BNL gets a mention here. Note: BNL did not sponsor this...

BNL gets a mention here. Note: BNL did not sponsor this article.

There’s a shortage of helium and the pricing environment is right – if explorers can find any - *

There’s a shortage of helium and the pricingenvironment is right – if explorers can find any

• Helium had a bad year in 2022 with explosions, fires and new sources not coming online
• Helium shortage 4.0 could subside this year, if production ramps up at Gazprom’s Amur plant
• Prices probably won’t rise as much as last year, but its still a good time to be a helium explorer

Last yearwas a bit of a shocker for helium, with several events – including an explosion ata new source, fires at existing sources, the US Bureau of Land Management’s (BLM) pipeline shutting down for 6 months and the Ukraine war – compounding the current helium shortage situation.

But moreon that later, first let’s delve into the helium market as it stands.

Heliumisn’t just used in balloons. It’s a critical – and often irreplaceable –component in the semiconductor, medical, research, space and defence industries– with NASA a major consumer – and it’s used in cooling superconducting magnetsin MRIs, manufacturing semiconductor chips and in fibre optics, welding, andcryogenics.

It is also quite rare on Earth, with more than 95% of production globally aby-product of natural gas production by energy companies like ExxonMobil andQatar Petroleum, which is then distributed by major gas companies like AirProducts and Chemicals, Air Liquide and Linde.

End user market worth around $6 billion

Someanalysts forecast the global market size will grow from $4.45 billion in2022 to $6.48 billion by 2027 – but Kornbluth Helium Consulting founder and president Phil Kornbluth says it’s probably closer to a $6-7 billion a year market – at the end user level.

“Helium isa very opaque business, with major players not sharing a lot of macro levelinformation and no ground level survey work to determine that market demand forMRI is X and demand for electronics is Y,” he said.

“I’d saythe value of the market at the source is more than $2 billion and closer to $6billion at the end user level, but it’s important to note that the demandgrowth is often overstated” Kornbluth said.

“Becausewe’ve had a series of shortages since 2006, skyrocketing prices have killedsome of the demand through things like increased recycling so there’s lessdemand for virgin helium.”

US spotmarket prices hit as high as US$2,000/mcf last year (an increase of around 300%since 2021) and so to save money, end users have become more efficient in theiruse of helium.

“There’ssubstitution, recycling, greater efficiency in how you use helium, for instanceMRI scanners are much more efficient in their helium usage than they used tobe,” Kornbluth says.

“For allthose kinds of reasons, demand hasn’t grown a lot, so if demand hasn’t grown whyare we having a shortage?

“Well,each of these shortages has been more about depletion and decline or outages ofexisting sources than they’ve been about demand growth and the shortages havebeen cured, generally, by new sources coming online, or a demand shock, causedby COVID or a major recession, until there’s an uptick in demand or a further decline in supply, then there’s another shortage.”

Russia’s Amur plant fire and the Ukraine war

One of the big events last year that put pressure on the helium marketwas the explosion at Gazprom’s Amur plant in Russia on January 5, which sentshockwaves through the industry, because Amur was supposed to ramp upproduction from their first of three helium plants in 2022, start up theirsecond plant in 2022 and the third plant in 2024-25 which would total upto 2.25 BCF of capacity when all three plants were up and running at fullcapacity.

That’s alot of helium – for context, global capacity today is around 6.4 BCF, Kornbluthsays, so Amur would be adding about another third on top of that.

“Newproduction from Amur was supposed to create a transition from tight markets toplentiful supply, but not only did we not get the new supply from Gazprom, wehad a handful of other things that went wrong,” he added.

“The warin the Ukraine has complicated things beyond just when will Amur actuallyproduce helium, but how will it be able to get the product to market?”

Gazpromsays that the Amur plant is around 87% complete – as of 31 December 2022.

US BLM Pipeline & Federal Helium Reserve shut for 6 months

Anotherbig factor impacting the helium market last year was that the US Bureau ofLand Management closed its crude helium enrichment unit (CHEU) from January to June.

The crudehelium coming out of the Federal Reserve is not pure enough to be used as feedgas for the four privately owned helium plants that are connected to thepipeline so the CHEU purifies it to 80% before sending it to the plants.

“But whenthe crude helium enrichment unit is down, these four plants are getting eitherno feed gas, or very reduced amount of feed gas – and the world loses more than10% of helium capacity,” Kornbluth said.

“Then youhad planned maintenance at two of the three plants in Qatar, the big plant wasdown in February, that took about 35% of its production out of the market.

