South Africa-based energy company Renergen has signed a $25m deal in the form of a forward sales agreement which will aim to create a spot market for helium, allowing significant investment potential in the rare gas.
The agreement, signed with Argonon Helium US Inc (Argonon), a US-based helium trading company, will see helium traded in a manner similar to cryptocurrency, via the blockchain, in a quantity of 100,000 units over 19 years.
Each unit represents one thousand standard cubic feet (mcf) of iiquid helium at 99.999% purity.
Following the forward sales of the first 100,000 units of helium, the spot market of helium will dictate the price of any future sales between the companies, less Argonon’s trading margin. This will be available until the expiry of the Virginia Gas Project’s license in September 2042.
A portion of funds from pre-sale, should they be made, will be used to accelerate Phase II drilling at Virginia Gas Project without the need for issue of equity. Virginia Gas Project is Renergen’s large-scale helium exploration project, comprising gas fields across Welkom, Virginia and Theunissen.
When the Phase II plant becomes operational the two companies intend to begin trading in the spot market.
Despite the contract’s long-term stipulation, it represents ‘significantly less’ than 0,1% of global helium consumption over the 19 years.
To track and manage the units of helium during trading, Purple Group Limited – a South African financial services company – has been appointed to create a digital platform.
In addition to providing a stable exchange and trading service, the partnership between Argonon and Renergen will provide much needed transparency in a market commonly seen as relatively opaque. Unlike other commodities, helium is not traded in the spot market and there is no visible price per mcf available.
Stating that he sees the transaction as a ‘ground-breaking’ step in bringing helium to the financial markets, Richard Charrington, CEO, Argonon, believes the commodity will follow a similar path to lithium.
He said, “It will start small and is likely to be traded by those who have researched it and understand the future potential with emerging technologies such as quantum computing.”
The likelihood of it starting small is partially due to a market that is currently constrained by plant outages, disrupted shipping routes and reduced upstream production of helium.
With major energy players Qatar and Russia bringing online additional capacity, the market could see some short-term easing. Although due to methane emitted when extracting helium and the international focus on reducing fossil fuel consumption, lower concentration helium fields could come under pressure and further constraint could be placed upon future supply of the gas.
Commenting on the partnership, Stefano Maran, CEO, Renergen, said, “Argonon has developed an innovative product which will provide an accessible platform and market for any interested helium investor to gain direct exposure in the underlying commodity.”
He also elaborated on the importance of helium, stating that it has no substitute and is vital for sectors such as medical imagery (MRIs), welding, fibre optics and electronics.
News of the agreement has sparked interest in Renergen, with its share price increasing by nearly 7% over the weekend (beginning 15th October).