The world’s helium supply shortage has the medical industry worried. Why do they care? The fact is, nearly a quarter of the world’s helium is used for cryogenics in MRI machines. The situation has gotten so bad that doctors have actually called for a ban on party balloons to save helium for life-saving purposes. This critical shortage has caused a helium price surge to all-time highs and has drawn investor attention to gas producers like American Helium Inc. (TSX-V: AHE) (OTC: AHELF), Praxair Inc.(NYSE: PX), Air Products & Chemicals Inc. (NYSE: APD), Gazprom PAO (OTC: OGZPY) and United State Natural Gas Fund LP (NSYE: UNG).
Shortage Driving Up The Price Of Helium
Global demand for helium has risen by 10% per year over the past decade to an estimated 8 billion cubic feet. This far exceeds current supply which sits at only 5.4 billion cubic feet. This shortfall has placed an enormous strain on the price of helium, driving it up to an all-time high this year to $119 per thousand cubic feet. This represents an 11% increase over 2017. This trend is likely to continue into 2020, where the value of the helium market could exceed $1.5 billion.
A balloon ban could certainly be effective, but this extreme option isn’t a long-term solution. A much better solution lies in finding new sites that can produce helium in the future. This has created a window of opportunity for a pure-play helium producer to help fill the gap between demand and supply.
A Discovery That Could Rebalance The Helium Shortage
One candidate that may have an opportunity to fill the gap between supply and demand is American Helium Inc. (TSX-V: AHE) (OTCQB: AHELF), which is currently exploring a land package consisting of over 17,700 acres of land in the Uinta Basin in Utah. Analysis of historical data shows that the company’s asset has very high helium concentrations of 1-1.5%. This number is comparable to Texas, the biggest helium-producing region.
American Helium Inc. aims to be the first pure-play U.S. helium producer. It appears that any such producer may have the backing of the United States government. Recently, Donald Trump placed helium on his list of critical minerals, sending a signal that the U.S. government is in full support of companies that can unearth helium domestically in fill the void. The company is led by David Sidoo, a 20-year veteran in the oil and gas industry and founding shareholder of American Oil & Gas Inc. Their goal is to take their land package into commercialization within 14 months. If all goes to plan, Utah could become just the third helium-producing state.
Just recently, the company reported a significant resource increase at its land package, now estimated to hold 7.85 billion cubic feet (bcf) of helium. Since global demand for helium sits at 8 bcf, American Helium Inc.‘s asset has the potential to cover nearly all of the global demand and rebalance the current supply shortage. The company has now laid out the location of its first well and is in the processing of acquiring drilling permits, bringing this potential solution closer to reality.
Why A Pure-Play Helium Operation Matters
The U.S. is currently the world’s biggest helium producer and controls 55% of global supply, but there actually isn’t a lot known helium resources within its borders. However, the U.S. hasn’t historically had any companies actively looking to unlock its helium potential. Only Texas and Wyoming have produced helium, but this helium has always been a byproduct of oil and gas drilling.
At the moment, the U.S. government operates the world’s largest helium source at the Hugoton Field down in Texas, but this source is declining by 7% a year and will be completely shut off in 2021. This means that in just three years, the U.S. will need an injection to its helium inventory.
Although the U.S. has already begun importing helium overseas, that’s far from a sustainable solution, because other helium-producing nations are also facing a similar supply crunch. For example, Qatar, the second-biggest producer, closed two helium plants last year due to tensions in the Middle East.
Clearly, helium supply will not be able to keep up with demand without a pure-play helium producer. The current field is simply too invested in oil and gas drilling, and helium is just a second thought. When pure play helium producers enter the market, it is highly likely that they will have significant advantages over traditional oil and gas drillers in the helium space. This new generation of helium suppliers is making progress each day, with American Helium Inc. (TSX-V: AHE) (OTCQB: AHELF) potentially emerging as an early front-runner.
Other Industrial Gas Companies in the U.S.
Praxair Inc. (NYSE: PX) – Praxair Inc. is an industrial gas company with operations across North America, Europe, South America, and Asia. Praxair produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings. In November 2017, the company notified bulk liquid helium customers worldwide of increases in helium prices of up to 10%, effective January 1, 2018, or as contracts permit.
Air Products & Chemicals Inc. (NYSE: APD) – Air Products & Chemicals Inc. is an industrial gas company providing atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. The company operates packaged gas businesses in Europe, Asia, and Latin America. In the U.S., the company’s packaged gas business sells products only for the electronics and magnetic resonance imaging industries.
Gazprom PAO (OTC: OGZPY) – Gazprom is a global energy company focused on the exploration, production, transportation, storage, processing, and sales of gas, gas condensate and oil. The company holds the world’s largest natural gas reserves. Its share in the global and Russian gas reserves amounts to 17% and 72%respectively.
United State Natural Gas Fund LP (NSYE: UNG) – United State Natural Gas Fund is an exchange-traded security that is designed to track in percentage terms the movements of natural gas price. The investment objective of UNG is for the daily changes in percentage terms of its shares’ net NAV to reflect the daily changes in percentage terms of the price of natural gas delivered at the Henry Hub, Louisiana.