By John Kemp
LONDON, March 27 (Reuters) - Bipartisan bills introduced into the U.S. House of Representatives and Senate aim to avert the imminent shutdown of the Federal Helium Reserve, which provides a third of all the gas consumed worldwide, and develop a proper market to avoid a long-term crunch in supplies of one of the world’s most critical raw materials.
Helium is best known for filling party balloons and making people talk with a squeaky voice.
But its properties as the second-lightest element, chemically unreactive, and with a boiling point just 4 degrees above absolute zero, give it an essential role in a range of cutting-edge scientific applications.
The biggest uses are to cool the superconducting magnets used in magnetic resonance imaging (MRI) scanners; help manufacture semiconductors and fibre optic cables; and, purge and pressurise the liquid hydrogen/oxygen propulsion systems used on space rockets, including the giant Delta IV launch vehicles that put spy satellites into orbit from Vandenberg Air Force Base in California.
Prices for refined helium sold to end-users have quadrupled from $40 per thousand cubic feet in 2000 to $160 in 2012, according to the U.S. Government Accountability Office, which warned the Natural Resources Committee of the House of Representatives last month of “urgent issues facing the Bureau of Land Management’s storage and sale of helium reserves.”
Availability has fluctuated wildly in the last seven years. Problems at helium refineries in Texas, Oklahoma and Kansas, as well as start up delays with new refining facilities in Qatar in 2006, led to shortages and rationing.
Reliable and affordable supplies are essential. But more than 40 percent of the helium used in the United States, and roughly a third of the gas consumed worldwide, is sourced from a stockpile in northern Texas left over from the Cold War.
As a result, helium is one of the last commodities where the government still drives prices. The price charged by the Bureau of Land Management (BLM), which runs the Federal Helium Reserve, effectively sets minimum prices charged for helium around the world.
However, legislative authorisation for sales from the reserve will expire in the next few months, leaving lawmakers scrambling to extend the sales programme temporarily, while putting in place proper price incentives and a market to enable a private helium production industry to flourish in the long term.
“The availability of helium at low prices and the stability of the market ... contributed to the rapid growth of MRI as a (medical) diagnostic tool in the 1980s,” according to the U.S. National Research Council’s report on “Selling the Nation’s Helium Reserve.” By 2010, when the report was published, there were already more than 22,000 MRI machines in the U.S. and abroad.
In recent years, MRI makers have adapted their systems to use smaller quantities of helium and recycle more of it. But there is no substitute at the present time. Without an adequate helium supply, MRI scanners would cease working.
Helium is irreplaceable in many other applications. “Helium is just one of a number of gasses used to make our memory chips, but it’s absolutely vital. To put it simply, without helium, we cannot operate,” one American semiconductor manufacturer warned the Natural Resources Committee.
In 2011, Brookhaven National Laboratory was forced to delay restarting its particle accelerator, the second most powerful in the world, following an electrical fault, because of delivery problems obtaining fresh supplies of helium.
The atmospheric concentration of helium, about 5.2 parts per million, is too low to make it economic to extract helium from air.
Usable helium comes instead from the decay of uranium, thorium and other radioactive elements deep underground. Most of it is lost to the atmosphere, but small quantities are trapped in the same underground formations as natural gas and carbon dioxide, where it can be recovered along with natural gas.
Most gas fields do not produce helium in sufficient concentrations to make it worthwhile separating out. But a few contain much higher concentrations that support commercial helium extraction. Exxon’s Riley Ridge field in Wyoming contains 0.6 percent helium. Some fields in southern Kansas contain as much as 1.9 percent.
Helium can be extracted as a by-product at natural gas processing plants that extract liquids like ethane, propane and butane. If the concentration is high enough, it may be worth constructing specialist facilities to remove it. Most helium is currently produced this way, which requires a minimum concentration of about 0.3 percent.
In future, however, the most promising source of helium is the giant liquefaction plants used to produce LNG. Helium is left as a gas when methane is chilled to become a liquid. LNG facilities may be able to extract helium commercially at concentrations of just 0.04 percent.
Helium’s strategic importance was realised during the First World War, when it was used as a safer alternative to hydrogen to lift reconnaissance and weather balloons.
The 1920 Mineral Leasing Act reserved all helium produced on federal lands for the federal government. In 1925, the Helium Act declared helium was a critical war material, controlled production and curbed exports.
