The helium business was caught without a Plan B and has a number of lessons to learn from the Qatar embargo that impacted upon helium supply markets in summer 2017, says esteemed consultant Phil Kornbluth.
While acknowledging that such a diplomatic situation was completely unexpected, Kornbluth – President of Kornbluth Helium Consulting and a veteran of the helium sector with more than 30 years of experience working for some of the biggest players in the business – described ‘almost a complete lack of contingency planning by the industry’. Kornbluth was speaking at gasworld’s MENA Industrial Gas Conference 2017 in Dubai (UAE), where he was giving an update on the current market situation. On 5th June (2017) a Saudi-led group of countries comprised of the UAE, Egypt and Bahrain announced an embargo of Qatar, a fraught political stance that continues today and appears to show no sign of abating. Within just days it became clear that with Qatar (Ras Laffan) being a major source of helium production, the diplomatic embargo immediately began to impact upon global helium markets. This, Kornbluth explained, left the helium business in something of a tailspin. He pointed out that:
- Everybody was impacted
- Suppliers most impacted by loss of Qatari helium implemented supply allocations, and
- The spot helium market dried up.
It also left the helium industry with major lessons to be learned. “I can’t say that I would have done anything different, because the embargo was so unexpected. It was very unexpected. But there was almost a complete lack of contingency planning by the industry, and nobody had a Plan B when this happened,” he reflected. “The ‘new normal’ is Plan B now, but I think there’s a lesson in there about contingency and risk management. This was a good lesson that you need to think about not just the obvious risk to your business but also the less obvious ones.” This is increasingly significant, Kornbluth continued, as the global helium business is arguably more fragile than ever before. “For many of my own years in this business, it was pretty easy in that the BLM system and stockpile in the US provided a great deal of flexibility and the industry had a lot more ability to respond to outages. But the global supply chain now is more fragile and inflexible. Most of the sources in the world today are take or pay sources, and it’s just harder to flex production,” he explained. “There is greater exposure in the markets to the political situation than there used to be.” It’s important to have a diverse supply portfolio. If you have over exposure to a single source, bad things can happen occasionally. It really is beneficial to have a portfolio of sources so that if one source goes down, you have capacity available from somewhere else.” Kornbluth was a relatively late addition to the MENA conference’s agenda, added to the roll-call of speakers when it became clear that the Qatar embargo was having an impact upon global helium markets and delegates would benefit from an update on the current situation in the region and its ramifications.
MENA conference day one closes
To this end, he offered the view that helium markets should be ‘relatively normal’ again by the end of September and noted that despite the impact of the Qatar embargo on helium markets, there had been minimal impact on contract prices due to the event being a temporary challenge (only a three-week shutdown). “In terms of where we are now, the helium market should be relatively normal by the end of this month. The market should be returning to what I call a ‘new normal’.” Though minimal, price increases have been inevitable, however. “In terms of the implications, the bottom line is it takes longer and it costs more. I would expect those costs to be passed through, to the customers of the customers of Qatari helium. There’s also a longer supply chain, which also means it costs more because it takes longer to ship helium to market.” In closing Kornbluth, an Editorial Advisory Board member for gasworld (US Edition), also gave a broader update on helium markets. He explained that the market is modestly over-supplied when all of the major sources are operating normally, and demand growth remains modest too. As a result, the market is gradually returning to balance in supply-demand.