How To Invest in Helium as The Price Heads Higher And Higher

Helium gas is a highly versatile commodity in short supply. The bull market is far from over: we have had the aperitifs, but the dancing is still to come, says Dominic Frisby

Every few years a bull market comes along in a niche, but strategically important commodity. I’ve seen it in cobalt, lithium, graphite, phosphate, uranium, rare-earth metals and many others. Get the timing right and you can make a great deal of money. The story is almost always the same. Years of underinvestment has led to a shortage of supply of the commodity. Government stockpiles are exhausted. And now, suddenly, the commodity is essential to some new technology. Cue bull market. The trick is to identify tomorrow’s commodity today. With this in mind, I have, for a couple of years now been beating the drum about helium. I first recommended it on these pages in late 2018. Now the party is getting started. We have had the aperitifs – but the dancing is still to come. Helium has a multitude of uses beyond the one we all know it for: balloons. It is inert and has the lowest boiling point of any element. That is why it is used as a coolant for nuclear reactors and magnetic resonance imaging (MRI) machines. It is also a suitable refrigerant in cryogenics research. It is mostly used in digital technology, however, notably in high-capacity hard drives in data centres (helium-filled drives boost capacity by 50% as the gas takes up less space than air) and also in the production of barcode readers, computer chips, semiconductors, LCD panels and fibre-optic cables. Qatar and the US are the top producers, but supply is in decline. Roughly 20% of global demand was met by the US selling off its national reserves. With those reserves now gone, how will the demand be met?

Copycats are coming to market

Since I highlighted the topic my preferred helium play has been Canadian micro cap Desert Mountain Energy (Vancouver: DME); it was trading around C$0.20 in 2018. It’s done astonishingly well and today sits at all-time highs around C$4.50. It has made what appears to be a major discovery in Arizona (still unconfirmed) and is getting ready to move into production later this year. What was a micro cap now has a market value of around C$300m. In phase two of a bull market, copycats emerge. The fundamentals for helium investment are strong and they will remain strong until the explorers turn any discoveries they make into actual production, but there are now several ways to bet on the gas. We still have phase three of the bull market – the mania – to come. I still like Desert Mountain Energy as a way to play this. If production goes to plan (there’s that word “if” again) then this could be a billion-dollar company. We should see plenty of news flow in the coming weeks. We know its latest drilling has encountered helium. We are waiting to find out how much. Not far behind in terms of market value is London-listed Helium One Global (Aim: HE1), which I have also mentioned in MoneyWeek before. It has done very well too, going from 4p when it listed late last year to 27p last month; it has since fallen back to around 22p, giving it a market cap of £135m. The group’s assets are promising, but the location, Tanzania, is not as convenient for Silicon Valley as Desert Mountain Energy’s Arizona. North America accounts for 60% of global demand for helium. Looking further down the chain at some spicy smaller stocks that could rocket, we now have plenty of options. Many of them listed only in the last few months, mostly in Canada, so to play this you will need a broker who deals in Canadian and, to a lesser extent, Australian stocks. We have: First Helium (Vancouver: HELI), Avanti Energy (Vancouver: AVN), Royal Helium (Vancouver: RHC), Blue Star Helium (Sydney: BNL), Global Helium Corp (Toronto: HECO), Helium Ventures (London’s Acquis Stock Exchange: HEV) and Imperial Helium (Vancouver: IHC), which describes itself as private on its website, even though it has been trading on Canada’s TSX Venture Exchange since May.

The pick of the new bunch

Imperial Helium, with a market value of C$27m including C$13m in cash, is my choice: progress on the ground appears to be better than it is with the website. Imperial has “spudded” the first of two appraisal wells it plans to drill at its Steveville property in southeastern Alberta on schedule. That is to say, drilling has begun. It will now continue to a depth of 2,000 metres, followed by testing, and we should see the results in August. The aim is to confirm helium concentrations first discovered in 1940. Imperial has also started road construction at the property, which lends credence to its stated goal that it will be producing and selling helium by next year to sell into “ready markets partnering with commercial gas buyers”. I own shares in the group.

