The extra-tight nuclear fuel supply picture, which has sent the price of spot uranium higher by 1775 percent over the past six years, could suddenly make uranium oxide, also known by uranium miners as yellowcake, harder to come by. Many industry experts and U.S. utilities were counting on the U.S. Department of Energy (DOE) to release up to five million pounds of U3O8 from federal stockpiles this summer.

Not so says one DOE official.

In an interview we conducted this past week, Ed Rutkowski of the U.S. Department of Energy’s Nuclear Fuel Supply Security group told StockInterview.com the government may have a uranium sale in 2007. Rutkowski said it would be for a ‘very small’ amount of U3O8 equivalent.

According to Rutkowski, should the uranium sale occur it would be well under the quantity in DOE’s proposed long-term uranium sales strategy. He said it would probably take place this summer. The proposed sales strategy suggested an annual sale of no more than 10 percent of the U.S. uranium requirements.

The proposed sales strategy would sell ‘measured quantities’ of uranium in order to reduce inventory levels and inventory costs, as well as reduce the overhang these inventories may have in the market, according to Rutkowski. “We don’t plan to dump uranium,” Rutkowski told StockInterview. “We have a lot of inventory, but uranium miners are worried that DOE would affect the market. We want to be good neighbors with them.”

Rutkowski said that should the sale take place, selling a ‘very small’ amount of uranium is needed to generate revenues ‘to keep the DOE’s Portsmouth (Ohio) facility running through 2008.’ He explained this facility is removing the technetium from the uranium. The uranium cleanup is being done because it doesn’t presently meet spec. Material can only proceed through the nuclear fuel cycle after it is brought up to ASTM spec.

Who would be eligible to buy the uranium? Rutkowski told StockInterview, “The government can sell to anyone who is certified. We wouldn’t be selling to terrorists, obviously.” So we inquired about a report in the Wall Street Journal, published earlier this year.

There were suggestions the Nuclear Energy Institute (NEI) had lobbied DOE to prevent speculators from participating in future U.S. government uranium sales. “I don’t believe the utility plan went anywhere,” Rutkowski told us. “We would probably get sued for discrimination,” if the government barred speculators from participating in those auctions.

TradeTech’s chief executive Gene Clark pointed out that during the past two years, the uranium producers were in a political ‘full-court press’ on DOE to prevent sales of this material, stating that such sales would undercut market prices. In actual practice, the last DOE auction of 700 tU of UF6 last August resulted in an increase of $4.50 per pound U3O8 equivalent in the spot market, according to Clark.

Should the sale take place, the Office of Environmental Management would probably publish a ‘Request for Bids’ in Commerce Business Daily. The newspaper publishes a daily list of U.S. government sales of surplus property, as well as government procurement invitations, contract awards, subcontracting leads and so on.

As Rutkowski walked us through the table of excess DOE inventory, he pointed out, “Not all of this is commercially available.” He explained there were bottlenecks in getting the Off-Spec Non-UF6 to market because ‘it needs further processing.’ He told us, “The majority is in forms other than UF6, and it could take years to get processed. Not many companies have the facilities necessary to process it.”

The U.S. origin UF6 has technetium and is currently being cleaned up. About one-half is already cleaned up. The DOE inventory shows 14.2 million pounds U3O8 equivalent in this category. Presently, the DOE would only have about 7.1 million pounds available for commercial sale of sufficient U.S. Origin-UF6 product which meets spec.

Although Rutkowski’s presentation shows 134.9 million pounds U3O8 equivalent, 11,000 MT of the Russian-Origin UF6 is under moratorium. “We can’t sell it until March 2009,” he said.

Of the available uranium, “We have almost 47 million pounds of natural uranium in stock, in the form of U.S.- and Russian-origin UF6,” Rutkowski pointed out. “It’s about a year’s supply for U.S. utilities.” Using TradeTech’s long-term uranium contract price, as of April 30th, together we calculated the value of the available U.S. uranium reserves, which now stands at greater than US$4 billion.

Six years ago, the U.S. DOE inventory carried a price tag of less than a quarter-billion dollars.

Again he reminded us not all of the 134.9 million pounds in government stockpiles is readily available. One case in point is the 23.7 million pounds of Depleted UF6 held by DOE. While Rutkowski said it was valuable and had attracted buyer interest, he warned of one key obstacle, “The problem is it has to be re-enriched. The buyer would have to take on the risk that there is sufficient enrichment capacity to re-enrich the material.”

“Come 2013, 10 to 12 million pounds of U3O8 equivalent delivered to the U.S. under the HEU agreement will start to go away,” Rutkowski warned. “Domestic uranium production must continue to increase to meet this supply.”

What do the uranium miners say? “Cameco Corp’s Fletch Newton indicated it would take 7 to 10 years to get the U.S. uranium industry up and running. Miners are raising financing for their projects. However we don’t have seven years until 2013. We have less than six years.”

