Usec ups plant cost estimate again

26 February 2008

US uranium enrichment company Usec has increased the estimated costs for completing the American Centrifuge plant for the second year running. Citing rising prices for labour, commodities and construction materials, the company now anticipates the overall cost to be around $3.5 billion.


This time last year, Usec raised its cost estimate to $2.3 billion, up from an initial figure of $1.7 billion, but at the time stressed that the figure could change due to market price of materials and commercial scale component manufacture.


Now, the company notes in its press release that the costs of commodities, construction materials, speciality items and skilled labour have all increased at a rate "far beyond" general inflation, and says it is facing the same cost pressures as many large capital projects. It is now carrying out a comprehensive cost review and expects the final results in the second quarter of 2008. The $3.5 billion expected costs include the $615 million spent on the project up to the end of 2007 but do not include costs for financing or financial assurance.


John Welsh, Usec president and CEO, admitted that the company had underestimated the cost and time it would take to re-establish the supply chain infrastructure and skilled labour needed to build the plant. "We are re-creating an industrial base for uranium enrichment in the United States from the ground up," he said. Although some of the higher costs were in project-specific areas, he added that the company


 "We are re-
  creating an
  industrial base
  for uranium
  enrichment in
  the United
  States from 
  the ground up"


was facing upward pressure from the costs of commodities and basic materials such as steel and aluminium. Nevertheless, he remained optimistic that customer demand for the plant's output would remain strong in the years to come.


Plant progress


Usec operates the USA's only existing uranium enrichment plant at Paducah, Kentucky, which uses gaseous diffusion technology. Centrifuge technology is about 50 times more energy efficient than gaseous diffusion, and Usec's is one of two new centrifuge enrichment plants now being built in the USA to replace the operating gaseous diffusion plant. The other plant, the National Enrichment Facility being built by Louisiana Energy Services (LES) in New Mexico, is using centrifuge technology developed in Europe. However, Usec is developing its own AC-100 centrifuge machine and is custom-building all its own components as well as having to develop manufacturing infrastructure and capacity with its suppliers.


It has been operating a Lead Cascade testing facility to fine-tune its design since September 2007 and says it expects to release the initial design for the AC-100 in March 2008. The specifications will be used by Usec and its strategic suppliers to start making components and testing the designs over a six-month period later this year, with the goal of assembling and installing a cascade of 30-40 machines in late 2008 ready for testing in early 2009. The early machines are expected to have achieve a performance of about 350 separative work units (SWUs) per machine per year, but further developments and improvements will be incorporated as further capacity is built, reaching a planned 3.8 million SWU per year total capacity by 2012.


Most of the buildings for Usec's commercial plant are already in existence at the Piketon, Ohio site, and refurbishment and ancillary construction works are already under way.


Price could fall, or rise?


Usec is sanguine that ongoing negotiations with its suppliers, as well as continuing improvements in design and engineering, will help to lower overall construction costs. However, in its press release it warns that "there may well be further upward pressure on costs" over the next several months if those efforts are not successful. The company says it expects to spend $650-700 million on the project in 2008.


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