Updates follow immediately below and further down.
There are a lot of media reports about Saudi Arabia’s plans to build 16 nuclear reactors by 2030 and whether Westinghouse will get any of the business. Every time I read this line in the mainstream news media it makes my head spin. Neither event is likely to happen, but the news media keeps reporting that both are coming any day real soon now.
The practical logistical challenges and the financial commitments that would be required to build 16 1000 MW, or larger, nuclear reactors over less than a decade are simply out of reach. Why is no one at these media outlets fact checking the prevailing narrative?
In the interest doing exactly that, I’ve assembled a “reader” of my coverage on the efforts by the Kingdom of Saudi Arabia (KSA) to pursue development of a commercial nuclear energy program. For good measure, I’ve also looked at what I see as a somewhat hollow threat to enrich uranium. This is something that KSA should neither want, need, nor can it afford.
Here are seven easy to read pieces, no technical background required, that explain why the current mass media narrative about KSA and nuclear energy misses a few crucial facts. Coverage on this blog about KSA’s nuclear energy plans began in 2014. Since then a lot has happened, but one thing that has emerged is that KSA’s ambitious plans for commercial nuclear reactors or a weapons related enrichment program may not come to pass as long as the price of oil stays low.
The current turmoil over the US backing out of the Iran deal may produce a temporary spike in the price of oil, but analysts like Barclays predict a long term decline in prices due in part to US shale production.
White House Meets with U.S. Nuclear Energy Firms Over Exports
The Bloomberg wire service reports that a group of nuclear reactor vendors, supply chain firms, and engineering services companies met with President Trump at the White House this week to lobby for a nuclear trade deal with the Kingdom of Saudi Arabia.
According to the Bloomberg report the White House meeting included NuScale Power LLC, TerraPower LLC, Westinghouse Electric Co. LLC and General Electric Co, as well as nuclear fuel supplier Centrus Energy Corp. The meeting reportedly was set up by Jack Keane, a retired Army general and the co-founder of IP3 International, a company that has advocated American nuclear power development in the Middle East.
At the same time Reuters reports U.S. senators from both parties introduced a resolution on Tuesday requiring that any deal to share U.S. nuclear power technology with Saudi Arabia block the kingdom from making a nuclear weapon.
The Washington Post reports that last week was the final date for the Trump administration to submit a congressional report answering whether the Saudi crown prince was responsible for the murder of journalist Jamal Khashoggi in October.
The White House snub drew bipartisan outrage in both the House and Senate. Under the terms of the Magnitsky Act — U.S. human rights legislation lawmakers had triggered shortly after Khashoggi’s killing — Trump had 120 days to respond to the request and then possibly move to impose further punitive sanctions. Anger over the killing of the Saudi citizen, a contributor to The Washington Post’s Global Opinions page, has forged an unusual bipartisan consensus in Congress.
Congress can vote to stop a 123 Agreement, which would be the basis of any exports to KSA, and may do so. If that happens it will slam the door on hopes by the firms meeting with Trump to do business there.
The Trump family business is reported to have had significant financial dealings with KSA over the years. According to a Bloomberg report from October 2018, Trump has done business with KSA for everything from yachts to condominiums. He’s refused to divest himself of his business interests nor put them in a blind trust. His son-in-law Jared Kushner has forged a close personal tie with Crown Prince Mohammed bin Salman who is believed by US and Turkish intelligence reports to have personally ordered the killing of Jamal Khashoggi in October.
- Effect of a 123 Agreement
The terms of a 123 Agreement would prevent KSA from building enrichment of uranium or reprocessing of plutonium made in reactors – two routes to making nuclear weapons.
KSA has said it wants to be self-sufficient in producing nuclear fuel and that it is not interested in military use. However, Saudi Crown Prince Mohammed bin Salman told CBS last year the kingdom will develop nuclear weapons if arch-rival Iran does.
In previous talks with a US negotiating team composed of experts from DOE and the State Dept, Saudi Arabia has refused to sign a 123 Agreement with Washington that would prevnet it from enriching uranium as a condition of buying US nuclear energy technologies.
Kashoggi Controversy May Kill KSA Nuclear Deals with U.S. Firms
10/31/18 – According to the Associated Press five Republican senators told President Trump on 10/31/18 to suspend negotiations with Saudi Arabia for the transfer of commercial nuclear power technologies due the growing anger in Congress over the murder of Washington Post columnist Jamal Khashoggi.
The senators warned in a letter that they would work to block an agreement from securing congressional approval if the administration pushes ahead with a 123 Agreement with KSA especially if it waters down the “gold standard” included in a similar agreement with the UAE. That bilateral document prohibits the UAE from undertaking uranium enrichment or spent fuel reprocessing.
The letter was signed by Sens. Marco Rubio, FL; Cory Gardner, CO; Rand Paul, KY; Todd Young, IN; and Dean Heller, NV.
The Senate Foreign Relations Committee in July approved a nonbinding resolution saying that any U.S.-Saudi nuclear agreement must make clear that it would prevent a civilian nuclear energy program from becoming a gateway to nuclear weapons development.
