Alternative Energy Economics for Iran Options Definition and Evaluation

PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

Alternative Energy Economics for Iran Options Definition and Evaluation


Scope of Current Analysis

• I – Market vs. indigenous fuel supply options

• II – Iranian energy resource review

• III – Cost of selected nuclear facilities

• IV – Alternative investments - natural gas sector

• V – Alternative investments - refining sector

• VI – Conclusions of analysis


Background

• June 14, 2003 – Letter to U.K parliament from Ambassador of Iran– Iran concludes its need for 7000 MWe via nuclear power by

2020.

• Based on VVER-1000 at Bushehr, assume additional (6) power reactors of the same type (total of 7)

• IAEA BOG Report GOV/2003/75 - chronology in which Iran has taken steps to possess a front end fuel cycle

• Ongoing EU3/Iran negotiations to persuade Iran to discontinue uranium processing and enrichment

• Suspension and resumption of enrichment, referral to UN


Section I

Nuclear Fuel Resource Constraints and Comparison of Market vs. Indigenous Nuclear

Fuel Supply Options


Typical Annual Material Inventory in the Nuclear Fuel Cycle for a VVER-1000 Reactor1

• Mining – 405,000 tons of uranium ore @ 553 ppm (0.05%)2

• Milling – 262.5 tons of U3O8 , (223 tons natural U)

• Conversion - 328 tons UF6 , (222 tons natural U)

• Enrichment - 32.8 tons UF6 , (22 tons 4.4% LEU)

• Fuel Fabrication – 25 tons UO2 , (22 tons 4.4% LEU)

• Assumes enrichment 4.4%, 75 ton initial UO2 fuel load, 36 month fuel residence time3

1 – Based on material balances from The Economics of the Nuclear Fuel Cycle, OECD 1994, and Nuclear Energy Economics and Policy Analysis, 3/29/04, MIT, and The Future of Nuclear Power: An Interdisciplinary Study, MIT.

3 – VVER-1000 data from Rosenergoatom http://eng.rosatom.ru

Results shown include 0.5% losses per stage and have been rounded for ease of display

2 – Ore data from Atomic Energy Organization of Iran – www.aeoi.org.ir


Iranian Uranium Resources1

Production Method <USD 40/kgU <USD 80/kgU <USD 130/kgU

Unspecified 0 0 491

Total 0 0 491

Production Method <USD 40/kgU <USD 80/kgU <USD 130/kgU

Unspecified 0 0 936

Total 0 0 936

Cost Ranges

<USD 80/kgU <USD 130/kgU

0 3350

Cost RangesTotal

<USD 130/kgU Unassigned

4,500 6,000 10,500

Reasonably Assured Resources (RAR) 2

Estimated Additional Resources (EAR) – Category II Speculative Resources

1 – From Uranium 2003: Resources, Production and Demand, NEA No. 5291, OECD 2004. 2 – In situ resources

(in metric tons natural U )

Estimated Additional Resources (EAR) – Category I 2


Fuel Usage Scenarios

Known Conventional

ResourcesTotal Resources

Number of Operational Reactors Years of Operation Years of Operation

1 6.49 69.44

2 3.24 34.72

3 2.16 23.15

4 1.62 17.36

5 1.30 13.89

6 1.08 11.57

7 0.93 9.92

• Known Conventional Resources (RAR + EAR-I) = 1,427 tons U

• Undiscovered Conventional Resources (EAR-II + SR) = 13,850 tons U

• Total Resources = 15,277 tons U

• Assume 1000MW-VVER burns 22 tons of LEU annually and all reactors come online simultaneously

– Known Conventional Resources w/7 reactors = less than 1 year

– Total Resources w/7 reactors = less than 10 years


Fuel Resource Constraints 2006-2026

0

500

1000

1500

2000

2500

2006 2010 2014 2018 2022 2026

Year

Ura

niu

m (

met

ric

ton

s o

f L

EU

fu

el)

CumulativeFuel Use

Complete Construction - 7 Total Reactors -2020

Total Uranium Exhausted

1 R

eact

or

2 R

eact

ors

3 R

eact

ors

4 R

eact

ors

5 R

eact

ors

6 R

eact

orsKnown Uranium

Exhausted•Known uranium will be exhausted by 2010 with only two operational reactors.

•Total uranium resources will be depleted by 2023 with all reactors far short of their 40 year design lifetime.


