.  In Africa, a border security zone agreement between Sudan and South Sudan continues to stall export resumption.    Iran returns…?  Iran could be an outlier on the downside:  if the June presidential elections in Iran bring it back to the negotiating table with the EU and US, both could reduce sanctions, thus putting up to 1mmb/d of Iranian oil back on the global market.

North America.  The IEA expects a robust jump of 0.35 mmb/d in Canadian oil production, based on increased output from oil and tar sands.  Higher production in the U.S., mostly from tight oil and shale oil formations, will add 0.5-0.9 mmb/d, dropping U.S. liquid fuel imports to less than 40% of consumption for the first time in more than two decades.  Put simply, the US and Canada are likely to increase oil production in 2013 more than the total rise in global oil demand.

My Call

Once again, the outlier is Middle East politics.  Based on market fundamentals, oil prices should be less volatile in 2013.  WTI should trade in a narrower range of $80 to $100 per barrel, rising throughout the year, with an average a bit above $90.  Brent ends year at about $115.

©  Robert S. Price Jr., International Risk Strategies, Tampa, FL Jan. 2013 (Originally presented to the Longboat Key Economic Roundtable.)

Shale Gas Resources Drop, China Next?

            The U.S. Government today nearly halved its estimate of U.S. shale gas resources.  This follows an even more drastic decline in Poland’s shale gas resources by its national geological institute.  As China starts serious drilling of its shale gas resources, will its optimistic resource assessment also drop?

            In April 2011, the Energy Information Administration of the U.S. Department of Energy released World Shale Gas Resources:  An Initial Assessment of 14 Regions Outside of the United States. That ground-breaking study suggested that global shale gas technically recoverable resources (TRR) of 6622 trillion cubic feet (tcf) roughly equaled global proved natural gas reserves.  TRR clearly is a more speculative measure than proved reserves, which define known gas that can be economically produced with current technology.  Still, the TRR figure firmly established global shale gas as a worldwide energy sector game changer.

            World Shale Gas Resources crowned China as king with 1275 tcf of TRR, followed by the U.S. with 862 tcf, Argentina with 774 tcf, and Mexico at 681.  The study found the largest shale gas resources in Europe in Poland (187 tcf) and France (180 tcf).

             In its 2012 Annual Energy Outlook, released today (June 25), the EIA lowered its estimate of U.S. shale gas TRR to 482 tcf—a 44 percent decline.  The fall resulted largely from a 67 percent drop in EIA’s estimate of TRR in the 100,000 square mile Marcellus shale that spreads across eight states from Tennessee to New York, but with most drilling in Pennsylvania and West Virginia.  (New York imposed a moratorium on shale gas exploitation, pending an environmental assessment.)  EIA followed a revision by the U.S. Geological Survey of the Marcellus shale.  EIA emphasized that further drilling could result in a future upward revision of resources and that the lower TRR does not directly correlate to projected production.

            The Polish Geological Institute announced its Assessment of shale gas and shale oil resources in Poland—First report on March 21.  The PGI emphasized that the report should be considered only a conservative, initial estimate as it was based on 39 wells drilled between 1950 and 1990.  Still, Minister Piotr Woźniak, Poland’s Chief Geologist, noted that only 22 wells had been completed since 2010 and a mere 14 were planned for 2012, compared to the thousands drilled annually in the U.S.  The PGI estimated the most probable level of Polish shale gas resources between 346.1 billion cubic metres (12.2 tcf) and 767.9 bcm (27.1 tcf).  Even the high end of the range is 85.5 percent lower than EIA’s estimate in World Shale Gas Resources a year earlier.  Last week the Gazeta Wyborcza reported that ExxonMobil would abandon its shale gas exploration projects in Poland after test wells failed to produce commercial results.

            So back to China.  Already in March 2012, China’s Ministry of Land and Resources scaled back its estimate of the country’s shale gas TRR from 31 tcm (1095 tcf) to 25.1 tcm (886 tcf) based on its most extensive appraisal to date.  The MLR noted that the complicated geology of its shale gas reserves and the relative inexperience of its companies would make shale gas production difficult.  Others have cited China’s regulatory regime, including administrative (versus market) pricing of gas, the lack of pipeline infrastructure, and the fact that some of China’s large shale gas resources, such as those in Xinjiang, are in semi-arid areas, as potential impediments.  Nonetheless, the government of China has moved forward on leasing shale gas tracts.  China’s big three—China National Petroleum Corp./PetroChina, China National Offshore Oil Corp. and Sinopec—all have purchased North American shale gas assets to learn the technology and have brought in Shell, Chevron, BP and others to work Chinese basins.

            China’s current Five Year Plan calls for production of 6.5 bcm (230 bcf) by 2015 from 19 major shale gas regions across the country.  By 2020, China’s National Development and Planning Commission expects shale gas production to jump to between 60 and 100 bcm (2 to 3.5 trillion cubic feet). 

            Whether or not China meets its ambitious shale gas production plans, the U.S. and Polish cases suggest that further drilling in China may well mean further reductions in the estimates of China’s overall shale gas resource.

Environmental Risks of Chinese Energy

The New York Times carried an excellent article in Sunday's (Aug. 26) edition on the impact of China's growth and concomitant energy use on its environment under the rubric "Choking on Growth." The New York Times website carries the article as well a video and a map of environmental impacts. See at Choking.

Getting Started

This is my first attempt to start a blog. I retired from the U.S. Department of Energy in 2006, where I was Director for European and Asian Affairs, and then set up a consulting company, International Risk Strategies, located in Tampa, Florida. You can read more about the company and me on the company website. I shall try to pass on interesting items that are not covered in the usual news sources and shall look forward to reader feedback.