The Washington Post reports that the senators point out that KSA has not agreed in its negotiations with the U.S. over the 123 agreement to adopt the gold standard. Also, they noted that had previously expressed concerns that any transfer of nuclear technologies, even for civilian use, might lead to a weapons program.
The opposition in Congress to a 123 Agreement with KSA may not matter as South Korea has a better chance of getting the business based on their work building four reactors in the UAE and a long-standing contract with KSA to develop SMRs for sea water desalinization.
10/18/18: With the media revelations of the horrific death of Washington Post writer Jamal Khashoggi that took place inside the Saudi embassy in Istanbul, KSA can probably forget about any chance Congress would approve a 123 Agreement for US exports of nuclear technology to that country. While the President is dissembling over accountability for KSA’s leadership, Congress is running hot in its reactions to the crisis.
Update for September 2018
09/29/18: DOE Energy Secretary Perry, the public face of the U.S. negotiating team engaged in talks with counterparts from KSA, is having a tough time getting to yes. Efforts to craft a 1123 Agreement that upholds the “gold standard” set by an bilateral arrangement with the UAE, and emphasized by U.S. Secretary of State Mike Pompeo, have gone nowhere.
Updates for July 2018
Short List – Reuters reported on 7/1/18 that KSA short listed five countries as bidders for its planned development of nuclear energy power stations.
State-run utility Korea Electric Power Corp (KEPCO) had been shortlisted to bid for a nuclear project in Saudi Arabia along with the United States, France, China and Russia, South Korea’s energy ministry said according to the wire service.
The statement said the winner of the tender was expected to be chosen in 2019. Note that this statement about “short listing” is essentially meaningless since it comprises all of the bidders.
Israel Sets Red Lines – The news wire Axios reported on 7/8/18 that Israel presented U.S. with “red lines” for Saudi nuclear deal. Israel’s demands may become irrelevant if, as predicted by this blog, Bloomberg, and others, that South Korea has the pole position and will not need any approval from the US for sale of its 100 MW SMART SMR to KSA.
A senior Israeli official told Axios the Israeli government realized it will not be able to stop the deal and has decided instead to attempt to reach an understanding with the Trump administration regarding the parameters of the deal. This assumes that the US is part of the KSA nuclear deal in the first place, which is in no way guaranteed.
According to the Axios report, last March, Israeli Prime Minister Benjamin Netanyahu raised concerns about KSA’s demand for a “right” to enrich uranium, which he felt will lead to further nuclear proliferation in the Middle East.
Yuval Steinitz, Israel’s energy minister came to Washington in mid-June to meet with Energy Secretary Rick Perry. Axios reports that Steinitz told Perry and other senior U.S. officials, presumably some from the State Dept, that Israel asked the U.S. for a “no surprises policy” regarding the negotiations with the Saudis to ensure maximum transparency. The US may itself get surprised given its blind spot about the potential for being shut out of the deal for all but some of the non-nuclear component sales.
There is also a problem for Westinghouse as it emerges from its bankruptcy proceedings. The Canadian equity fund that purchased Westinghouse in January 2018 for $4.6 billion, Brookfield, has as one of its largest sources of cash the Qatar Industrial Authority which has a 7% stake in the firm.
So the question is whether KSA, which is hard over in its posture towards Qatar, would do business with a US nuclear firm that is backed financially by that country. Note that a large US trade delegation went to KSA in April 2018 to make a pitch for the nuclear business. Brookfield disclosed the financial relationship with Qatar in a March 2018 filing to the SEC.
Other items on the Steinitz list included;
- Israel asked to know in advance what nuclear equipment the U.S. would sell the Saudis and asked to be consulted about the planned location of the nuclear reactors the U.S. would build in Saudi Arabia. From KSA’s perspective, any geographic coordinates are the basis for an Israeli bombing raid if the nuclear program shifts gears from commercial power to nuclear weapons. Note that Israel bombed a Syrian nuclear reactor in September 2007 that was making plutonium for nuclear bombs.
- Israel demanded that the deal will not give Saudi Arabia the capability or the legitimacy to enrich uranium on its soil. The Saudis want to get American permission to enrich uranium as part of the deal. From KSA’s perspective, much hinges on hows Iran deals with President Trump’s decision to cancel the US commitment to the Iran nuclear deal. Currently, Iran is negotiating with other parties to the agreement to try to keep it in place and to get compensation for US sanctions.
- Israel demanded that the U.S. will be the only nation to supply the Saudis with the nuclear fuel for its reactors. The US may not have any leverage in this regard if the reactors come from South Korea, France, or China.
- Israel demanded that the U.S. must remove all used nuclear fuel from Saudi Arabia so that the Saudis will not be able to reprocess it. Ditto.
Axios reports that Perry told Steinitz the U.S. will discuss the “red lines” request during Perry’s planned visit to Israel next October.
Update June 2018
On May 24 US Secretary of State Mike Pompeo said Saudis must not enrich uranium if it seeks civilian nuclear cooperation.
The Washington Post reported that Pompeo said that the Trump administration is insisting that Saudi Arabia accept the same limits on uranium enrichment and spent-fuel reprocessing as other Middle East nations seeking commercial nuclear energy deals with U.S. companies.