Cost of Recovering All Uranium Resources Vs. Market Price

Known Conventional Resources

Undiscovered Conventional Resources

RAR EAR-I EAR-II SRS Total

Low $/kg ($80) $39.28M $74.88M $268.00M $840.00M $1.22B

High $/kg ($130) $63.83M $121.68M $435.50M $1.36B $1.98B

Market $/kg ($46.42) $24.35M $46.43M $166.16M $520.80M $757.74M

Purchasing uranium from the market would provide a total cost savings between $460 million and $1.22 billion based on the cost (high/low) of uranium recovery.

1 – From UX Consulting Company L.L.C. as of Mar 28,, 2005


Estimated Annual Fuel Costs – 7000 MWe

• Iran could save $130 - $240 million per year by purchasing fuel from abroad.

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Market Fuel Costs Indigenous FuelCosts (Low)

Indigenous FuelCosts (High)

Mill

ions o

f D

olla

rs/Y

ear

Fuel Fabrication

Enrichment (4.4%)

Conversion to UF6

U308


Section II

Iranian Energy Resources


Iran – 2004 Depth of Resources

• Oil– 125.8 billion barrels proven reserves

– Roughly 10% of world’s total

• Natural Gas– 940 trillion cubic feet proven natural gas reserves

– World’s 2nd largest supply, 15.5% world total

• Electric Power– 31 GW installed capacity (36 GW expected 2005)

– 75% Natural Gas, 7% Hydro, 18% Oil


Iran Energy Reserves by Type

Energy equivalence used = 1070 BTU/ft3 natural gas, 5.8e6 BTU/barrel oil, 11,000 BTU/lb. coal, 4.41e11 BTU/mton U-235. Source Nuclear Engineering: Theory and Technology of Commercial Nuclear Power – Knief. Energy data from March 2005 U.S. EIA Iran Country Analysis Brief.

0

200

400

600

800

1000

Natural Gas Oil Coal Nuclear

En

erg

y (

Qu

ad

rill

ion

10

^1

5 B

TU

s)

1005.8

729.6

6.741.5


0

50

100

150

200

250

Oil Natural Gas Nuclear (KnownConventionalResources)

Nuclear (TotalResources)

Res

erve

s/P

rod

uct

ion

Rat

io (

Yea

rs)

Iran Reserves to Production Ratios

88.4

220.0

0.9 9.9

Note 1 - Oil production 2004, gross natural gas production 2002 from EIA

Note 2 - Nuclear fuel production based on requirements of 7000 MW nuclear with a once through fuel cycle


Section III

Review and Capital Cost Determination of Selected Nuclear Facilities


Iranian Nuclear Facilities1

Note 1 – From IAEA GOV/2003/75


Facilities of Interest


Nuclear Facility Information

• Natanz Enrichment Facility– 54,000 centrifuges

– Estimated P2 SWU/centrifuge facility is nearly large enough to support two VVER-1000 nuclear fuel loads per year

– Estimated P1 SWU/centrifuge facility support only one VVER-1000

– Cost estimates from American Centrifuge, National Enrichment Facility, Georges Besse II, and Resende

– Estimated cost $260 million based on P2 technology. $187 million - P1.

• Esfahan Conversion Facility (UCF)– Conversion UOC to UF6, enriched UF6 to UO2, depleted UF6 to UF4,

conversion of enriched uranium metal and depleted uranium metal – total 5 lines

– Estimated cost $30 million


Scaled Cost per SWU – Natanz Estimate

0200400600800

100012001400160018002000

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00

Plant Scale (million SWU/yr)

Unit

Co

st ($/

SW

U)

NEF

ACGBII

P1 Design

P2 Design


Nuclear Facilities – (continued)

• Arak Nuclear Complex– 40 MW Iran Nuclear Research Reactor (IR-40) similar to India’s 40-MW

CIRUS built in 1960; new comparable research reactors $100-$200 Million

– Initial Heavy Water requirement 85,000 kg @ $254/kg = $21.6 million

– Heavy Water Production plant (16 tons annually), based on unit cost of operating heavy water plants in India – approximately $10-$25 million

– Separation facilities based on GA contract with Thailand - $25 million and CRL manipulator prices

– Arak investment conservative $200 million

• Esfahan Fuel Manufacturing Plant (FMP)– Designed with preliminary annual throughput for 40 MTU/yr and planned

for 140 MTU/yr

– Designed for both light water reactor and heavy water reactor fuels

– Estimated investment $30 - $80 million


• Saghand Mine and Ardakan Milling Plant– 1,550,000 tons of ore reserve @ avg. 553 ppm

