Russia looks beyond U.S. to conquer uranium markets

* "Megatons to Megawatts" unlikely to be renewed

* Russian supplies to keep filling global supply gap

* Russia seeks lucrative direct deals with U.S. firms

* Eyes China, India and other markets

* Uranium mines to expand production

By Robin Paxton

MOSCOW, Dec 10 (Reuters) - Nearly one in 10 U.S. households runs on power from Soviet nuclear bombs.

Now Russia hopes its Cold War arsenal, twinned with fast-growing uranium mines and enrichment capacity, will also be powering China, India and other booming economies when a 20-year nuclear fuel pact with the United States expires in 2013.

Russia has expressed no desire to refresh the 'Megatons to Megawatts' programme, under which it will recycle the equivalent of 20,000 nuclear warheads and create enough uranium to power the entire United States for two years.

Instead, the Kremlin is pursuing lucrative deals to supply fuel directly to power firms in the U.S. market, home to more than a quarter of the world's nuclear power generating capacity.

Russian supplies from old warheads are currently key in the global uranium market, accounting for 13 percent of world supply, helping fill a gap from mined output.

Analysts expect recycled Russian supplies to continue to flow after the U.S. deal expires in 2013, but falling to around two-thirds of present levels.

"Russia wants to expand its nuclear presence all over the world," said Marina Alexeyenkova, analyst at investment bank Renaissance Capital. "The economics of the 20-year contract to reprocess weapon-grade uranium are not so attractive to Russia."

Russia, holder of a tenth of the world's uranium reserves, is positioning itself as a major player in meeting growing demand from the nuclear power industry. The country already has a 15 percent share of the global reactor-building market.

The expiry of the post-Cold War partnership with the United States, which is expected to earn Russia more than $8 billion, has fuelled concerns about a looming supply shortfall.

But Russia has not shunned the U.S. market and its 104 reactors. Instead, it has this year signed a succession of deals to supply fuel directly to U.S. utilities, including PG&E Corp (PCG.N), Ameren Corp (AEE.N), Exelon Corp (EXC.N) and Luminant. [ID:nL31032609] The first deals prompted Sergei Kiriyenko, the former prime minister who now heads state nuclear giant Rosatom, to say Russia had "broken through the wall" forbidding independent sales of Russian fuel to the U.S. market.

They also effectively end the monopoly of U.S. government agent USEC Inc (USU.N) on imports of Russian uranium.

"Six commercial contracts have already been signed with U.S. nuclear power plant operators," said Ivan Dybov, spokesman for AtomEnergoProm, the civilian arm of Rosatom. "Russia's potential for enriching uranium is sufficient to secure a notable share of the U.S. market," he said.

NEW CONTRACTS

Russia has to date supplied low-enriched uranium (LEU) recycled from 375 tonnes of bomb-grade material, or highly enriched uranium (HEU). This is equivalent to 75 percent of the 500 tonnes it must supply by 2013.

The LEU supplied by Russia accounts for 45 percent of the fuel used by U.S. nuclear power plants and decommissioned U.S. weapons another 5 percent. Nuclear plants in turn contribute about 20 percent of the power produced in the United States.

Analysts say direct deals could ultimately be more profitable for Russia than the existing programme, which was set up in 1993 to encourage a country still rebuilding after the Cold War to extract and use fuel from dismantled warheads.

Russia is also seeking routes into other developed markets through partnership with companies such as Japan's Toshiba (6502.T) and Germany's Siemens (SIEGn.DE), as well as building a share of emerging economies in Asia.

"The Chinese market is booming, with plans to build over 70 new reactors by 2030. For Russia, it's strategically important to fix contracts in this particular market," Alexeyenkova said.

Max Layton, analyst with Macquarie Securities in London, said global supply concerns related to the expiry of the Russian-U.S. agreement were overplayed.

"The Russians will use it, sell it to the Chinese or sell it as part of other reactor packages," he said. "From a (global) supply-demand balance perspective, it doesn't matter whether they sell it to the U.S."

'NOT AFRAID OF COMPETITION'

Russia, the world's No. 5 uranium miner, plans to dig more of the metal from the ground. ARMZ, the state uranium miner, estimates its Elkon deposit in the eastern region of Yakutia holds 5.3 percent of the world's recoverable reserves.

For a FACTBOX on ARMZ expansion plans, click on: [ID:nGEE5B60FO]

Russia is also home to 31 reactors with capacity to produce over 22 gigawatts, or 6 percent of world nuclear power capacity.

Moscow has extensive plans to build new reactors at home and abroad. Prime Minister Vladimir Putin, addressing the nation last week in his annual question-and-answer session, said Russia planned to build more than 30 new reactors in the next decade.

And when Indian Prime Minister Manmohan Singh visited Moscow on Dec. 7, he sealed an agreement to widen atomic fuel exports from Russia to India, as well as the construction of reactors.

"It's not simply billions. It's dozens of billions of dollars," Kiriyenko, the Rosatom head, said of the reactor deal.

"We're not afraid of competition. It's clear that nuclear energy is a global sector."

For a TAKE A LOOK on uranium, click on [ID:nGEE5B81RO]

(Additional reporting by Eric Onstad in London; Editing by Hans Peters)