Rutkowski explained, “We have concerns about U.S. supply assurance, one that is reliable and can be expanded.” He pointed out, “Utilities need to be assured that they can build new plants and they can get new uranium for those plants.”

StockInterview.com has frequently written about the importance of rebuilding a strong U.S. uranium mining sector. Rutkowski’s sentiments echo those voiced by Wyoming legislator and Strathmore Minerals president David Miller. He has been arguing for this case at numerous industry and investment conferences since 2003.

Asked for his thoughts about America’s energy security, Miller replied, “It’s about America’s security, period. Why are we sending about $1 billion every day to people around the world that hate us?” He was referring to the daily dollar value of 16 million barrels of petroleum the U.S. imports.

Miller hopes to see a domestic uranium industry supported by U.S. utilities instead of forcing those same utilities to remain dependent upon uranium inventory from a potentially unstable or hostile foreign government. “U.S. utilities are the end-users, and they should have a reliable supply source relatively nearby,” he told us. “Why should we repeat the same mistake with uranium as we have done with petroleum?”

In his presentations, Miller has asserted known U.S. uranium deposits are capable of fulfilling 50 to 100 percent of domestic needs. He sees the nuclear industry’s needs met if the uranium price remains above $50/pound, but he has concerns. Most significantly is the slow speed of, and potential delays in, the current federal and state environmental permitting processes to bring many of the previously worked projects online.

We reviewed the timeline and steps required in the permitting process, and discovered it may take longer than many companies presently forecast, if only because of uncertainties which could delay the process. Thomas Neff, senior researcher at the MIT Center for International Studies, believes some U.S. production forecasts may be optimistic. Ironically, a slower environmental permitting process provides a firm floor for uranium pricing.

Rutkowski asked, “Who is going to be responsible for ensuring uranium is available to utilities?” The DOE revolves its uranium policy around this question. He pointed out that 90 percent of the uranium used by U.S. utilities is imported and that 85 percent of enriched uranium comes from overseas. “It really concerns me,” Rutkowski told StockInterview. “Assurance of supply is important for the utilities.”

“There is an interest in the creation of a nuclear fuel reserves,” Rutkowski said. “The reserve would be to safeguard against supply disruptions, whether these are environmental or through force of nature.” Rutkowski compared this to the strategic U.S. petroleum reserves.

The Department of Energy is studying the possibility to set aside LEU for utilities in times of crisis, to keep the country’s nuclear reactors going should there be supply shortfalls. “If we lost five nuclear plants, it would reduce one percent of U.S. nuclear electricity generation,” Rutkowski said.

U.S. nuclear utilities produced 780.5 billion kilowatt hours in 2005, according to the Energy Information Administration. In practical terms, a one-percent loss of nuclear electricity generation would represent more than double the amount of electricity used to power air-conditioners for the entire state of New York during that same summer. The kilowatt-hours lost from the closure of those five nuclear reactors would represent an amount greater than one-third of the electricity consumption used to power all Internet servers in the United States during 2005.

DOE is currently considering, but still talking about, the idea of strategic uranium reserves. “People like the concept,” Rutkowski said.

Ed Rutkowski expressed concern about some of the industry conferences he’s attended, “All these papers presented by various people are trying to out-guess what the DOE is doing. We are trying to become more transparent in our dealing with industry and would be pleased to answer industry’s questions.”

He outlined his upcoming plans to make public presentations on behalf of the Department of Energy. His first presentation takes Rutkowski to Corpus Christi, Texas later this month, ahead of the first DOE uranium sale.

In September, he will present the DOE’s inventory selling plans at the Platts Nuclear Fuel Cycle conference in Arlington, Virginia.

While he wants to be more public and present the DOE’s case, he did caution, “We don’t want to get mixed up in the market place.” Speaking of which, this brings us back to the original reason we phoned Mr. Rutkowski – to talk about the NYMEX uranium futures trading and to ask for his thoughts.

He told us he had been briefed by Ux Consulting on the futures contracts. Rutkowski said he has been uncertain about transparencies in the spot market and pointed to the low volume found in the spot market. He’s not sure if the futures market will bring about more transparency.

As for futures trading of uranium contracts Rutkowski said, “There is a lack of the physical material tied to the market." He thought the futures contracts were designed for those in the financial markets.

Instead of the intimidating person we suspected, Mr. Rutkowski was readily available and quickly forthcoming, aside from classified issues he could not talk about. He also disarmed us at first with praise, “I’ve read your articles. You do good work.” He invited us to call him back any time, and encouraged others to pick up the phone if they had any questions concerning DOE uranium inventories. Later this summer or by early autumn, we may find out more about the U.S. Department of Energy’s plans and how this could impact the uranium price.