Helium Shortage 4.0 Likely A Prolonged Affair
After suffering three worldwide helium shortages between 2006 and 2020, it looked like clear sailing for the industry for the remainder of this decade with the first of three phases of Russia’s massive Amur gas processing plant coming online in September of last year.
But a fire within a month of startup, an explosion on Jan. 5 badly damaging the plant, and Russia’s invasion of Ukraine near the end of February, along with several other disruptions to helium production — both planned and unplanned — elsewhere in the world, have instead caused Helium Shortage 4.0.
The latest shortage has already contributed to higher helium prices than previous ones, and could be a more prolonged affair. The worst of Helium Shortage 4.0 may already be over, according to Phil Kornbluth, president of New Jersey-based Kornbluth Helium Consulting, but the years of plenty promised by Russia’s Azur plant now appear years away.
Helium Shortage 4.0
“The drivers for recent high helium prices were several individual outages that happened simultaneously,” Robert Goodin, mineral commodity specialist with the U.S. Geological Survey (USGS), told the DOB. “On their own they would not have caused such high prices, but together they caused this sharp price increase.”
According to Goodin, on top of the previously mentioned outages at Russia’s new Amur plant, others include: a gas leak at the privately-owned Cliffside Helium Enrichment Unit (CHEU) in January curtailing helium supply from the adjacent Federal Helium Reserve (FHR) in Amarillo, Texas for almost five months; two of three helium plants in Qatar going offline for routine maintenance in February and March; and less Algerian helium supply than normal with the country rapidly ramping up natural gas exports to Europe to make up for lost Russian gas supplies.
Helium is normally found within natural gas, albeit rarely and in relatively small quantities, from which it is separated at natural gas processing plants before being purified at helium plants. As a result, the global helium industry is highly concentrated, with only 15 helium plants in the world — including Russia’s new Amur plant.
Based on USGS data, the U.S., Qatar and Algeria are easily the three largest helium suppliers in the world, accounting for over 90 per cent of the total in 2020 — 51 per cent, 31 per cent and 10 per cent respectively. The U.S. held an even more dominant 76 per cent share of the global market in 2010, but federal legislation has forced the Bureau of Land Management (BLM) to quickly sell off all the helium reserves held in the FHR.
As a result, the average U.S. export price for Grade-A helium jumped to a record US$473 per thousand cubic feet in July — the latest month available — compared to a post-COVID low of US$126 in August 2021, the month before Amur first came online.
Russia not to the rescue
As U.S. helium supply continues to decline, Russia was supposed to take the growth baton from Qatar in the first half of this decade on the back of its Amur project, operated in the far east of the country by state-owned gas giant Gazprom.
Qatari production nearly quadrupled from 13 million cubic metres to 49 million cubic metres annually between 2012 and 2015, and in the process easily overtook Algeria as the world’s second largest helium producer. A 2020 analysis by the USGS projected Russia would become the world’s third largest helium supplier with a 28 per cent share by 2025 — compared to just a three per cent share in 2020.
“Russia’s Amur Helium Plant will have a capacity of 60 million cubic meters per year when fully operational,” says Goodin. “All three 20 million cubic meters per year phases were scheduled to be fully operational by 2025, but with recent fires at the Amur plant, the scheduled startup dates for the different phases of the plant, and target date for operating at full capacity are unknown.”
The primary reason for this uncertainty being recently imposed Western economic sanctions against Russia for invading Ukraine. “It has been difficult for Gazprom to procure Western equipment required to repair the plant and foreign experts have been unwilling or unable to travel to Russia to oversee the repairs,” Kornbluth told the DOB. It will also be difficult for Gazprom to procure Western equipment and expertise needed to construct the second and third phases of the Amur helium plant.
At the same time, at the end of May, Russia imposed restrictions on the export of noble gases required to manufacture semiconductors, including helium, for Western countries that have imposed economic sanctions on it for invading Ukraine. Albeit a temporary measure, to the end of this year, these exports restrictions could easily be extended given the likely prolonged nature of the war.
“The higher prices create tremendous incentives to use helium more efficiently, or not at all,” says Kornbluth. “Recycling has been a big factor at MRI magnet manufacturers and optical fiber manufacturers. Technical innovation is also a factor as current generation MRI magnets consume much less helium than earlier generations. Segments like welding and gas chromatography are areas where additional substitution is possible. The fast-growing electronics and aerospace sectors are not very vulnerable to substitution or recycling.”
“However, the low hanging fruit when it comes to demand destruction has already been harvested,” says Kornbluth. The low hanging fruit to a significant degree is in the lift market, which accounts for about 15 per cent of the global helium market under a more normal price environment.
Because of the current shortage, sales of party balloons are down, the U.S. National Weather Service is limiting the number of weather observation balloons, and the University of Nebraska football team has temporarily stopped releasing hundreds of helium-filled balloons every time it scores a touchdown — the latter to allow the university’s medical system enough helium to continue to treat patients.
“Helium demand growth is continually exaggerated by the media, who parrots all the misinformation included in the press releases and websites of the helium start-ups,” says Kornbluth. “Global helium consumption probably will grow between two to four per cent on an annual basis over the next several years.” This compares to double digit growth widely cited by the media.
High prices are propelling companies to explore and drill for helium in far more countries than in the past, and not just for helium found in methane streams but so-called “green helium” comingled with nitrogen instead. “There is a lot of exploration going on in Canada right now,” says Kornbluth, and much of that activity is targeting green helium, especially in Saskatchewan.
“The U.S., Qatar, and Algeria all are poised to increase their production as additional capacity becomes available in the near term,” says Goodin. “Canada, Tanzania, and Australia are countries that have additional capacity that is being developed. There are many countries that have exploration projects underway, but it is uncertain if these will make it to production or not.”
But there are two big wildcards for helium prices over the next several years, the level of production from Gazprom’s Amur plant notwithstanding, one on the upside and the other on the downside.
The biggest wildcard on the upside is the forthcoming sale of the BLM’s FHR and associated facilities and pipelines. The Helium Stewardship Act of 2013 required the BLM to transfer responsibility for the sale to the General Services Administration (GSA) by September 30 of last year, while the GSA has been pushing for the sale of remaining helium in the reserve and the FHR’s helium assets by auction on or before September 30 of this year.
However, in a mid-July press release, the Virginia-based Compressed Gas Association (CGA) warned that the sale to a private owner would stop sales from the FHR “for months, and perhaps years.” The CGA made mention of four different ways it would do so: having to negotiate a new contract with the privately owned CHEU or build a new helium enrichment unit; having to secure right of ways for 14 per cent of the FHR pipeline system that presently lacks them, requiring regulatory approvals from three states (Texas, Oklahoma and Kansas); having to comply with all federal and state laws and regulations, whereas the BLM does not; and a replacement for the “in-kind” program to ensure a consistent supply of helium to significant federal users such as the Departments of Energy and Defense, NASA, and the National Institutes of Health.
Although not yet reported, Rich Gottwald, president and CEO of CGA, told the DOB that the September 30 auction of FHR assets “has been terminated,” but will be reactivated at some point in the future. “The GSA did not accept bids at its August 22 auction,” he says. “We’ve asked the White House and members of Congress to delay the sale by one year, at which point we can then see where things are at.”
The biggest wildcard on the downside for helium prices over the next several years relates to Iran. “If Iran ever rejoins the world economy, they could have good helium production potential as they share the same gas field that Qatari helium is produced from,” says Kornbluth. “It’s one huge field with an imaginary dotted line separating the Qatari and Iranian sections. Qatar calls it the North Field and Iran calls it South Pars.”
- New Energy