There’s Nothing Mickey Mouse about Helium these Days

For most, the first thing that comes to mind when you hear the word ‘helium’ is party balloons and individuals using it to alter their voices for amusement.

However, helium also has a more serious side and plays a vital role in several industries.

It has the lowest boiling and melting points of all elements, and a strong ability to maintain a liquid state at low temperatures, making it powerful in cooling superconducting magnets in medical MRI machines, nuclear energy production, and particle accelerators.

Its properties also extend to leak detection. Helium leak testing is commonly used in industries such as automotive, aerospace, and electronics to identify leaks in sealed systems or components.

Helium plays a crucial role in the manufacturing of semiconductor chips and fibre optics, in which it is used in the fabrication process to prevent oxidation and contamination. These chips are commonly used in phones, TVs, computers, and cars.

About 20 years ago, helium’s use in these semiconductor chips was minimal. However, the subsequent growth of these chips means they take up about 20% of the world’s helium supply today.

Its availability, however, is scarce, and has been a tumultuous industry for years, constantly fluctuating between shortage and surplus since 2006 as the three major producers – Russia, Algeria and Qatar, who by the middle of this decade are expected to supply 60-70% of the world’s helium – have controlled the market and bent it to their will.

Historically the US was a global producing powerhouse. In the 1920’s, the US began building up their reserves for helium under the National Helium Reserve. The reserves then increased during the Cold War and the Space Race, due to its requirements in both missiles and space rockets. However, under the US Helium Privatization Act of 1996, which mandated the sell-off of the U.S. Federal Helium Reserve, almost all of their helium stores ran out by 2019.

The US Helium Privatization Act of 1996 meant that the helium industry shifted from a government-controlled to a more market-driven approach. In turn, this has meant that its price has increased as stockpiles have been depleted.

Over the past 10 years, the price of helium has quadrupled. It’s now trading on a long-term bulk helium contract, equivalent to US$450 per thousand cubic feet.

For reference, that’s about 50 times the price of LNG.

Now, it is important to note that helium is naturally-produced along with natural gas deep within the earth—in fact, more than 95% of all helium comes about as a by-product of natural gas production.

Which means that, when assessing the cost of production, producers are using oil and gas type cost base to find and develop helium, but it’s 50 times more valuable.

So, who are the ASX-listed producers?

Blue Star Helium (ASX: BNL)

Blue Star Helium Ltd is an autonomous Australian-based company focused on the exploration and production of helium. With its headquarters in Australia, the company conducts operations and exploration activities primarily in North America.

The company’s primary strategy revolves around discovering and developing new sources of cost-effective, premium-quality helium in North America.

Noble Helium (ASX: NHE)

In the beginning of 2017, Noble Helium initiated a bold undertaking to establish an independent, worldwide helium supply to mitigate the geopolitical risk that was anticipated to arise due to the dominance of Qatar, Russia, and Algeria in supplying 61% of the global demand by 2024/5.

Their objective is to diversify the supply chain of helium and safeguard it against potential disruptions and market manipulation risks that may arise in the procurement of this essential raw material.

In regard to operating in Tanzania, Co-Founder and Chief Executive Officer Justyn Wood commented, “the new President, Hassan, has really opened the country up for investment, which has been fantastic. She actually mentioned helium in her inauguration speech as a project of national interest. We are finding a lot of support in the country and the government for doing what we’re doing. I’ve been around Africa a long time, and there are some countries that I simply won’t try to do business in. Tanzania’s always been one of the better, if not one of the best, places in Africa to do business.”

Renergen (ASX: RLT)

Renergen is an up-and-coming producer of helium and LNG (liquefied natural gas) that holds production rights to a distinctive renewable gas resource at its Virginia Gas Project.

At the Virginia Gas Project, there exist living microbial organisms that continuously generate a renewable gas supply. This gas resource is notable for its exceptionally high helium concentrations, which are attributed to substantial deposits of uranium and thorium located deep beneath the surface. As a result, the site has the potential to become a significant global helium resource.

Grand Gulf Energy (ASX: GGE)

Focusing on pure-play helium exploration and production in the United States.

Grand Gulf Energy recently announced an extension to its Gas Sales & Processing Agreement (GSPA) with Paradox Resources. This expansion includes incorporating the Jesse-2 well into the agreement. Paradox Resources owns the technologically advanced Lisbon helium processing plant, situated just 20 miles north of GGE’s Red helium project in Utah, USA. The Red helium project boasts an impressive initial estimated gross project unrisked P50 helium resource of 10.9 billion cubic feet.

As the forecasted demand for semiconductor chips is expected to rise, alongside its continued use in devices such as medical MRI machines, fibre optics, and particle accelerators, it is important for helium players to ramp up production.

And there is clearly an opportunity for Australian companies to play a part.

The market has already seen Renergen go into production, so it will be interesting to see which of the others closely follow to meet this shortfall.

About Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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