The United Arab Emirates has such a 123 Agreement with the US and is building four 1400 MW PWR type commercial nuclear reactors at a Persian Gulf coastal site which are supplied by a consortium of South Korean firms.
Pompeo said that the Saudis “have said they want a peaceful nuclear energy program, and we have told them we want a gold-standard Section 123 Agreement from them, which would not permit them to enrich.”
The Post reports that Pompeo’s comments came in testimony before the Senate Foreign Relations Committee.
It is the first clear and unambiguous Trump administration statement of policy on the issue of nuclear cooperation with the Kingdom of Saudi Arabia (KSA), which has been meeting with lawmakers, administration officials and nonproliferation experts for the past several months. KSA has been seeking to soften the US position, but Pompeo’s statement may have put an end to these efforts.
Saudi Arabia has said it wants to build two nuclear reactors to reduce the use of oil used domestically to generate electricity and to desalinate sea water.
It has reviewed plans from five international groups, including a consortium led by Westinghouse, which is now in bankruptcy, and Bechtel. The kingdom had said that it would choose one by the end of March 2019. As a practical matter, it is more likely that KSA will proceed with plans to build one or more small modular reactors (SMRs) supplied by South Korea. See details on this design below.
Seven Easy Pieces About KSA and Nuclear Energy
1. LOGISTICS CHALLENGES – No one can build that many reactors (16) in that short a period of time. This blog post explains why KSA cannot build 16 1000 MW nuclear reactors by 2030 No vendor nor state owned nuclear export firm can do it. Also, price of oil too low. KSA can’t afford the $80 billion price tag
2. REQUEST FOR PROPOSAL – So far plans are to build just two units. This blog post explains that KSA has downsized its nuclear ambitions to just two 1400 MW reactors which coincidentally matches the power rating for the UAE reactors being built by South Korea. KSA has since modified the RFI to open up the competition. However, my view is this is for industrial intelligence purposes and not because a lot of other folks, including Westinghouse, have a shot.
3. THE PRICE OF OIL LIMITS KSA NUCLEAR AMBITIONS – The price of oil controls the size of the nuclear program. This blog post explains that KSA first announced its nuclear program in 2011, but did nothing with it until September 2014 at which time it revealed the 16 reactor plan. At that time the price of oil was about $100 bbl. In January 2015 two things happened. First, the price of oil dropped to below $60 bbl and, second, KSA stopped its 16 reactors project cold. This decision shows the finance ministry has a strong grip on investment plans at this scale.
4. SOUTH KOREA IS A LIKELY FRONT RUNNER – This blog post explains why Westinghouse is unlikely to win business supplying nuclear reactors to Saudi Arabia even if the Trump administration relaxes the terms of a 123 Agreement. The reasons are that South Korea has the pole position due to several factors including; success with building four 1400 MW reactors for the UAE at a fixed price, an experienced workforce with a management team that speaks Arabic, and the fact that the 1400 MW design has already been built and operated in South Korea.
5. ROK / KSA deal for 100 MW SMART Reactor could be a model for U.S. A deal inked in 2011 between ROK and KSA could be seen as a model to form the basis for an agreement for U.S. firms to export nuclear technology to KSA. So far no one in the government seems to have paid any attention to it.
The Kingdom of Saudi Arabia (KSA) has signed an $1 billion agreement with South Korea to build a 300 MWt PWR reactor. The SMART reactor has a design that uses integral steam generators and advanced safety features. The reactor will have a 60 year design life and a three-year refueling cycle It will be used to generate electricity and to power reverse osmosis desalinization plants at coastal sites. The reactor will generate 100 MW of electrical power for these applications. Bottom line South Korea is already doing nuclear business with KSA.
6. SAUDI ARABIA AND THE GOLD STANDARD IN A 123 AGREEMENT – The whole posture of KSA on enrichment is to get the US to keep the Iran deal so that it doesn’t have to spend $ billions on a uranium enrichment program it can’t afford, and doesn’t want or need. While KSA would like to see regime change in Iran, containment isn’t the worse option.
What the current low price of oil means is that KSA is coming up short in terms of financing its ambitious program of building 16 LWR type units at power ratings of 1000 MW or more. Given these numbers, the likelihood that it would spend several billion more on enrichment facilities, and in the absence of reactors to use the fuel, diminishes accordingly. Figure a cost of $1 billion for each 1 million in SWU in enriched uranium and then add the cost of the weapons program.
7. MIKE FLYNN’S FRACTURED RUSSIA DEAL The Russian deal presented by former National Security Adviser Michael Flynn was a non-starter. It made no sense from a commercial perspective.
He attempted to ink a deal between Saudi Arabia and Russia for nuclear reactors linked to the lifting of U.S. sanctions under the Majnitsky Act. The mainstream media continues to describe Flynn’s involvement in the Saudi nuclear deal as driven by greed.
It isn’t clear that this was his sole motivation. What does appear to be true is that most of his wires for this project were crossed and shorted out before his plane ever took off from the U.S. to the Mideast in April 2015.
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