China's Demands For Uranium Leave Australia With Political Dilemma

China's demands for uranium leave Australia with political dilemma

By Richard McGregor and Gwen Robinson, Financial Times

September 28 2005

When a Chinese general warned that Beijing could use nuclear weapons to destroy "hundreds" of American cities if the US intervened in a war over Taiwan, Washington was not the only one to take notice.

Major General Zhu Chenghu's comments in July also alarmed Australia, a close US ally negotiating a nuclear co-operation agreement with China to export billions of dollars worth of uranium there.

The politics of uranium exports, and Beijing's nuclear ambitions, are more complicated than the lucrative supply contracts Australia and other resource-rich countries have landed to provide China with iron ore, coal and other minerals.

With the world's largest proved reserves, Australia is the second largest uranium exporter after Canada, accounting for about 22 per cent of the global market, while Canada accounts for about a third.

China's ambitious nuclear power programme - it plans to add 27 new plants to the existing nine by 2020 - could easily push Australia into first place within a decade, but only if the sales to China are approved.

Uranium prices have almost trebled since 2002 to about $30 a pound, boosted by rising global demand as countries replace old reactors with larger ones and Soviet-era stockpiles from decommissioned nuclear weapons dwindle. With the outlook for continuing high oil prices, heightened concern about greenhouse gases and growing energy demand, prices are set to rise further.

"China's demand for uranium by 2020 could be roughly equivalent to Australia's entire current annual exports," Alexander Downer, Australia's foreign minister, said recently. "As the holder of the world's largest uranium reserves, we have a responsibility to supply clean energy to other countries - even if, so far, we have chosen not to use nuclear energy ourselves."

While Mr Downer said Canberra had to ensure the trade did not have an adverse impact on international non-proliferation efforts, he argued that a supply deal with China "would enable Australia to promote its nuclear safeguard standards throughout" Asia.

A powerful domestic lobby, however, sees Australia's political responsibilities in a different light. Australia's decades-old restrictions on the mining and sale of uranium are partly a legacy of the cold war, when the issue became a totemic rallying point for the left opposed to the nuclear arms race.

The country's debate over the need for a bilateral safeguards agreement before any export deal with China is secured is developing a similar flavour across the political spectrum because of fears Beijing's nuclear arsenal could be bolstered.

Strict safeguards built into Australia's supply agreements require a commitment from importing countries to use the uranium for power generation only and to submit to international inspections of all their nuclear power facilities.

China has already signalled its reluctance to commit to such inspections, conducted on Australia's behalf by the International Atomic Energy Agency. Beijing has agreed to past IAEA inspections of some of its existing nuclear facilities but these inspections are limited to specific plants.

Even if China agrees to Australia's safeguards, that will not reassure Australia's anti-nuclear lobby. Such a deal could be worthless, argues Gavin Mudd, of Monash University, as Australian sales could free China to use its own uranium to build nuclear weapons.

But the mining industry is getting ready. BHP Billiton, the country's largest company, plans to treble uranium production at its Olympic Dam mine and about 40 companies are exploring for uranium deposits.

Geoff Prosser, chairman of a parliamentary inquiry investigating the country's resources, has urged Australia to seize the opportunity to boost exports. "Most countries are coming to the view now that if they wish to meet their emissions targets and reduce global warming, about the only way they can do that is with nuclear power."