The uranium triangle: Australia ties itself to China's future

Monday, 19 November, 2007

by Dr Jiaping Wu

Australian reserves of recoverable uranium are one third larger than previously thought, according to a new report by Geoscience Australia.

The whopping findings come on the back of intensified spending on uranium exploration, from around $40 million in 2005 to over $80 million in 2006.

Spurred by the rising price of yellow cake and countries such as China looking for a greener solution to power generation, resource companies are vying for a piece of the pie. But it's not just miners dreaming of a yellow-coloured future, it's the Australian government as well.

It is ramping up uranium exports to the Asian giant despite the fact our closest ally, the United States, is keeping a cautious eye on the nuclear capabilities of the Chinese military.

In fact, in April last year, the Howard Government gave licence to Australian producers to export up to 20 thousand tonnes of uranium to China on an annual basis. But if the relationship between the US and China were to sour, Australia could find itself in a very uncomfortable position.

The Bush administration's discomfort with a rising China is already evident. It opposes their nuclear military, and claims they have sold nuclear technology despite being signatories of the Nuclear Non-Proliferation Treaty. And China's newfound interest in the world energy market is also causing headaches. In 2005, the American administration intervened to keep China's involvement in the world energy market to a minimum by preventing a takeover of Unocal, a US oil company.

But China is like a bear coming out of hibernation. No longer content with its old policy of energy self sufficiency, it's a nation ready to feed. For the Chinese, buying uranium from Australia is much more than an energy deal, it is a breakthrough into the sensitive technology market from which western politics has long kept them excluded.

And despite potentially damaging criticism about nuclear weapons proliferation, waste, and mining expansion, the Howard Government embraced the deal. It was a bold move considering rejection would have had no ill consequence. In fact, it would have brought praise from the anti-nuclear lobby, a powerful voice in Australian politics, and done nothing to dent China's hunger for Australian resources such as iron ore, coal, or natural gas.

But it was a decision that points to Australia's economic future, something that won't even be held back by security alignment with the US. With Australia holding 38 percent of the world's uranium and the price of yellow cake having surged from $12 a pound in 2003 to around $40 at the time of the deal (it now sits at around $100 a pound), it is a deal too good to resist. Arguments from the Greens and the anti-nuclear lobby couldn't counter the Government's traditional strength: the economy. Of course, there was the environmental issue as well.

Firmly refusing to ratify Kyoto because of its failure to haul in developing emitters, it made not only economic, but "green" sense for the Government to support China with clean power production. With a growing carbon footprint that now rivals the US and dire atmospheric pollution, China is desperate for an alternative to coal which generates over 90 percent of its electricity. Not only that, predictions state that by 2020 China will spend US$390 billion, or 13 per cent of GDP, to treat diseases caused by coal combustion pollution. But the Chinese don't want to stop the boom, and Australia is well placed to benefit. In fact, the government signed on despite no foolproof method to ensure the uranium is never funnelled into the Chinese military.

But in real terms, the deal is not quite the economic boon it appears. China is already Australia's second biggest export market after Japan, and even when producers reach the capacity of the deal, it will contribute less than two percent to Australia's total exports. So with limited economic gain, why would Australia put itself into a potentially compromised position with the US?

It is because the sale of uranium to China is not a stand alone agreement. It is one part of an overall strategy to tie the Australian and Chinese economies closer together.

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