Covid-19 has been dominating the news for the last few weeks and it is safe to say that most businesses have been impacted in some way. While there have certainly been businesses who have benefited from the pandemic, far more of them – and the economy as a whole – have been hurt.
Global helium markets have been impacted by Covid-19 in several ways. The most obvious and significant impact has been reduced demand. Initially, demand from China, the world’s second-largest helium market, was reduced significantly when the Chinese economy was put on lockdown. While China has begun to recover, Covid-19 has now spread to all of the world’s developed economies and the overall impact on helium demand has gotten considerably larger. Certain applications, such as party balloons and diving gas, will be particularly hard hit. Demand for party balloons, which represents as much as 15% of the US helium market and up to 10% of global demand, has dropped precipitously due to the implementation of mandatory ‘social distancing’ efforts in many locations. Another helium segment that will likely experience sharp declines (after a bit of a time lag) is the offshore market, where a price war between Saudi Arabia and Russia has resulted in the lowest oil prices in 18 years. This will prove the catalyst for a sharp reduction in diving and oil service activity.
If we consider that most other applications impacted less directly by Covid-19 will experience reduced demand due to a global recession, my expectation is that worldwide helium demand has temporarily dropped by at least 10-15% due to this pandemic.
Disruption
While Covid-19 may have reduced the demand for helium, it has also created significant disruption for the helium supply chain. As the Chinese economy went into lockdown, manufacturing and export activity were sharply reduced, many outbound sailings (from China) were cancelled, and ports were bottlenecked due to a shortage of manpower. This made it unusually difficult for the major helium suppliers to get empty containers out of China and back to sources in Qatar and the US for refilling. Even with lower demand, the constraints on container shipping made it difficult to maintain continuity of supply as suppliers were forced to scramble to secure empty containers for refilling. As roughly 95% of the world’s helium is produced as a by-product of natural gas processing or LNG production, reduced demand for LNG would also result in lower production of helium to the extent that natural gas throughput at the plants where helium is produced is reduced.
Helium shortage 3.0: Cut short by coronavirus
While there may be some negative impact on helium production due to Covid-19, so far the impact on helium demand has been much greater. What does all of this mean to helium market participants? Of course, we are in uncharted waters with respect to this coronavirus. We don’t know how long the pandemic will last, how deep a recession could be, how long social distancing will be practiced, or the choices that our governments will make between personal safety and restarting our economies. “If that is close to being correct, helium markets would transition from shortage to a tight balance between supply and demand in Q2 2020 – and Helium Shortage 3.0 will wind down two quarters sooner than it would have…” The basis for my outlook is an assumption is that the world will experience a sharp recession that will last at least through Q2 (second quarter) and Q3 2020, before we start to rebound during Q4. My expectation is that helium demand will drop by at least 10-15% during Q2/Q3 before beginning to rebound in Q4. If that is close to being correct, helium markets would transition from shortage to a tight balance between supply and demand in Q2 2020 – and Helium Shortage 3.0 will wind down approximately two quarters sooner than it would have without the occurrence of Covid-19. In fact, the US Bureau of Land Management (BLM) lifted its allocation of crude helium from the BLM System on 26thMarch, for the first time since June 2017, providing a clear indication of reduced demand. By the time this helium demand does begin to rebound, hopefully by Q4, new supply from an expansion of the Arzew, Algeria source and/or the third plant in Qatar is expected to have entered the market. This would facilitate a continued balance between supply and demand, instead of a return to shortage, even if helium demand rebounds sharply during Q4. Meanwhile, I continue to expect the start of production from Gazprom’s Amur Project in Eastern Siberia to restore a healthier balance between supply and demand by the middle of 2021. In summary, Kornbluth Helium Consulting believes that Covid-19 will cause Helium Shortage 3.0 to ease approximately two quarters earlier than it would have had we not experienced a global pandemic. I would characterise this as an ‘optimistic’ or ‘realistic’ forecast, with greater risk to the downside (lower demand) if the pandemic lasts longer or causes a deeper worldwide recession.