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Helium 3.0: The Market Is Going Through ‘Major Crisis’, Renergen (ASX:RLT) CEO Says

Last week South African LNG and helium player Renergen (ASX:RLT) announced a helium surprise at its P12 well – which it previously advised would be plugged and abandoned. It’s great timing for the company, with stage one of its helium-rich Virginia gas project expected to kick off in Q4, producing about 350kg of liquid helium and 50 tons of LNG a day at an average concentration of 3.9%. Not to mention it’s coming online when the market is desperately searching for new sources of the vital gas. “The helium market is currently going through a third major crisis, the industry refers to it as helium 3.0,” Renergen CEO Stefano Marani told Stockhead. “The first crisis was around 2012-2013, there was a far bigger crisis around the 2016 mark, but the current one is by far the most pronounced. “The main reason is one of the major suppliers of helium — the strategic reserve in the United States called the BLM — announced in 2018 that they’ve run out of helium. “What the world had gotten used to was a stasis where about 30 to 50% of the world’s helium was literally coming from a strategic reserve, and only half of the world’s helium coming from new sources. “Now that the strategic reserve has run out, it means that there’s a desperate shortfall in terms of new resources coming online.”

What’s the outlook for helium in the next 5-10 years?

“The crisis won’t last forever. We’re predicting that by 2025-2026, with Russia’s Amur project coming online, there should be equilibrium in the market again,” Marani said. “And then probably early 2030-2031, you’ll start to see supply falls short of demand by virtue of the fact that you’ve got additional pressure mounting on natural gas production from a climate change perspective. “Supplying demand is going to be challenging, and I don’t think it’s going to be one of these commodities that will ever be in abundant supply.
“I think there will always be a slight shortage.”

How’s the staged approach to Renergen’s Virginia project progressing?

“The launch of phase one should be complete … with initial gas supply coming on in fourth quarter this year,” Marani said. “With phase two, we’ve been doing all of the necessary engineering studies and we embarked on a drilling campaign for six wells, and we’ve had an unbelievable five-for-six strike rate, which is well beyond our expectations. “The helium concentrations range from 1.9% all the way up to 4.4% which is the highest concentration of helium on the planet. “We’ll probably have a handle on phase two later this year, and then we’ll announce to the market what the updated reserves and resources looks like and what the full extent of phase two looks like from a size perspective.”

What sets the company apart from its peers?

“I think the easiest way to encapsulate it is if you have to launch a Falcon Nine rocket using helium from Qatar, the amount of CO2 that you would produce to launch that rocket works out to 489,000 tons of carbon dioxide for the helium for one rocket,” Marani said. “If you look at our field, it will produce the same amount of helium for 1300 tonnes – that’s what sets us apart. Concentration is everything. “Then of course, it’s incredibly useful having the associated LNG in a country that is in the midst of an enormous energy crisis. “We’ve got major energy issues in South Africa, from rolling blackouts with the power stations to old fuel refineries that are constantly down. “Now we produce LNG as a substitute for diesel in trucks and because the railway industry is all but falling apart over here, we’ve got the 11th largest fleet of trucks on the planet – despite our economy being as small as it is. “So that is a huge opportunity to be substituting diesel with LNG in the trucking market and as a result, we’re capable of selling LNG at about 18 US dollars per gigajoule. “To put that in context, in the US it’s about two or $3 per gigajoules, so there’s a big margin over here on LNG. “Plus, it can’t be imported, and there are no other onshore licenses – so we’ve really got a very big head start over here compared to anyone else.”

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Helium Markets Tighten Up Due To Unplanned Outages

At a time when helium supply would be ample if the major sources were operating normally and helium markets are anticipating a significant influx of new supply from Gazprom’s Amur Project by the end of the year, a series of unplanned outages has temporarily disrupted supply and caused renewed concern about shortages.

Three recent events have removed supply from the market during the months of June and July. The Skikda, Algeria plant shut down in mid-June and is expected to be out of operation through at least the month of July, due to problems with the LNG plant which provides feedgas for the helium plant. This outage removes 300-400 million cubic feet (MMCF) of annual capacity from world supply. At around the same time, the Keyes Helium plant, which is one of the four helium liquefaction plants connected to the BLM (US Bureau of Land Management), went down due to a broken turbine. This removes 100 MMCF+ from the market and the time required for repair could be several months. More significantly, the Bureau of Land Management (BLM) shut down its Crude Helium Enrichment Unit with minimal notice on 1st July, to address safety issues. The BLM continued to allow withdrawals of crude helium from its crude helium pipeline until the pipeline pressure declined to 600 PSIG on 19th July. After this date, crude helium withdrawals will not be allowed until the plant restarts and pipeline pressure recovers.
While the BLM’s outage was originally scheduled to last through the end of July, cases of Covid-19 at the BLM’s facility delayed its work plan and are expected to extend the shutdown through to at least mid-August. With normal deliverability of crude helium into the BLM pipeline of 2.3 MMCF per day, this removes up to 800 MMCF of potential capacity from world supply – not counting the loss of helium produced from current natural gas processing. While there was some slack in the market prior to these outages, there was not enough to absorb the loss of more than 1 BCF of annualised supply. As a result, the helium market will be experiencing a supply deficit until the BLM resumes operation.

