Import substitution, American style

Import substitution is the burning issue not only for Russia. Energy-dependent countries are now racing to find alternatives to Russian supplies, with some of them even restarting mothballed coal mines (for example, the UK is about to open a deep mine to produce coking coal[1]). The main problem on the mind of most countries is energy security, which can be achieved largely through the accelerated rollout of renewables[2], but also by harnessing nuclear power. Today, we’d like to focus on nuclear energy, which made up 10% of the world’s electricity generation in 2021 (see Fig. 1), and on how it may affect the global energy mix.

Europe depends on Russian oil and gas as much as the rest of the world does on Russian nuclear fuel (see Fig. 2). At the same time, Russia contributes only 5%[3] to the global uranium pot, unlike Kazakhstan, which produces 40%. Despite its modest role on the production front, Russia controls 46% of the world’s enrichment capacity[4] and provides about 35% of enriched uranium[5], a fuel for nuclear reactors. Global dependence has a technology side to it as well: 42 of 401 reactors in operation around the globe in 2021 (excluding those in Russia) were made with Russian nuclear reactor technology, as are another 15 under construction at the end of last year (see Fig. 3).[6] In the future, China could compete with Russia in this field,[7] with developed countries now being wary of potential dependence on Chinese homegrown technologies.

With that in mind, the US, which recently declared an emergency due to a lack of electricity generation capacity and which has 93[8] nuclear reactors covering 18.7%[9] of the country’s electricity needs, is now working on a ‘broad uranium strategy,’[10] as the US, more than any other country, relies on Russia, which accounts for 16.5% of U-235 imports and 23% of total enrichment services in the US. The Biden administration is pushing Congress[11] to support an ambitious $4.3 billion plan to buy enriched uranium directly from domestic suppliers to wean the US off Russian imports.

While CIS supplies of yellowcake, which is processed from naturally occurring uranium ore, can be substituted rather quickly with those from Canada or Australia, access to enriched fuel requires major capital spending on technological infrastructure. Since the US enrichment industry was effectively liquidated in 1993, there is now only one operating enrichment plant in the US[12] with an annual capacity of 4.9 million SWU, which can meet just one-third of domestic demand.

When it comes to delivering on planned goals, it’s not only money that matters but also time. Considering that the rollout of new enrichment infrastructure will take quite a while, Congress authorized $75 million to establish a strategic uranium reserve[13] (US nuclear power plants typically refuel every 18 to 24 months[14]). This also needs to be taken into account when building a global energy model.