– 120,000 tons of ore annually, approx. 50 tons U

– Estimated investment $39 million

• Gchine Mine and associated milling plant– Variable, low grade ore

– Design capacity of 21 ton U annually

– Estimated investment $19 million

• Total selected facility capital investment ~ $600 Million

Nuclear Facilities – (continued)


Section IV

Evaluation of Alternative Investments in the Natural Gas Sector


Natural Gas Flare/Vent Rates

Data from U.S. EIA International Energy Annual 2002, Table 4.1

Annual Flare/Vent Rates of Various Middle East Countries, 2002

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

SaudiArabia

Qatar U.A.E. Syria Kuwait Oman Iran

Fla

re/V

ent

Ra

te,

% o

f G

ross

Pro

du

ctio

n

World Average 2.26%

Middle East Avg. 3.26%

North American Average 0.53%


Natural Gas Data

• World Average (2002)1 = 2.26%• Iran (2002)2 = 6.78%• Assume Iran moved to world average (2.26%)

– Save 193 billion ft3 annually– Equivalent to:

- $1.60 billion (Market price 7.78$/MMBtu)3

- 2783 MWe (Combined Cycle Gas Turbine)4

• Assume Iran moved to North American Average (0.53%)– Save 267 billion ft3 annually– Equivalent to:

- $2.22 billion (Market price 7.78$/MMBtu)3

- 3850 MWe (Combine Cycle Gas Turbine)4

1,2 – Data From U.S. EIA International Energy Annual 2002, Table 4.1 3 – Market Price U.S. EIA Natural Gas Weekly Update 7/13/05

4 – CCTG 7200 BTU/kw-hr heat rate, 85% capacity factor, 1070 BTU/ft3 natural gas


Natural Gas Infrastructure and Growth

Map Data from Collection of University of Texas Maps

Population Data from Statistical Centre of Iran

• Three cities with the highest growth rates over the last 20 years are closest to major gas refinery and treatment facilities

– Mashhad

– Ahvaz

– Shiraz


Investment Scenario 1

Investment Scenario 2

Scenario 1 (yellow circle) Scenario 2 (blue circle)

$1.00B Investment $617M Investment1 - 300 Mmcf/d Gas 1 – 150 Mmcf/d Gas Processing Plant Processing Plant2 Power Plants (1120 MWe) 1 Power Plant (930 MWe)150 Miles of New Pipeline 50 Miles of New Pipeline19.4% of Recoverable Gas 16.1% of Recoverable Gas

Investment Scenarios Infrastructure

Notional Investment ScenariosNotional Investment Scenarios


-300

-200

-100

0

100

200

300

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Project Year

$ U

.S. (

mill

ion)

Payback Period ≈ 4.59 Yrs

Investment Cash Flow Model

1- Data from World Energy.org, based on 1999 price and subsidy, average of all sectors 2 - Using February 05 exchange rate 1USD = 8863 IRR

• Construction outlays for 5 year period = $1.0 Billion• Net revenues based on price of electricity = 315 Rials/kwh (3.56¢/kwh)1,2 • Annual O&M costs of 3.5% capital expenditure• Project Lifetime (30 years) IRR = 18%• Payback Period, i @ 7% = 4.59 years


Section V

Evaluation of Alternative Investments in Oil Refining and Gasoline Production


Iran – 2002 Energy Trade Balance1

1 – Energy Information Administration, 2002 – Iran Country Energy Data report

Petroleum Production Import Export Consumption

(Thousand Barrels per Day) Crude Oil 3444.30 2093.00 1350.34

(Thousand Barrels per Day) Gasoline 242.44 65.61 296.26

Natural Gas

Gross Production

Vented/Flared and Reinjected Dry Imports Dry Exports Dry

Consumption

(Billion Cubic Feet) 4273.12 289.58 + 1059.45 173.04 23.66 2478.41

Coal Production Import Export Consumption

(Thousand Short Tons) Hard Coal 1245 720 25 1940

Electricity Capacity (Million kw)

Generation (Billion kwh)

Consumption (Billion kwh)

Losses (Billion kwh)

Thermal 31.419 124.714

Hydroelectric 2.803 7.970

TOTAL 34.222 132.684 123.554 9.288


Iranian Gasoline Imports

• In 2001, Iran was importing 8.5 million liters of gasoline per day– Gasoline represented more than 85.5% of total petroleum imports

• In 2004, Iran was importing 40% of their daily gasoline needs, or 22 million liters of gasoline per day1