Reminder

With the BLM system down, there is very little flex capacity available. Tumbleweed Midstream’s Ladder Creek Plant has excess liquefaction capacity and has the ability to increase tolling activity and helium production; Air Liquide’s storage facility in Gronau-Epe, Germany can also provide some flex capacity. Although spot market activity and prices have perked up due to the current tight supply, Kornbluth Helium Consulting does not expect recent events to have a significant impact on contract prices, as long as the tight market conditions are relatively short-term. These latest incidents do provide a reminder, however, that even though the demand shock caused by Covid-19 ended Helium Shortage 3.0 early in 2020, the helium supply chain continues to be fragile, with limited ability to respond to significant plant outages.
Hopefully, the current plant outages will be resolved and the balance between supply and demand will be restored within the next couple of months.

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China opens first large-scale helium plant as it tries to reduce reliance on US imports

China is a step closer to reducing its dependency on the imported helium it uses to make hi-tech products, according to scientists working at a new facility in the northwest of the country.

They say they are extracting helium from the waste product of natural gas at the plant, and it could be the key to mass production in China.

Helium is a noble gas, meaning it is stable and unlikely to react with other elements, even in an extreme environment. It is lightweight, colourless, and a rare resource.

Nearly all helium used in China ” whether to pump fuel for its huge Long March-5 rocket, to protect metal during welding, to produce laser light, or to create the super-clean environment needed to make computer chips ” comes from elsewhere, mostly the United States or US-owned facilities in other countries.

The new factory, which started operating on Tuesday last week, could be about to change that.

Located inside a natural gas processing plant in Yanchi county, Ningxia, it is the first facility in China that can produce helium at a commercial scale, according to a statement from the Chinese Academy of Sciences, which designed and built it.

Scientists working on the project expect the annual output to reach 20 tonnes, in the form of liquid helium. That is not much compared to the massive amount China uses every year ” more than 4,300 tonnes ” but the cost of the plant was low, at 30 million to 50 million yuan (US$4.3 million to US$7.1 million). It means hundreds of similar facilities could potentially be built in China, putting self-reliance in reach.

But to do that, the project will need official backing.

“The investment is not the problem ” the problem is whether the government wants to do it,” said a project scientist, who requested anonymity because he was not authorised to speak to the media.

The US has more than a third of the world’s helium reserves, and has been the biggest producer of the gas since 1925. Most helium is extracted as a by-product in natural gas production, and the US has some of the world’s largest helium-rich natural gas fields. China also has natural gas, but it only contains trace amounts of helium, meaning direct extraction is too expensive for mass production.

However, a research team with the academy’s Technical Institute of Physics and Chemistry in Beijing found there was a considerable amount of helium in the waste product of Chinese natural gas plants. When methane becomes a liquid at low temperature, the helium stays in the air and becomes concentrated, forming a waste substance known as boil-off gas. While helium makes up only about 1 per cent of that boil-off gas, it is enough to extract at a relatively low cost.

Another scientist involved in the project would not disclose the production cost, but said it was “competitive” compared to the cost of importing it.

Separating the helium from the boil-off gas required an extremely low temperature, and the cooling pump needed was only made in a few countries, the scientists said. But after years of research and development, China can now make “every component at home”, according to the academy’s statement.

The price of helium more than doubled last year, according to industry data. The global helium market is influenced by many factors, but the protracted trade war between the US and China has brought new concerns. For example, a possible scenario where Beijing cuts off the supply of rare earths to the US, which it depends on for hi-tech products, and America retaliates by blocking China’s helium supply.

But the researchers believed China would still depend on the US for helium in the years to come. While Qatar and Australia have ramped up production in recent years, their facilities are mostly owned or controlled by US interests. Russia also produces helium, but its supply cannot meet China’s increasing demand.

Building more facilities in China will take time.

“I think we’ll need at least 10 years to reach self-reliance,” one of the scientists said.

Several more facilities were being built or at the planning stage, but they were mainly to be used as a backup supply for the defence industry, the researchers said.

However, some experts say that instead of aiming to produce enough helium to meet its needs, China should increase imports while the resource is still available on the international market, and build up a large strategic stockpile.

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