* Enrichment firm says laser method key to U.S. "energy security"

* Some nuclear experts worry about proliferation risks

* They say laser enrichment plants smaller, harder to detect

* Iran says it "possesses" laser know-how but won't use it

By Fredrik Dahl

VIENNA, Oct 11 (Reuters) - A new way of making nuclear fuel with lasers may help cut costs and ensure energy security but could also make it easier for rogue states to secretly build nuclear weapons if they got hold of the know-how.

A debate about the benefits and dangers of using lasers instead of centrifuges to enrich uranium underlines the sensitivities surrounding nuclear activity that can have both civilian and military applications.

Iran, whose underground centrifuge plants and history of hiding nuclear work from U.N. inspectors have raised Western suspicions of a covert atom bomb programme and prompted Israeli threats to attack Iranian nuclear sites, says it already has laser technology but experts doubt Tehran has mastered it.

Uranium can provide the explosive core of a nuclear warhead if refined to a high fissile concentration, explaining why any country or other actor interested in obtaining nuclear arms might be eager to learn about technical advances in enrichment.

The U.S. Nuclear Regulatory Commission (NRC) last month issued a license to a partnership between General Electric Co. and Japan's Hitachi Ltd to build and run a laser enrichment plant for manufacturing reactor fuel.

It would be the world's first facility to refine uranium on a commercial scale using lasers, a technique "particularly suited for nuclear proliferation", said Assistant Professor R. Scott Kemp of the Massachusetts Institute of Technology (MIT).

"It appears that they have allowed the license to go forward without a serious review of the proliferation implications," said Daryl Kimball, executive director of the Arms Control Association, a Washington-based advocacy and research group.

An NRC spokesman said a State Department assessment in 1999 concluded essentially that it was in the U.S. interest to bring the Australian technology "here, where it could be properly safeguarded, rather than having other countries develop it".

Citing an NRC letter to U.S. lawmakers two years ago, David McIntyre added that NRC requirements - covering the facility's security and protection of classified information - "effectively protect against the threat of proliferation".

Kimball disagreed. "History shows that even the best efforts to safeguard sensitive enrichment technologies can and will eventually fail."

IRAN "POSSESSES" LASER TECHNOLOGY

General Electric said Global Laser Enrichment (GLE) - the GE-Hitachi company which would build the plant in the U.S. state of North Carolina - had "met - and in many cases exceeded - all regulations pertaining to safeguarding this technology."

GLE head Chris Monetta said the laser method "could be one of the keys to the nation's long-term energy security."

However, some nuclear proliferation experts worry because plants enriching uranium with lasers could be smaller - and therefore even harder to discover - than the traditional facilities with rows and rows of centrifuge machines.

Lasers could also refine fuel-grade uranium to possible weapons grade in fewer steps than centrifuges, they say.

Those features could make laser enrichment an attractive option for any state wanting to develop covertly the capability to produce nuclear weapons, which the West is accusing Iran of doing with its centrifuge-based programme.

Tehran - which only disclosed the existence of its Fordow subterranean centrifuge site in 2009 after learning that Western spy services had spotted it - denies any nuclear bomb designs.

"The smaller physical footprint and lower energy requirements would make a clandestine laser facility more difficult to detect," said Jim Walsh, a research associate at MIT's Security Studies Program.

But Olli Heinonen, a former U.N. chief nuclear inspector, played down concerns that embarking on laser enrichment in the United States would cause the technology to spread elsewhere.

"Technology holders have been fairly good in recent years in protecting their secrets. Proliferation mainly took in place in the 1970s and 1980s due to poor export controls and legislation," said Heinonen, now at Harvard University's Belfer Center for Science and International Affairs.

His former employer, the International Atomic Energy Agency (IAEA), has tried in vain to get more information about a 2010 statement by Iranian President Mahmoud Ahmadinejad that Tehran "possessed" laser enrichment technology but would not use it.

"Iran had its own laser programme, and they have got a good understanding about the process," Heinonen said, referring to methods used before the GLE's newer technology.

GROWING NUCLEAR FUEL MARKET

But laser enrichment is more difficult to master than centrifuges and the equipment used in Iran's research has been dismantled and placed in storage under IAEA monitoring, said the International Institute for Strategic Studies (IISS) think tank.

"Based on the IAEA assessment it appears unlikely that Iran's laser enrichment programme represents a serious proliferation threat," IISS said in a 2011 report.

Centrifuges increase the ratio of the fissile isotope U-235 by spinning at supersonic speed, enriching up to 5 percent for power plants and 90 percent concentration for bombs.

Laser beams can also separate uranium isotopes, but MIT's Kemp said the technology had been pursued unsuccessfully for decades. "Indeed we do not yet know whether" the technique to be used by GLE will work or not, he added.

Laser enrichment could produce half the refined uranium the United States needs each year for its nuclear reactors, according to the U.S. Energy Information Administration.

General Electric plans to build the first plant on its campus in North Carolina, but it said a "commercialisation decision", based on several factors, must still be made.

It would use lasers conceived by Australia-based Silex Systems Ltd and developed by experts of GLE, the GE-Hitachi partnership in which Cameco Corp., the world's largest uranium producer, also holds a 24 percent stake.

Silex said on its web site that the uranium enrichment market was expected to grow to $20 billion by 2030 from $6 billion now, highlighting the technology's commercial potential.

It said the method its scientists invented in the 1990s had several advantages over other ways to refine uranium: higher efficiency, lower operating costs and less capital expenditure.

But Tom Clements of the Alliance for Nuclear Accountability, a non-governmental U.S.-based group, said such advantages also held nuclear proliferation risks.

The NRC's approval of the license without a specific proliferation assessment "may well be a green light for the eventual spread of what could be a dangerous technology which has nuclear weapons applications," Clements said.