Helium: Investing in the Loner Element

While rising prices at the pump have kept us distracted, another gas shortage has crept up on us: a worldwide helium crunch.

Unless you're a scientist or the owner of a party planning store, you probably haven't heard about the global helium shortage. But the lack of gas is real - and nearing crisis mode.

For months, several of the world's 16 helium plants have been running at reduced capacity, crippled by bad weather and maintenance problems. But that's just scratching the surface. Truth is, helium's a lot like oil: a finite, irreplaceable resource – and one we're quickly running out of.

The global helium shortage affects more than just Snoopy parade balloons and the Goodyear blimp. Protracted scarcity could bring both high-tech industry and the scientific community to its knees. And, of course, provide investors with significant upside.

About Helium

Found in nature as a colorless, tasteless and odorless gas, helium's the least reactive substance in the universe - a loner element that combines with other molecules only in the most extreme conditions. Its low density and boiling point (the lowest on the periodic table) make it ideal for a range of industrial and scientific uses, including:

• Coolant for superconducting magnets (like those in MRI machines)
• Protective gas in arc welding and growing silicon wafers
• Pressurizing rocket fuel for NASA's space shuttle
• Protecting important historical documents
• Cooling pumps in nuclear reactors
• Providing lift for airships and balloons

Fused together from hydrogen atoms in star cores, helium's the second most abundant element in the universe. On Earth, however, it's very rare. Here, only the radioactive decay of uranium and thorium atoms in the Earth's mantle can produce helium - a time-consuming process that generates just 3.4 liters per kilometer of earth per year.

This helium-as-radioactive-by-product collects in natural gas deposits in the Earth's mantle. That means the only way to access our planet's helium stores is to tap into the natural gas first.

Usually, however, helium appears in natural gas fields in such trace amounts that it's not worthwhile to recover; miners will simply let the gas escape into the atmosphere instead. Operators only extract helium when enough has stored up - a concentration of 0.3% or higher - making it economical to retrieve.

As of 2007, the United States Geological Survey [USGS] estimated the total worldwide amount of extractable helium - that is, helium both economically and technologically feasible to retrieve - amounts to only 40,000 million m3. That supply is concentrated in just seven countries: the U.S., Algeria, Canada, China, Qatar, Poland and Russia.

By far, the U.S. is the world's leading helium producer; in 2005, we produced 83% of the helium extracted that year. We're also its largest consumer; in 2007, the U.S. alone ate up approximately 70.4 million m3 of helium, or 2.5 billion cubic feet [USGS].

World Helium Production, Reserves and Reserve Base Data in millions of cubic meters of contained gaseous helium   2006 Production 2007 Production Reserves Reserve Base U.S. (from natural gas) 79 80 3,400 8,200 U.S. (from National Helium Reserve) 58 58 -- -- Algeria 15 20 1,800 8,300 Canada n/a n/a n/a 2,000 China n/a n/a n/a 1,100 Poland 3 3 26 280 Qatar 4.4 5.5 n/a 10,000 Russia 6.3 6.4 1,700 6,700 Other countries n/a n/a n/a 2,800 WORLD TOTAL 166 173 n/a 39,000

Source: Adapted from the 2008 United States Geological Survey Mineral Commodity Summary on Helium

Scientists haven't found a good substitute for helium yet, especially in applications that require temperatures below -429 °F. And while helium can be recycled, in the U.S. it rarely is, since smaller labs and businesses can't afford the infrastructure to do so.

It's unlikely we'll find further helium deposits in the world, since discoveries of natural gas fields peaked in the 1970s and have declined ever since. In fact, Lee Sobotka, a chemistry and physics professor at Washington University in St. Louis, predicts that if current consumption rates keep up, the National Helium Reserve in Amarillo, Texas - the world's only helium storage facility - will run out in just eight years.

But doom and gloom hasn't dampened demand. According to the WSJ, desire for helium skyrocketed 80% in the last two decades. In developing countries, such as Asia, it's grown more than 20% a year.

Data in millions of cubic meters of contained gaseous helium.
Source: Adapted from the 2008 United States Geological Survey Mineral Commodity Summary on Helium

New Potential Sources
Unfortunately, helium production in the U.S. has slowed recently. The federal government - which for decades ran the domestic helium industry - has decided to get out, selling off its private reserves in Amarillo. By 2015, all but 2,900 tons of the National Helium Reserve will be gone.

The good news is, those other six countries with helium stores do possess enough reserves to counterbalance the slowdown. But international extraction plants and refineries have been slow to scale up production. Again, it all comes back to natural gas: Operators increase helium production not due to the availability of helium, but of natural gas.

In 2005, two new plants were constructed, one in Ras Laffan, Qatar and the other in Skikda, Algeria. But more than two years later, the Qatari plant only operates at half its expected capacity of 17 million m3 per year. What's more, the Algerian plant came online late, and it too operates at reduced capacity. In fact, the diminished output from these two plants, experts say, drove the helium shortage through much of 2007.

Two new ventures promise to ease helium scarcity. A new natural gas field in Kovykta, Siberia, could hold as much as 40-50% of Russian helium reserves. When it goes online, it could offer sufficient quantities to alleviate the shortage. In addition, last year global gas giant Air Products joined forces with private Matheson Tri-Gas Global Helium to start work on a new refinery in Wyoming. When it opens, the plant could produce as much as 200 million cubic feet of helium per year.

Still, these plans are far off. The Kovykta field, for example, won't be up and running until 2015 - at the earliest. Any delays could make the shortage worse. For the time being, supply and demand will stay tight and helium prices high.

Getting Into Gas
But what's bad for scientists is good for investors. Over 2007, most major helium providers raised their prices anywhere from 10-40%, improving their profits substantially. And since the shortage is worldwide, even if domestic needs are met, the demand in developing nations remains.

Investors wanting a piece of the helium action have two main options. First, they can hit up the natural gas industry. But a safer and more exacting bet might be investing in the helium suppliers themselves.

Air Products (APD) and Praxair (PX) are two of the stronger players in the market. Air Products, the world's largest helium supplier, has been slowly growing over the past 25 years, and in 2007, it posted record sales and earnings. Plus, 55% of its business is overseas, and it supplies argon, another gas in tight demand.

While not as large as Air Products, Praxair has also done well during the helium crisis. They posted a 17% growth in their fourth-quarter 2007 profits, and have made a recent string of acquisitions and savvy, cost-cutting business moves. Plus, they recently upped their 2008 prices by 15-30%.

But these are just two examples; several smaller companies abound, especially overseas. Plus, some big energy companies - like ExxonMobil - also deal in helium, though not in the same volumes.

Sure, it's easy to make light of a helium shortage (see?). But as long as the crunch continues, prices will continue to rise. Savvy investors should realize: The future helium market's going to be a gas.

Links

The Los Alamos National Laboratory's helium factsheet
The (Surprisingly Good) Wikipedia page on Helium
USGS Minerals Information, Helium
The USGS 2008 Mineral Commodity Summary on helium
"As Demand Balloons, Helium is in Short Supply," Wall Street Journal
NPR Interview with Matheson Tri-Gas Global Helium executive vice president

 

Comments

[Nate C]

very interesting article. Thanks. I had no idea that there was a supply shortage of helium.

[mwswi]

I've been considering adding Praxair (PX) to my portfolio for quite some time and your article provides further reinforcement that it would, perhaps, be very wise to do so. Thanks for your well written article as well as the very convincing statistics.

[mwswi]

I've been considering adding Praxair (PX) to my portfolio for quite some time and your article provides further reinforcement that it would, perhaps, be very wise to do so. Thanks for your well written article as well as the very convincing statistics.