Cold War Relic’s Closure Shunts Helium Focus to Qatar

Photographer: Joyce Marshall/Fort Worth Star-Telegram/MCT/Getty Images

Natural gas is flared off at the Federal Crude Helium Enrichment Unit near Amarillo. Amarillo’s importance to stabilizing helium prices showed last year, when production in Algeria stopped and the U.S. failed to push through legislation to release more of the Amarillo reserves quickly enough. Close

Natural gas is flared off at the Federal Crude Helium Enrichment Unit near Amarillo.... Read More

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Photographer: Joyce Marshall/Fort Worth Star-Telegram/MCT/Getty Images

Natural gas is flared off at the Federal Crude Helium Enrichment Unit near Amarillo. Amarillo’s importance to stabilizing helium prices showed last year, when production in Algeria stopped and the U.S. failed to push through legislation to release more of the Amarillo reserves quickly enough.

For 50 years a vast aquifer in the heart of the Texas panhandle has held as much as 30 percent of the word’s helium reserves, acting as a safety valve that buoys supplies when the global market is interrupted.

The site in Amarillo is a hangover from the Cold War era and its phased closure increases the risk of supply shortages and higher prices, spurring a dash by the top two industrial gas companies, Linde AG and Air Liquide SA, to secure other helium resources in markets from Qatar to Siberia.

The Manhattan-sized rock formation, owned by the Bureau of Land Management, is being wound down with its reserves “effectively sold out by 2021,” according to Nick Haines, helium chief at Munich-based Linde, the world’s No. 1 industrial-gas company. As companies wrestle with already squeezed supplies and an increasingly volatile helium market, the question for Haines is: “In the post-BLM era, how will the industry manage?”

At stake is access to a $2.7 billion market that touches products from smartphones and scanners to deep-sea diving tanks and the humble party balloon.

With only about 15 helium sources globally, North Africa and the Middle East are becoming the industry’s new production powerhouses, leaving companies jockeying for position to secure supplies. Linde and its rivals have one eye on a decision on a crucial Qatari helium project tender and are also looking closely at Iran’s potential, according to Zurich-based IHS Global analyst Ralf Gubler.

Moon-Shot Throwback

Prices of helium, a molecule trapped in natural gas fields, surged last year as rising demand coincided with operational problems at a plant in Algeria. Air Liquide and others were forced to stop supplying makers of party balloons to favor industrial clients.

“Security of supply is becoming increasingly important for these majors, and they recognized that during the last extended period of shortage,” said Linde’s Haines. “There’s only one place in the world where it’s possible to store large volumes, and that’s in the BLM system in Amarillo.”

The Amarillo site, a natural limestone-walled rock formation covering 13,900 acres and currently holding 10 billion cubic feet, is a throwback to the space race. When the Cold War eased, it began to sell them off in 1996. Legislation passed in October scheduled a shuttering of the BLM facility by September 2021.

Amarillo’s importance to stabilizing helium prices showed last year, when production in Algeria stopped and the U.S. failed to push through legislation to release more of the Amarillo reserves quickly enough. The price of helium from Algeria, where Linde has a plant with Sonatrach SpA, increased to $10.24 in March from $5.54 a cubic meter in 2009, according to IHS analyst Gubler.

Rising Demand

Demand for helium, more profitable than nitrogen or oxygen because of its unique properties, is growing at 5 percent to 6 percent a year, said Sam Burton, a manager at the BLM’s Amarillo site.

“We are kind of the de facto market setter for the helium crude price,” said Burton. “As we become less and less of a player on the world market, that’s certainly going to be a driver to find other commercially viable sources globally.”

Any surge in prices may threaten that growth if customers push back and look for alternatives, Linde’s Haines said.

“Would you pay a dollar for a helium balloon? Probably. Would you pay $100 for a balloon? Probably not,” Haines said. “So there is an elasticity of demand.”

Qatar

Last year, Air Liquide (AI) started up the world’s largest helium purification and liquefaction unit at Ras Laffan Industrial City in Qatar, which is run by RasGas Co. That tripled the kingdom’s capacity and made it the world’s second-largest producer of the gas with one-quarter of global output. Air Liquide, which has offtake contracts in the first two helium plants in Qatar, is hoping to be selected for a third one.

“RasGas is the master of the game,” said Francois Darchis, a member of Air Liquide’s executive committee in charge of research and development in an interview.

While production ramps up in the Middle East and North Africa, and Gazprom works towards starting a new helium site in eastern Siberia, Iran could emerge as a fourth major source within the next 10 years, according to IHS’s Gubler. Representatives for Linde attended a June petrochemical forum in the country.

“Iran and Qatar basically share the same gas field. Most likely in the Iranian part of the north field, there are similar amounts of helium available,” Gubler said.

Recycling

To keep a lid on costs, manufacturers of magnetic resonance imaging scanners, which use helium as a coolant, including General Electric Co. (GE) and Siemens AG are asking manufacturers to provide more efficient recycling equipment for the gas.

While one of the most abundant molecules in the universe, helium is difficult to extract from natural gas and difficult to transport in containers over long distances as it needs to be liquefied and kept at temperatures close to absolute zero. The engineering expertize needed to transport the gas creates extra revenue streams for suppliers, according to Linde’s Haines.

The containers which store the helium at about -269 degrees celsius cost about $1 million apiece, he added.

“The shortage has pushed us and our clients to pay more attention to the molecule,” said Air Liquide’s Darchis. “We’re tracking our containers in real time because it’s out of the question to let helium boil on some dock somewhere.”

To contact the reporters on this story: Alex Webb in Munich at awebb25@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editors responsible for this story: Andrew Noel at anoel@bloomberg.net James Boxell

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