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Alternative Energy Economics for Iran Options Definition and Evaluation

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

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Alternative Energy Economics for Iran Options Definition and Evaluation

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  1. Alternative Energy Economics for Iran Options Definition and Evaluation PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  2. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  3. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  4. Section I Nuclear Fuel Resource Constraints and Comparison of Market vs. Indigenous Nuclear Fuel Supply Options PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  5. 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. 2 – Ore data from Atomic Energy Organization of Iran – www.aeoi.org.ir 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  6. Iranian Uranium Resources1 (in metric tons natural U ) Reasonably Assured Resources (RAR) 2 Estimated Additional Resources (EAR) – Category I 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  7. Fuel Usage Scenarios • 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  8. 2500 Complete Construction - 7 Total Cumulative Reactors -2020 Fuel Use 2000 Known Uranium Exhausted 6 Reactors 1500 Uranium (metric tons of LEU fuel) 5 Reactors 4 Reactors Total Uranium 3 Reactors Exhausted 1000 2 Reactors 1 Reactor 500 0 2006 2010 2014 2018 2022 2026 Year Fuel Resource Constraints 2006-2026 • 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. PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  9. Cost of Recovering All Uranium Resources Vs. Market Price 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  10. Estimated Annual Fuel Costs – 7000 MWe • Iran could save $130 - $240 million per year by purchasing fuel from abroad. PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  11. Section II Iranian Energy Resources PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  12. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  13. Iran Energy Reserves by Type 1005.8 729.6 41.5 6.7 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. PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  14. 250 200 150 (Years) Reserves/Production Ratio 100 50 0 Oil Natural Gas Nuclear (Known Nuclear (Total Conventional Resources) Resources) Iran Reserves to Production Ratios 220.0 88.4 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  15. Section III Review and Capital Cost Determination of Selected Nuclear Facilities PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  16. Iranian Nuclear Facilities1 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt Note 1 – From IAEA GOV/2003/75

  17. Facilities of Interest PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  18. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  19. P1 Design P2 Design AC GBII NEF Scaled Cost per SWU – Natanz Estimate PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  20. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  21. Nuclear Facilities – (continued) • 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  22. Section IV Evaluation of Alternative Investments in the Natural Gas Sector PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  23. Natural Gas Flare/Vent Rates Annual Flare/Vent Rates of Various Middle East Countries, 2002 7.00% 6.00% 5.00% 4.00% Middle East Avg. 3.26% Flare/Vent Rate, % of Gross Production 3.00% World Average 2.26% 2.00% North American Average 0.53% 1.00% 0.00% Saudi Qatar U.A.E. Syria Kuwait Oman Iran Arabia PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt Data from U.S. EIA International Energy Annual 2002, Table 4.1

  24. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  25. Natural Gas Infrastructure and Growth • Three cities with the highest growth rates over the last 20 years are closest to major gas refinery and treatment facilities • Mashhad • Ahvaz • Shiraz Map Data from Collection of University of Texas Maps Population Data from Statistical Centre of Iran PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  26. Notional Investment Scenarios Investment Scenarios Infrastructure Scenario 1 (yellow circle)Scenario 2 (blue circle) $1.00B Investment $617M Investment 1 - 300 Mmcf/d Gas 1 – 150 Mmcf/d Gas Processing Plant Processing Plant 2 Power Plants (1120 MWe) 1 Power Plant (930 MWe) 150 Miles of New Pipeline 50 Miles of New Pipeline 19.4% of Recoverable Gas 16.1% of Recoverable Gas Investment Scenario 1 Investment Scenario 2 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  27. Investment Cash Flow Model • 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 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  28. Section V Evaluation of Alternative Investments in Oil Refining and Gasoline Production PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  29. Iran – 2002 Energy Trade Balance1 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt 1 – Energy Information Administration, 2002 – Iran Country Energy Data report

  30. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  31. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  32. Refinery Output Comparison PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  33. Refinery Cost Basis 2 Avg. w/ U.S. $10,938 5 1 3 Avg. w/o U.S. $9925 6 4 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  34. Cost Sensitivity to Refinery Gasoline Yield PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  35. Approx. Iran Petroleum Balance - 2004 (Changes from 2001) Crude Production 3724 Export @ $34.62/bl $ 28.16 B 2229 1500 Net Revenue = $28.01 B Refining Export = 197 $ 2.84 B - $ 2.91 B Refined Products Consumption = 1471 Gasoline Imports = 160.00 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  36. Iran Petroleum Balance 2004 – With Low Yield Refinery, No Gasoline Imports (Changes from baseline 2004) Crude Production 3724 Export @ $34.62/bl $ 15.53 B 1229 2500 Net Revenue = $29.51 B Refining Export = 1037 $ 14.07 B Refined Products Consumption = 1471 Gasoline Imports = 0 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  37. Section VI Conclusions of Analysis PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  38. 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. PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  39. 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. PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  40. Backup & Technical Detail PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  41. Nuclear Power Intensity as a Function of Energy Resource Endowment - typical values PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  42. Nuclear Power Intensity as a Function of Energy Resource Endowment – Iran’s proposed program relative to rest of world PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  43. 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) Relationship Between Ore Grade and Cost μ = fractional mill recovery Chart from Economics of Uranium Ore Processing Operations, OECD 1983 1 – From Uranium 2003: Resources, Production, and Demand, OECD. Pg. 265 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  44. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  45. Capital Cost of SWU – Existing/Planned Facilities Resende NEF AC GBII PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  46. Iranian Major Natural Gas Infrastructure • Six of the most populous cities have direct access to natural gas pipelines • Tehran • Mashhad • Esfahan • Shiraz • Tabriz • Ahvaz Map Data from Collection of University of Texas Maps Population Data from Statistical Centre of Iran PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  47. 250 200 150 100 50 $ U.S. (million) 0 -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 -50 Payback Period ≈ 3.15 Yrs -100 -150 -200 Project Year 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 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  48. 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 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  49. Sensitivity of IRR and Payback Period Lower bound constraint @ 64% determined by load curve PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

  50. Iran Petroleum Balance - 2001 Crude Production 3724 Export @ $22.73/bl $ 18.49 B 2229 1500 Net Revenue = $19.81 B Refining Export = 250 $ 1.98 B Refined Products - $ 600 M Consumption = 1330 Gasoline Imports = 53 PNNL SA-48454 Iran_Altenergy_PNWCGS_Feb1306.ppt

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