• EIA estimates Iran importing 160,000 bpd in 2004 or approximately 25 million liters per day2

• Government paid 2800 rials per liter ($1.19/gal) in 20041

– Approximately $2.5 – $3.0 billion for 20042

• Annual demand increasing at around 9% per year2

• Gasoline imports could potentially cost Iran $4.5 billion for 20053

1- Iran Daily News – 9/28/04, 12/16/04, 2- EIA Country Analysis, 3 - Iran News – 5/10/05


Iranian Refinery Capacity

• Current Iranian refining capacity is 1.47 million BPD– Nine refineries

– 240,000 BPD gasoline capacity

– Consuming 400,000 BPD gasoline

• At current gasoline refining yields (Iran ~ 16% per barrel), a nearly 1,000,000 BPD capacity is required to eliminate 160,000 BPD of gasoline imports.

• With 46.7% (Feb. ‘05 U.S. refinery average) yield of gasoline per barrel of oil, require approximately 350,000 BPD additional refinery capacity


Refinery Output Comparison

Iranian Refinery Yield Per Barrel

3%9%

16%

1%

12%

31%

28%

Gasoline

Jet Fuel

Kerosene

Distillate

Residual

LPG's

Unspecified

U.S. Refinery Yield Per Barrel

0.3%8.6%

46.9%

21.2%

3.8%

15.5%

3.8%

Gasoline

Jet Fuel

Kerosene

Distillate

Residual

LPG's

Unspecified


Refinery Cost Basis

Refinery Capacity Estimated Cost

1. Dung Quat, Vietnam 130,000 BPD $1.5 B

2. U.S. NewCon Est, 150,000 BPD $2.4 B

3. Gujarat, India 210 – 240,000 BPD $2.26 B

4. Basra, Iraq 250 – 300,000 BPD $2.0 B

5. Yanbu, Saudi Arabia 400,000 BPD $4-5 B

6. KPC, Kuwait 450 – 600,000 BPD $5.0 B

5000

7500

10000

12500

15000

17500

130 150 225 275 400 525

Capacity (Thousand Barrels per Day)

Pri

ce

($

/Ba

rre

l p

er

Da

y)

Avg. w/ U.S. $10,938

Avg. w/o U.S. $9925

1

2

3

4

5

6


Cost Sensitivity to Refinery Gasoline Yield

0

2

4

6

8

10

12

14

16

18

100 200 300 400 500 600 700 800 900 1000

Capacity (Thousand Barrels per Day)

Ref

iner

y To

tal C

ost (

$ B

illio

ns) U.S. price -

50% yield

Middle Eastprice - 20%yield


Export = 197

Gasoline Imports = 160.00

Crude Production

Refining

2229

3724

1500

Export @ $34.62/bl

Consumption = 1471

$ 28.16 B

- $ 2.91 B

$ 2.84 B

Net Revenue = $28.01 B

Approx. Iran Petroleum Balance - 2004

Refined Products

(Changes from 2001)


Export = 1037

Gasoline Imports = 0

Crude Production

Refining

1229

3724

2500

Consumption = 1471

$ 15.53 B

$ 14.07 B


Iran Petroleum Balance 2004 – With Low Yield Refinery, No Gasoline Imports

Refined Products

Export @ $34.62/bl

(Changes from baseline 2004)


Section VI

Conclusions of Analysis


Conclusions of Analysis

• Iran’s uranium resource is not commensurate with the scale of its declared nuclear program.

• Cost of indigenous uranium and fuel production appear substantially greater than market sources.

• Front-end (uranium and fuel facilities) do not provide independence.

• Indigenous non-nuclear energy resources represent centuries of potential energy supply at current R/P ratios.

• Cost of selected front-end nuclear facilities is at least $600 million dollars.


Conclusions of Analysis (2)

• Several plausible gas sector projects could be pursued for the cost of the front–end nuclear facility investment.

• Gas sector projects involving natural gas treatment plants, CCGT power plants, and supporting pipeline show very attractive rates of return at 18% (23%) over 30 years and a 4.6 (3.2) year payback periods.

• Projects which add refinery capacity increase refined product exports, generating billion dollars per year in net revenue.

• Approximating the gasoline yield fraction of Iran results in a more attractive refinery project assuming all additional refined products can be exported.


