PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Alternative Energy Economics for Iran Options Definition and Evaluation

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Scope of Current Analysis I – Market vs. indigenous fuel supply options II – Iranian energy resource review III – Cost of selected nuclear facilities IV – Alternative investments - natural gas sector V – Alternative investments - refining sector VI – Conclusions of analysis

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Background June 14, 2003 – Letter to U.K parliament from Ambassador of Iran –Iran concludes its need for 7000 MWe via nuclear power by Based on VVER-1000 at Bushehr, assume additional (6) power reactors of the same type (total of 7) IAEA BOG Report GOV/2003/75 - chronology in which Iran has taken steps to possess a front end fuel cycle Ongoing EU3/Iran negotiations to persuade Iran to discontinue uranium processing and enrichment Suspension and resumption of enrichment, referral to UN

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section I Nuclear Fuel Resource Constraints and Comparison of Market vs. Indigenous Nuclear Fuel Supply Options

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Typical Annual Material Inventory in the Nuclear Fuel Cycle for a VVER-1000 Reactor 1 Mining – 405,000 tons of uranium 553 ppm (0.05%) 2 Milling – tons of U 3 O 8, (223 tons natural U) Conversion -328 tons UF 6, (222 tons natural U) Enrichment tons UF 6, (22 tons 4.4% LEU) Fuel Fabrication – 25 tons UO 2, (22 tons 4.4% LEU) Assumes enrichment 4.4%, 75 ton initial UO 2 fuel load, 36 month fuel residence time 3 1 – Based on material balances from The Economics of the Nuclear Fuel Cycle, OECD 1994, and Nuclear Energy Economics and Policy Analysis, 3/29/04, MIT, and The Future of Nuclear Power: An Interdisciplinary Study, MIT. 3 – VVER-1000 data from Rosenergoatom Results shown include 0.5% losses per stage and have been rounded for ease of display 2 – Ore data from Atomic Energy Organization of Iran –

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iranian Uranium Resources 1 Production Method <USD 40/kgU<USD 80/kgU<USD 130/kgU Unspecified00491 Total00491 Production Method <USD 40/kgU<USD 80/kgU<USD 130/kgU Unspecified00936 Total00936 Cost Ranges <USD 80/kgU<USD 130/kgU Cost Ranges Total <USD 130/kgUUnassigned 4,5006,00010,500 Reasonably Assured Resources (RAR) 2 Estimated Additional Resources (EAR) – Category IISpeculative Resources 1 – From Uranium 2003: Resources, Production and Demand, NEA No. 5291, OECD – In situ resources (in metric tons natural U ) Estimated Additional Resources (EAR) – Category I 2

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Fuel Usage Scenarios Known Conventional Resources Total Resources Number of Operational Reactors Years of Operation Known Conventional Resources (RAR + EAR-I) = 1,427 tons U Undiscovered Conventional Resources (EAR-II + SR) = 13,850 tons U Total Resources = 15,277 tons U Assume 1000MW-VVER burns 22 tons of LEU annually and all reactors come online simultaneously –Known Conventional Resources w/7 reactors = less than 1 year –Total Resources w/7 reactors = less than 10 years

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Fuel Resource Constraints Known uranium will be exhausted by 2010 with only two operational reactors. Total uranium resources will be depleted by 2023 with all reactors far short of their 40 year design lifetime.

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Cost of Recovering All Uranium Resources Vs. Market Price Known Conventional Resources Undiscovered Conventional Resources RAREAR-IEAR-IISRSTotal Low $/kg ($80) $39.28M$74.88M$268.00M$840.00M$1.22B High $/kg ($130) $63.83M$121.68M$435.50M$1.36B$1.98B Market $/kg ($46.42) $24.35M$46.43M$166.16M$520.80M$757.74M Purchasing uranium from the market would provide a total cost savings between $460 million and $1.22 billion based on the cost (high/low) of uranium recovery. 1 – From UX Consulting Company L.L.C. as of Mar 28,, 2005

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Estimated Annual Fuel Costs – 7000 MWe I ran could save $130 - $240 million per year by purchasing fuel from abroad.

