UAE, Australia Sign Nuclear Fuel Agreement - Still a Few Bumps in the Road

First, the good news.

On 31 July the United Arab Emirates Minister of Foreign Affairs Sheikh Abdullah signed a nuclear cooperation agreement with Australian Foreign Minister Bob Carr to supply the UAE with nuclear fuel for its first nuclear power plant al Baraka, currently under construction.

Carr told the media, "The UAE meets all the tests, and the tests are rigorous and extensive and we're happy to make a big commitment to providing them with energy security. We're underpinning jobs and investment in Australian uranium mines, and helping deliver certainty for the UAE's domestic power needs. Strict safeguards will apply, including for the safe handling and security of radioactive material, restrictions on re-export and guarantees of use for peaceful purposes."

The bad news?

Australia will not take back the depleted nuclear fuel for reprocessing or disposal.

Why did the UAE choose Australia?

Simple - the country has the world's biggest uranium reserves, nearly a quarter of the global supply. Australia has about 40 per cent of the world's uranium reserves, and is the largest supplier of uranium fuel in the world.

But the fly in the otherwise sunny agreement is Australia's refusal to takes back the spent fuel, as Australia's green movement has already banned NPPs in the country. In explaining his country's policies to his Gulf hosts Carr said, "Public opinion in Australia would be resolutely opposed to taking back nuclear waste. That's a very big step, and there wouldn't be public support for it. It's a strong recognition of our relationship with the UAE, and a step forward for their plans for a domestic nuclear energy industry from 2017."

When in 2008 UAE state Abu Dhabi announced its intention to build the Arab world's first NPP, it was optimistic that some nations supplying nuclear fuel would be willing to take back their depleted uraniu8m nuclear fuel waste, rather than leaving the country to store it on-site. Carr's remarks seem to have shut that door.

Seeking to put a positive spin on Carr's pronouncements Hamad Al Kaabi, the UAE permanent representative to the International Atomic Energy Agency stated, "The reality today is such arrangements have some challenges. These challenges are related to legal and public acceptance issues."

But officials in Abu Dhabi are not the only ones concerned about the contract. The Australian Greens have expressed their concerns about the arrangement, with Australian Greens leader nuclear policy spokesperson Scott Ludlam excoriating the government's decision to sell uranium to a "dictatorship," telling the media, "This continues the pattern of successive Australian governments allowing the agenda of the uranium industry to override our national security and nonproliferation interests. The uranium mining industry has long been extremely liberal in its choice of customers; the Australian government, on the other hand, is supposed to represent a broader constituency. Without nuclear power stations there can be no nuclear weapons, no possibility of fuels being stolen to build 'dirty bombs', no possibility of a nuclear power station being hit by a conventional bomb and setting off a nuclear explosion. The events of recent months have made it abundantly clear the Middle East is volatile. Do we really want the entire region pursuing nuclear power?"

But the uranium global market does not fall under traditional trading patterns, as uranium is not traded on global stock exchanges, but is rather a commodity traded under long-term bilateral contracts between providers and consumers.

Which makes the Australian-UAE contract very interesting indeed, as it is provisionally for 15 years with prices locked in, an arrangement that any traditional fuel producer of coal, natural gas or oil would kill for, given the market's volatile prices.

Carr praised the UAE for providing a counter-example to Iran's nuclear program, which western nations suspect is aimed at developing nuclear weapons, commenting, "It's an excellent contrast to rule out enrichment and to subject the industry to through safeguards and monitoring. We share the UAE's concerns about Iran's nuclear ambitions and the associated risks."

Carr's tub-thumping aside, geo-strategists might question the propinquity of establishing a NPP, apparently storing is spent fuel, in such a volatile part of the world, but then, that is a question best left to diplomats, who have shown such sagacity up to now in dealing with the "Arab spring" and its consequences.

As for Canberra, the country's Exchequer will prosper from the deal and if things go wrong, well Australia is half a world and a hemisphere away.

By. John C.K. Daly of Oilprice.com