Backup & Technical Detail


Nuclear Power Intensity as a Function of Energy Resource Endowment - typical values

0

0.01

0.02

0.03

0.04

0.05

0 0.25 0.5 0.75 1 1.25 1.5 1.75 2

Natural Energy Endowment per GDP (quads/billion USD)

Nu

cle

ar

Cap

acity p

er

GD

P (G

We

insta

lled

/bill

ion

US

D)

U.S.

France

Canada

BrazilU.K.

JapanGermany

Sweden

South KoreaBelgium

Finland

Taiwan

China

PolandIndonesiaEgyptNorway

Canada

ArgentinaItaly Turkey


Nuclear Power Intensity as a Function of Energy Resource Endowment

– Iran’s proposed program relative to rest of world

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0 10 20 30 40

Natural Energy Endowment per GDP (quads/billion USD)

Nu

clea

r C

apac

ity p

er G

DP

(GW

e in

stal

led

/bill

ion

US

D)

Kazakhstan

Ukraine

Russia

Iran - 20 reactors

Iran - 7 reactors

U.S.


Relationship Between Ore Grade and Cost

• Due to ore grade of 553 ppm (~0.5 kg/ton), cost of uranium recovery unlikely in the $80/kg range and more likely in the $130/kg range

• Fractional Recovery based on mine type1

- Saghand ≈ 77% (underground)

- Gchine ≈ 81% (open-pit)

Chart from Economics of Uranium Ore Processing Operations, OECD 1983

μ = fractional mill recovery

1 – From Uranium 2003: Resources, Production, and Demand, OECD. Pg. 265


Potential Number of Cores

• Known Conventional Resources (RAR + EAR-I) = 1,427 tons U

• Undiscovered Conventional Resources (EAR-II + SR) = 13,850 tons U

• Total Resources = 15,277 tons U

• 1000MW-VVER initial core fuel loading is 66 tons of LEU with fuel residence of 3 years

• Over 90% of potential cores based on Undiscovered Conventional Resources

Number of Cores Available

Years of Operation

Known Conventional Resources (RAR + EAR-I) 2.16 6.48

Undiscovered Conventional Resources (EAR-II + SR) 20.99 62.97

Total Resources 23.15 69.45


0

200

400

600

800

1000

1200

1400

100,000.00 3,000,000.00 3,500,000.00 7,500,000.00

SWU/yr

Co

st

($)/

SW

U

Resende

NEF AC GBII

Capital Cost of SWU – Existing/Planned Facilities


Iranian Major Natural Gas Infrastructure

Map Data from Collection of University of Texas Maps

Population Data from Statistical Centre of Iran

• Six of the most populous cities have direct access to natural gas pipelines

– Tehran

– Mashhad

– Esfahan

– Shiraz

– Tabriz

– Ahvaz


Investment Cash Flow Model (2)

• Construction outlays for 5 year period = $617 Million• Net revenues based on price of electricity = 315 Rials/kwh (3.56¢/kwh)1,2 • Annual O&M costs of 3.5% capital expenditure• Project Lifetime (30 years) IRR = 23%• Payback Period, i @ 7% = 3.15 years

-200

-150-100

-50

050

100

150200

250

-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Project Year

$ U

.S. (

mill

ion

)

Payback Period ≈ 3.15 Yrs

1- Data from World Energy.org, based on 1999 price and subsidy, average of all sectors 2 - Using February 05 exchange rate 1USD = 8863 IRR


Sensitivity of IRR and Payback Period

• IRR and payback period calculated by assuming CCGT (combined cycle gas turbine) plants would supply base load instead of nuclear power plants @ 85% capacity factor

• Due to quick start up and shut down rates, gas turbine power plants can be used to supply energy at a variety of times based on demand

• Therefore a variety of capacity factors exist for CCGTs and would effect IRR and payback period of investment


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

Capacity Factor

IRR

(30

year

)

0

20

40

60

80

100

120

Payb

ack

Perio

d (y

ears

)

IRR

Payback Period

Sensitivity of IRR and Payback Period

Lower bound constraint @ 64% determined by load curve


Export = 250


Crude Production

Refining

2229

3724

1500

Export @ $22.73/bl

Consumption = 1330

$ 18.49 B

- $ 600 M

$ 1.98 B


Iran Petroleum Balance - 2001

Refined Products


Export = 383


Crude Production

Refining

1879

3724

1849

Consumption = 1471

$ 23.74 B

$ 5.38 B


Iran Petroleum Balance 2004 – With High Yield Refinery, No Gasoline Imports

Refined Products

Export @ $34.62/bl

(Changes from baseline 2004)

Alternative Energy Economics for Iran Options Definition and Evaluation

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