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section II Iranian Energy Resources

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iran – 2004 Depth of Resources Oil –125.8 billion barrels proven reserves –Roughly 10% of world’s total Natural Gas –940 trillion cubic feet proven natural gas reserves –World’s 2 nd largest supply, 15.5% world total Electric Power –31 GW installed capacity (36 GW expected 2005) –75% Natural Gas, 7% Hydro, 18% Oil

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iran Energy Reserves by Type Energy equivalence used = 1070 BTU/ft 3 natural gas, 5.8e6 BTU/barrel oil, 11,000 BTU/lb. coal, 4.41e11 BTU/mton U-235. Source Nuclear Engineering: Theory and Technology of Commercial Nuclear Power – Knief. Energy data from March 2005 U.S. EIA Iran Country Analysis Brief

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt OilNatural GasNuclear (Known Conventional Resources) Nuclear (Total Resources) Reserves/Production Ratio (Years) Iran Reserves to Production Ratios Note 1 - Oil production 2004, gross natural gas production 2002 from EIA Note 2 - Nuclear fuel production based on requirements of 7000 MW nuclear with a once through fuel cycle

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section III Review and Capital Cost Determination of Selected Nuclear Facilities

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iranian Nuclear Facilities 1 Note 1 – From IAEA GOV/2003/75

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Facilities of Interest

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Nuclear Facility Information Natanz Enrichment Facility –54,000 centrifuges –Estimated P2 SWU/centrifuge facility is nearly large enough to support two VVER-1000 nuclear fuel loads per year –Estimated P1 SWU/centrifuge facility support only one VVER-1000 –Cost estimates from American Centrifuge, National Enrichment Facility, Georges Besse II, and Resende –Estimated cost $260 million based on P2 technology. $187 million - P1. Esfahan Conversion Facility (UCF) –Conversion UOC to UF6, enriched UF6 to UO2, depleted UF6 to UF4, conversion of enriched uranium metal and depleted uranium metal – total 5 lines –Estimated cost $30 million

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Scaled Cost per SWU – Natanz Estimate NEF AC GBII P1 Design P2 Design

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Nuclear Facilities – (continued) Arak Nuclear Complex –40 MW Iran Nuclear Research Reactor (IR-40) similar to India’s 40-MW CIRUS built in 1960; new comparable research reactors $100-$200 Million –Initial Heavy Water requirement 85,000 $254/kg = $21.6 million –Heavy Water Production plant (16 tons annually), based on unit cost of operating heavy water plants in India – approximately $10-$25 million –Separation facilities based on GA contract with Thailand - $25 million and CRL manipulator prices –Arak investment conservative $200 million Esfahan Fuel Manufacturing Plant (FMP) –Designed with preliminary annual throughput for 40 MTU/yr and planned for 140 MTU/yr –Designed for both light water reactor and heavy water reactor fuels –Estimated investment $30 - $80 million

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Saghand Mine and Ardakan Milling Plant –1,550,000 tons of ore avg. 553 ppm –120,000 tons of ore annually, approx. 50 tons U –Estimated investment $39 million Gchine Mine and associated milling plant –Variable, low grade ore –Design capacity of 21 ton U annually –Estimated investment $19 million Total selected facility capital investment ~ $600 Million Nuclear Facilities – (continued)

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section IV Evaluation of Alternative Investments in the Natural Gas Sector

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Natural Gas Flare/Vent Rates Data from U.S. EIA International Energy Annual 2002, Table 4.1 Annual Flare/Vent Rates of Various Middle East Countries, % 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% Saudi Arabia QatarU.A.E.SyriaKuwaitOmanIran Flare/Vent Rate, % of Gross Production World Average 2.26% Middle East Avg. 3.26% North American Average 0.53%

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Natural Gas Data World Average (2002) 1 = 2.26% Iran (2002) 2 = 6.78% Assume Iran moved to world average (2.26%) –Save 193 billion ft 3 annually –Equivalent to: -$1.60 billion (Market price 7.78$/MMBtu) MWe (Combined Cycle Gas Turbine) 4 Assume Iran moved to North American Average (0.53%) –Save 267 billion ft 3 annually –Equivalent to: -$2.22 billion (Market price 7.78$/MMBtu) MWe (Combine Cycle Gas Turbine) 4 1,2 – Data From U.S. EIA International Energy Annual 2002, Table – Market Price U.S. EIA Natural Gas Weekly Update 7/13/05 4 – CCTG 7200 BTU/kw-hr heat rate, 85% capacity factor, 1070 BTU/ft3 natural gas