“The firstplant that’s about half as large as the second plant was down in March, that tookabout 40% of that plant’s production out of capacity.

“And dueto the war in Ukraine, some of the Algerian gas that normally is processed forhelium extraction at their two LNG plants, was diverted to undersea pipelinesto Europe, so you have less feed gas to the LNG plants where helium isextracted which means less feed gas for helium production.”

Added tothat, the offshore gas field that provides feed gas for Linde’s heliumplant in Darwin, Australia has been depleted, taking Darwin’s production out ofthe market, and there was also a fire at the Tenawa Haven Midstream Gas Plantin Kansas, taking around 50 million feet per year out of production.

“What itboils down to is the big new source, Amur, didn’t make it into the market andsome of the existing sources, under-performed, blew up, they had fires, but itwas just a really bad year for helium supply,” Kornbluth said.

Supply chain logistics and sanctions

The bigquestion is, how long is the shortage going to last? How long will prices stayelevated? And will they continue to go up from where they are now?

Kornbluthsays there’s a huge amount of uncertainty right now about what’s going tohappen in the helium market in the next couple of years.

It reallyboils down to if and when Amur gets production up and running, because it hasthe potential to make a significant contribution to supply and to help moderateprices.

But let’snot forget that sanctions may also come in to play.

“Gazpromhas been telling their customers to expect the first helium plant to restart nolater than April, so that’s potentially 750 million feet of production, it’s asignificant 11% increment to capacity,” Kornbluth says.

“Andthey’re saying that their second plant will start up a couple of months later.Will that happen? Maybe, maybe not. If I had to place a bet, my bet would beprobably not.”

Thenthere’s the added complication of sanctions.

Currentlythere are no direct sanctions on helium exports from Russia, but Westernshipping companies are not allowed to call on Vladivostok, so there’s a lotfewer sailings in and out, going to a lot fewer destinations, and it’s moredifficult to get the helium containers that need to be filled with helium inand out of Russia.

SHAPE \* MERGEFORMAT Western shippingcompanies are not allowed to call on Vladivostok. There’s not been a heap ofcomplaints… yet. Getty

Basically,the logistics have become more much more challenging as far as getting thehelium to market, Kornbluth says.

“Ifsanctions come into play, and if any of these contracts that Gazprom has withthe helium majors to buy their helium unravel, that could cause a pretty bigproblem,” Kornbluth said.

“And thereason it would cause a problem is because, like the shipping chaos of theearly pandemic days, there’s a potential issue around the availability of thecryogenic containers that are utilized to transport liquid helium.

“There’sonly two manufacturers of these containers right now that are established, onehas been quoting 18-month lead times and the other has been quoting 24 monthlead times, so it’s not a trivial matter to go out and buy several hundredcontainers.”

On apositive note, if the existing buyers are unable to buy the helium due tosanctions there’s enough demand for the helium in non-sanctioning countrieslike China, like Korea, like Taiwan, like Singapore, like India, to absorb itall.

Theproblem is that the new buyers wouldn’t have enough containers, and not onlywould they have to wait 18 months for the first one, Kornbluth estimates they’dneed to acquire around 300-400 in total to move the full capacity of Amur’sfirst 2 helium plants to market.

Helium shortage could subside late 2023…maybe

Ifeverything goes right (no more explosions for example) Gazprom gets the twoplants running, they run at a level relatively close to capacity, sanctionsdon’t screw things up, the logistics challenges can be overcome, and the heliumstarts flowing into the Asian market. That’s your optimistic, “thread theneedle” scenario.

But ifsanctions come into play, their existing offtake agreements unravel partiallyor fully, and the inability to secure containers is a significant impediment togetting the helium to market then it could take an extended period of time tofully absorb the Amur production into the market – that’s a scenario that saysthe shortage could continue into 2024, maybe even into 2025, Kornbluth says.

“That’snot a prediction, it’s just one scenario,” he said.

“Thelikelier scenario is somewhere in between, that there will be production fromAmur in 2023 from one or two plants – probably not full capacity from eitherone of them – but there will be helium flowing in the second half of the yearand some or all of that helium will start making its way into the Asian marketand we will start seeing the helium shortage subside in the second half of 2023– but perhaps not come to an end.”

Prices probably won’t rise as much this year

Kornbluththinks prices will continue to trend up, as long as we are waiting around for asignificant contribution from Amur.

“I don’tbelieve prices will go up as much in 2023 (as they did in 2022), but when Amurbegins to sustain material production, prices would be expected to moderate.”

