Global supply for helium is declining while demand surges. Demand continuing to grow despite commodity price increases.
A global helium shortage exists despite continued liquidation of inventories by the U.S. Government from its National Helium Reserve.
The era of supply being underwritten by the drawdown of US strategic reserves is nearly over and replacing this supply will be difficult.
Few significant projects will come online in the next three to four years, putting increased stress on the market as the depletion of stocks held in the US strategic reserve finally ends. The final public auction of helium from the strategic reserve (held in the Cliffside field, operated by the Bureau of Land Management, BLM) was held in August 2018 with final deliveries to purchasers expected in 2021.
New (medium and long term) supply is largely as a by-product of planned oil and gas mega projects that are high capex and are often delayed and can be subject to geopolitical influences.
Tightening in the helium market is expected to be prolonged, driven by lower than expected global output and potential supply deferments, especially if the mega projects in Qatar and particularly Russia (Amur) are delayed.
The demand destruction seen in the industry in the spike of 2011-13, where people sought alternatives to helium (of which there are few and for only limited applications), may have left the rump of demand more inelastic to price movements.
Known project developments suggests a lack of new supply to satisfy increasing (price-inelastic) demand.
Current annual demand growth of 1.5% combined with the natural decline of existing producing fields will continue to put pressure on the supply/demand balance in the longer term. This demand increase is expected to be underpinned by the lack of substitutes for helium in its main markets of MRIs, electronics manufacture, new age airships and high-end science/engineering, including rapid growth in state-funded/private space exploration, pressure/purge applications and semiconductors.
Helium will likely be subject to steady, price inelastic demand growth
After initial separation from other gases in the well stream, He is typically sold as raw helium product grading 50-80% He; it is then further processed into Grade A He.
Typically shipped as liquid to distribution centers in trucks and sold as bulk liquid He or gasified and compressed into tanks or small cylinders for delivery to end users.
Helium can only be stored in transportable containers for a maximum period of 45 days
Cargoes are usually sold at a 99.999% purity or Grade 5, for which there is little pricing information. The lower Grade-A (or 99.99% purity) helium was priced at $280/mcf in the BLM August 2018 auction.
Until recently prices of helium have arguably been kept artificially low by the large-scale, well-publicised selloff of the US strategic reserve to a limited number of buyers that gave mid/downstream companies a reliable supply over the last 10 years.
Helium has traditionally been traded on confidential long-term private contracts to industrial gas companies with take or pay provisions and open escalation pricing. This has kept pricing opaque and reduced incentives for helium exploration.
The BLM’s recent crude helium auction (August 2018), priced at an average $280/mcf (with a high of $337/mcf), highlights concerns over an impending supply shortage.
The present spot market has significantly higher prices than contracted, with prices as high as $1,000/mcf paid by some end users.