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Natural Gas Infrastructure and Growth Map Data from Collection of University of Texas Maps Population Data from Statistical Centre of Iran Three cities with the highest growth rates over the last 20 years are closest to major gas refinery and treatment facilities –Mashhad –Ahvaz –Shiraz

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Investment Scenario 1 Investment Scenario 2 Scenario 1 (yellow circle) Scenario 2 (blue circle) $1.00B Investment $617M Investment Mmcf/d Gas 1 – 150 Mmcf/d Gas Processing Plant Processing Plant 2 Power Plants (1120 MWe) 1 Power Plant (930 MWe) 150 Miles of New Pipeline 50 Miles of New Pipeline 19.4% of Recoverable Gas 16.1% of Recoverable Gas Investment Scenarios Infrastructure Notional Investment Scenarios

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Investment Cash Flow Model 1- Data from World Energy.org, based on 1999 price and subsidy, average of all sectors 2 - Using February 05 exchange rate 1USD = 8863 IRR Construction outlays for 5 year period = $1.0 Billion Net revenues based on price of electricity = 315 Rials/kwh (3.56¢/kwh) 1,2 Annual O&M costs of 3.5% capital expenditure Project Lifetime (30 years) IRR = 18% Payback Period, 7% = 4.59 years

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section V Evaluation of Alternative Investments in Oil Refining and Gasoline Production

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iran – 2002 Energy Trade Balance 1 1 – Energy Information Administration, 2002 – Iran Country Energy Data report Petroleum ProductionImportExportConsumption (Thousand Barrels per Day) Crude Oil (Thousand Barrels per Day) Gasoline Natural Gas Gross Production Vented/Flared and Reinjected Dry ImportsDry Exports Dry Consumption (Billion Cubic Feet) Coal ProductionImportExportConsumption (Thousand Short Tons) Hard Coal Electricity Capacity (Million kw) Generation (Billion kwh) Consumption (Billion kwh) Losses (Billion kwh) Thermal Hydroelectric TOTAL

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iranian Gasoline Imports In 2001, Iran was importing 8.5 million liters of gasoline per day –Gasoline represented more than 85.5% of total petroleum imports In 2004, Iran was importing 40% of their daily gasoline needs, or 22 million liters of gasoline per day 1 EIA estimates Iran importing 160,000 bpd in 2004 or approximately 25 million liters per day 2 Government paid 2800 rials per liter ($1.19/gal) in –Approximately $2.5 – $3.0 billion for Annual demand increasing at around 9% per year 2 Gasoline imports could potentially cost Iran $4.5 billion for Iran Daily News – 9/28/04, 12/16/04, 2- EIA Country Analysis, 3 - Iran News – 5/10/05

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iranian Refinery Capacity Current Iranian refining capacity is 1.47 million BPD –Nine refineries –240,000 BPD gasoline capacity –Consuming 400,000 BPD gasoline At current gasoline refining yields (Iran ~ 16% per barrel), a nearly 1,000,000 BPD capacity is required to eliminate 160,000 BPD of gasoline imports. With 46.7% (Feb. ‘05 U.S. refinery average) yield of gasoline per barrel of oil, require approximately 350,000 BPD additional refinery capacity

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Refinery Output Comparison

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Refinery Cost Basis RefineryCapacityEstimated Cost 1. Dung Quat, Vietnam130,000 BPD$1.5 B 2. U.S. NewCon Est,150,000 BPD$2.4 B 3. Gujarat, India210 – 240,000 BPD$2.26 B 4. Basra, Iraq250 – 300,000 BPD$2.0 B 5. Yanbu, Saudi Arabia400,000 BPD$4-5 B 6. KPC, Kuwait450 – 600,000 BPD$5.0 B Avg. w/ U.S. $10,938 Avg. w/o U.S. $

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Cost Sensitivity to Refinery Gasoline Yield

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Export = 197 Gasoline Imports = Crude Production Refining $34.62/bl Consumption = 1471 $ B - $ 2.91 B $ 2.84 B Net Revenue = $28.01 B Approx. Iran Petroleum Balance Refined Products (Changes from 2001)

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Export = 1037 Gasoline Imports = 0 Crude Production Refining Consumption = 1471 $ B $ B Net Revenue = $29.51 B Iran Petroleum Balance 2004 – With Low Yield Refinery, No Gasoline Imports Refined Products $34.62/bl (Changes from baseline 2004)

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Section VI Conclusions of Analysis

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Conclusions of Analysis Iran’s uranium resource is not commensurate with the scale of its declared nuclear program. Cost of indigenous uranium and fuel production appear substantially greater than market sources. Front-end (uranium and fuel facilities) do not provide independence. Indigenous non-nuclear energy resources represent centuries of potential energy supply at current R/P ratios. Cost of selected front-end nuclear facilities is at least $600 million dollars.