When itcomes to how quickly they would come down and by how much, he points to thefact that in the past when shortages are followed by oversupply, the industrytypically held on to about half of the price increase they got on the way up.

It’s asolid pricing environment for helium explorers on the hunt for new sources.

BeyondAmur, Qatar is planning its fourth plant for 2027, which is expected to produce1.5 BCF which is about a 25% increment on current supply – but that’s a fewyears away.

“There’squite a lot of uncertainty between now and 2027, a lot of activity aimed atdeveloping new sources and it’s a great time for a start-up to be producinghelium and earn a nice return, if they can get into production,” Kornbluthsaid.

“They’reexploring, they’re raising money, they’re drilling, they’re really producing alot of press releases, but most of them are not yet producing helium.

“If theycan find it in the ground, they can probably produce it if they find asufficient quantity of reserves.

“Sellingit is the easy part right now, and you can sell it for very good prices if youcan produce it,” he said.

Who are the ASX helium plays?

Blue Star Helium(ASX:BNL)

Blue Starhas recently added four approved wells to its list of development welllocations following final approval from the Colorado Oil and Gas ConservationCommission.

The wellswill be drilled as offset development wells to the JXSN#1 and JXSN#2 heliumdiscoveries at the Galactica/Pegasus project in Las Animas County and areexpected to be production wells.

AndSproule is currently finalising a resource update for Galactica/Pegasus, whichis expected to result in the declaration of contingent helium and CO2resources.

The $63mmarket cap company expects to permit Galactica/Pegasus in parallel with theVoyager development, which will be achieved using a leasedprocessing facility with first helium sales targeted forthe second half of 2023

Noble Helium(ASX:NHE)

A relativenewcomer to the scene that listed in April last year, $33m market cap companyNoble Helium is still at an early stage of exploration for its suite of assetsin the United Republic of Tanzania.

Thecompany’s key focus in 2022 was to advance exploration activities at the NorthRukwa Project, with the aim of addressing every structural closure for itshelium prospectivity to ensure selection of the two most promising drillcandidates in 2023.

NHE saysits fully funded through these drilling preparations and a farmout process isunderway, with multiple parties expressing interest.

Incombination with the legacy airborne gravity gradiometry and 2D seismicexploration dataset, the company also has a goal to develop a ProspectiveResource Estimate in 2023, following the same process that achieved anindependently certified unrisked summed mean helium prospective resource of176BCF at North Rukwa.

Grand GulfEnergy (ASX:GGE)

Last weekthe company announced the expansion of an existing Gas Sales & ProcessingAgreement (GSPA) with Paradox Resources to include theJesse-2 well.

Paradox isowner of the advanced Lisbon helium processing plant, 20 miles north of GGE’sRed helium project in Utah, USA, which has a maiden prospective gross projectunrisked P50 helium resource of 10.9 billion cubic feet of helium.

“Theexpansion of the offtake agreement with Paradox continues the relationship witha proven helium refiner and seller with deep helium processing and marketingexperience,” GGE managing director Dane Lance said.

“GrandGulf is well placed to capitalise on one of the world’s most critically scarecommodities with the ability to quickly monetise a commercial well with minimaltime and cost.”

Notably,last year the company was advised of US spot prices in excess of US$2,000/mcffor research grade helium (160mcf tube trailer) and Paradox advised of purifiedgaseous helium sales exceeding $500/mcf – that’s a 300% rise in spot pricesover the last year.

The $41mmarket cap company said that in the event of a successful well, the GSPAprovides a path to monetization of the Jesse-2 – which is scheduled for spud Q12023.

Renergen(ASX:RLT)

SouthAfrica-focused Renergen is a lot closer to producing helium than the other ASXplays with, progressing with the commissioning the Phase 1 plant for its Virginiaproject in South Africa in 2022.

Late lastyear the company released its quarterly report, noting that helium plantcommissioning has been slower than anticipated due to the detection of a leakin the vacuum walls of the pipes of the helium system.

The leakhas now been located and corrected, allowing the team to move to the final stepof commissioning with the integration of the helium compressor with the LNGsystem offering the necessary pre-processing of the gas stream for heliumliquefaction.

“This processis now at an advanced stage, and we believe we should be able to communicatethe successful production of liquid helium to the market once this has beenachieved,” the company said.

Phase 1 isexpected to produce about 350kg (about 74,620 cubic feet) of helium per day,and the company has previously flagged proved (1P) reserves of 7.2Bcf ofhelium.

RLT has amarket cap of $267m.

AtStockhead we tell it like it is. While Blue Star and Grand Gulf are Stockheadadvertisers, they did not sponsor this article.