While the US appears to have averted economic disaster with a deal to steer clear of the Fiscal Cliff, the same could be on the cards with the so-called ‘Helium Cliff’ after draft legislation was unveiled recently.

Just days before the New Year began, the House Natural Resources Committee Chairman Doc Hastings unveiled a discussion draft of the Responsible Helium Administration and Stewardship Act.

If passed, the act would potentially clear up fears over the future management of the Federal Helium Reserve in Amarillo, Texas.

With no new legislation currently in place for this resource, and the possibility that funding for the BLM’s helium program will run out at the end of 2013’s third quarter, there are fears that this could effectively remove a huge source of supply from the global helium market.

This, as MATHESON’s Phil Kornbluth explained recently to gasworld, provides a potential timeline for the approaching Helium Cliff. “The exact date of the Helium Cliff is October 7th 2013; if there is no new legislation, then this 2.1 BCF supply of crude helium feedgas will go off the market and make this current shortage look like a mini shortage,” he said. “Up to 4 BCF/year of capacity linked to the BLM Pipeline could be at risk.”

Now though, a discussion draft of the proposed new legislation is in circulation and, it seems, the Helium Cliff might be averted. The proposed legislation is described as ‘a bill to prevent an impending helium shortage and protect thousands of Americans jobs by implementing a common sense plan to sell helium from the Federal Helium Reserve in a responsible manner’.

Come together

By law, the Reserve is slated to stop selling commercial helium next year, a move that would cut access to half of the domestic supply and cause significant economic harm.

The new legislation would keep the Reserve open until nearly all the stored helium supply is sold, while also implementing free-market reforms to promote more competition and a better return for taxpayers.

“This bill is an opportunity for both sides of the aisle to come together and fix a problem that will have serious impacts on American jobs and the economy,” said Chairman Hastings.

“Helium is no longer just about party balloons and has become a key driver in our high-tech economy. The current federal helium program is outdated and needs to better reflect the current supply and demands for helium. Yet Congress must do more than just keep the Reserve open and maintain the status quo. The federal government must not flood the markets with helium at rock bottom prices to only a select few companies. Reforms are necessary to inject competition and obtain a more accurate price for helium that gets a fair return for taxpayers.”

According to an official press release, the Responsible Helium Administration and Stewardship Act will:

· Prevent global helium shortages and promote market-based reforms by implementing a three-phase system for operating the Federal Helium Reserve over the next decade until the Reserve is emptied of helium.

· Increase transparency and prevent unexpected supply disruptions by requiring the Bureau of Land Management to make more information available online regarding planned maintenance closures of the Reserve, the duration of the closure and efforts to minimise any impacts to the supply chain.

· Require the federal government to work with state geological surveys to complete a national helium gas assessment.

· Establish coordinated research on helium-3 isotope that could be used for national defense and clean energy development.

gasworld understands that the draft may still have some flaws to be addressed, but the fact that discussions are already ongoing as 2013 gets underway has to be a positive step toward preventing the Helium Cliff.

 

The three-phase system

Under the current draft of the Responsible Helium Administration and Stewardship Act, a three-phase system would be implemented for the operation of the Federal Helium Reserve over the next decade.

According to the current plan as outlined, this would entail:

Phase A – The Federal Helium Reserve will continue operating under current law until October 1, 2013 or the date, if later, when the debt is paid off.

Phase B – A quarterly helium auction will be established to promote competition and ensure a better return for taxpayers.

60% of the crude helium will be made available to refiners and those with existing tolling agreements.

20% of the crude helium will be available to any bidder (including refiners) that is pre-approved by the Secretary and has a proven interest in helium.

As the helium sold to other bidders (as outlined in the point above) is refined, then an additional amount of the crude helium, up to the full remaining 20%, will be made available by auction to refiners and those with existing tolling agreements.

The Secretary of the Interior will set a minimum sale price for auctions based on a confidential survey of current market crude helium prices and a review of action prices. The Secretary has the authority to increase or decrease the minimum price based on market conditions.

Funds from the auctions will go to the Helium Production Fund, used to operate and maintain the Reserve. Excess revenue will be directed to the general Treasury.

Phase C – Starting when there is 3 billion cubic feet of helium remaining in the Reserve, commercial sales of helium will end and the remaining helium will only be available for federal national security and scientific needs.