Production underwent a massive expansion during the Second World War, then again during the 1950s and 1960s as part of the cold war space race and missile programme.
The 1960 Helium Amendment Act gave natural gas producers financial incentives to separate helium and sell it to the federal government. It also established a strategic helium storage facility in the Bush Dome Reservoir, a partially depleted gas field near Amarillo in Texas.
Several companies built separation facilities at the most promising gas fields in Texas, Oklahoma and Kansas. Roughly 36 billion cubic feet of helium were bought by the government and injected into Bush Dome.
The stockpile borrowed almost $300 million from the U.S. Treasury to acquire and fill the facility. The aim was to pay the money back plus interest, as well as cover all operating costs, when the helium was eventually sold to consumers such as NASA and the Department of Defense. The loans were supposed to be repaid by 1985.
By 1973 it had become clear helium demand would never be as high as originally forecast. New injections into the reservoir matched withdrawals. The stockpile remained about 35 billion cubic feet throughout the 1970s and 1980s. The deadline for repayment was eventually extended to 1995. But by 1995, the amount owed had spiralled to $1.3 billion, including accumulated interest, and it became clear the “helium debt” would never be cleared.
The Clinton administration and Congress decided to get out of the helium business. The 1996 Helium Privatisation Act ordered the Bureau of Land Management (BLM) to close all government-owned facilities for refining helium.
It froze the helium debt, and ordered the Bureau to start selling crude helium from the reserve at a steady rate over 10 years starting no later than 2005 at prices sufficient to repay the debt and cover operating costs.
The law directed BLM to carry out stockpile sales “with minimum market disruption,” but it has not worked out as intended.
The cost-recovery pricing formula ensured BLM was originally charging much more for its helium than other suppliers, minimising the market impact. BLM sales were originally priced at about double the normal market rate.
But BLM has become such an enormous seller, in a market with few other competitors and substantial barriers to entry, that other suppliers have taken it as a benchmark, and moved their own prices higher to match it. Helium prices have shifted upwards as a result.
The main companies involved in refining and distribution are Air Products and Chemicals, Linde, Praxair and American Air Liquide.
Meanwhile, helium demand has been growing more rapidly than expected, especially outside the U.S. in the burgeoning semiconductor and technology industries of Asia.
Worldwide consumption rose 3.6 percent per year between 1990 and 2008, from 3.28 billion cubic feet to 6.3 billion, including a growth spurt of 7.8 percent per year between 1996 and 2001, according to the National Research Council.
The Bureau has raised far more money from its sales than expected, meaning it will meet its target of paying off the helium debt early. At the end of September 2012, the outstanding helium debt had been reduced to just $44 million. BLM will meet its repayment deadline within a matter of months, far ahead of the original deadline of 2015.
Once the debt is repaid, the helium programme will terminate automatically under the law. Any further sales revenues will go straight to the Treasury. Unless Congress appropriates money, there will be no money to pay the salaries of the 51 full-time equivalent employees and other operating expenses, including running a crude helium enrichment unit and pipeline infrastructure.
Far more helium has been withdrawn from the reserve, earlier, than policymakers intended. “By 2008, the market price for helium began to hover near the BLM’s price, leading to greater withdrawals ... than anticipated,” a senior Interior Department official told the House Committee hearing.
The strategic reserve is dwindling. Much of it is being turned into refined helium and exported. By the end of September 2012, BLM had sold 16.2 billion cubic feet and had just 11.4 billion left in the conservation reserve.
As reserves have fallen, fears have grown about the long-term security of U.S. supplies. And because the BLM has become a huge supplier, it has stunted the growth of private helium production.
Similar bills introduced into the House of Representatives and published in draft form in the Senate, both with cross-party support, would try to solve some of the problems.
Both would extend the authority for stockpile sales, for one further year (the House version) or until the end of September 2014 (Senate bill).
Thereafter, the bills would permit further sales, but require at least some of them take place on an auction basis. There are some differences in the details. But the intention is to create a proper market and enable price discovery, with the ultimate aim of stimulating the creation of a private helium industry.
Both bills order BLM to disclose more information about its holdings and transactions to help create a proper market. Finally, the bills aim to encourage research into new ways to separate helium, particularly from reservoirs with low concentrations, in a bid to improve long-term security.