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Conclusions of Analysis (2) Several plausible gas sector projects could be pursued for the cost of the front–end nuclear facility investment. Gas sector projects involving natural gas treatment plants, CCGT power plants, and supporting pipeline show very attractive rates of return at 18% (23%) over 30 years and a 4.6 (3.2) year payback periods. Projects which add refinery capacity increase refined product exports, generating billion dollars per year in net revenue. Approximating the gasoline yield fraction of Iran results in a more attractive refinery project assuming all additional refined products can be exported.

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Backup & Technical Detail

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Nuclear Power Intensity as a Function of Energy Resource Endowment - typical values

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Nuclear Power Intensity as a Function of Energy Resource Endowment – Iran’s proposed program relative to rest of world

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Relationship Between Ore Grade and Cost Due to ore grade of 553 ppm (~0.5 kg/ton), cost of uranium recovery unlikely in the $80/kg range and more likely in the $130/kg range Fractional Recovery based on mine type 1 -Saghand ≈ 77% (underground) -Gchine ≈ 81% (open-pit) Chart from Economics of Uranium Ore Processing Operations, OECD 1983 μ = fractional mill recovery 1 – From Uranium 2003: Resources, Production, and Demand, OECD. Pg. 265

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Potential Number of Cores Known Conventional Resources (RAR + EAR-I) = 1,427 tons U Undiscovered Conventional Resources (EAR-II + SR) = 13,850 tons U Total Resources = 15,277 tons U 1000MW-VVER initial core fuel loading is 66 tons of LEU with fuel residence of 3 years Over 90% of potential cores based on Undiscovered Conventional Resources Number of Cores Available Years of Operation Known Conventional Resources (RAR + EAR-I) Undiscovered Conventional Resources (EAR-II + SR) Total Resources

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Resende NEF AC GBII Capital Cost of SWU – Existing/Planned Facilities

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Iranian Major Natural Gas Infrastructure Map Data from Collection of University of Texas Maps Population Data from Statistical Centre of Iran Six of the most populous cities have direct access to natural gas pipelines –Tehran –Mashhad –Esfahan –Shiraz –Tabriz –Ahvaz

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Investment Cash Flow Model (2) Construction outlays for 5 year period = $617 Million Net revenues based on price of electricity = 315 Rials/kwh (3.56¢/kwh) 1,2 Annual O&M costs of 3.5% capital expenditure Project Lifetime (30 years) IRR = 23% Payback Period, 7% = 3.15 years 1- Data from World Energy.org, based on 1999 price and subsidy, average of all sectors 2 - Using February 05 exchange rate 1USD = 8863 IRR

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Sensitivity of IRR and Payback Period IRR and payback period calculated by assuming CCGT (combined cycle gas turbine) plants would supply base load instead of nuclear power 85% capacity factor Due to quick start up and shut down rates, gas turbine power plants can be used to supply energy at a variety of times based on demand Therefore a variety of capacity factors exist for CCGTs and would effect IRR and payback period of investment

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Sensitivity of IRR and Payback Period Lower bound 64% determined by load curve

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Export = 250 Gasoline Imports = 53 Crude Production Refining $22.73/bl Consumption = 1330 $ B - $ 600 M $ 1.98 B Net Revenue = $19.81 B Iran Petroleum Balance Refined Products

PNNL SA Iran_Altenergy_PNWCGS_Feb1306.ppt Export = 383 Gasoline Imports = 0 Crude Production Refining Consumption = 1471 $ B $ 5.38 B Net Revenue = $29.03 B Iran Petroleum Balance 2004 – With High Yield Refinery, No Gasoline Imports Refined Products $34.62/bl (Changes from baseline 2004)