The National Research Council’s (NRC) recent report for the US Bureau of Land Management (BLM) titled “Selling the Nation’s Helium Reserve,” produced important findings, conclusions, and recommendations that relate to the worldwide and US helium markets.
This report, which followed a similar study done in 2000, reflects the findings of the Committee on Understanding the Impact of Selling the Helium Reserve, which was appointed by the NRC in 2008.
The actions taken by the BLM in response to the NRC findings are likely to significantly impact the primary and secondary supply chains of both US and worldwide helium markets. In this article, CryoGas International summarizes the findings of this important report that are of most interest to our audience. Please note: text in quotes is taken directly from “Selling the Nation’s Helium Reserve.” Readers can obtain the entire report from The National Academies Press, www.nap.edu.
The Committee on Understanding (committee) was charged with determining “whether selling off the US helium reserve in the manner prescribed by law [the original Act of 1960, as amended by the Helium Privatization Act of 1996] has had any adverse effect on US scientific, technical, biomedical, and National security users of helium.” (The detailed charge for this study is included in Appendix A of the report.) These are all small-scale users of helium, not the largescale commercial customers. “
In response to the charge, the committee found that selling off the helium reserve, as required by the 1996 Act, has adversely affected critical users of helium and is not in the best interest of US taxpayers or the country.”
The special committee that performed this study was composed of individuals from “the many disparate communities that use helium, experts able to address the intricate economic issues that arise in assessing the helium markets, as well as representatives from industry” along with support from the NRC staff. (Biographical sketches of the committee members can be found in Appendix B of the report.)
The report provides much information on helium markets, the world’s complex helium supply system, and the BLM’s role in that supply system. For the major and lesser private industry players who operate the primary and secondary distribution of helium in world markets, there are two subjects of primary interest in this report:
The report provides much information on helium markets, the world’s complex helium supply system, and the BLM’s role in that supply system.
• The pricing of crude helium, which is a significant component of the production cost of pure liquid helium, and
• The reliability and cost of supplying the “small-scale science community.”
According the report, “The amount of federally owned helium being sold is enormous: it is currently equivalent to approximately onehalf of US helium needs and almost one-third of global demand. One consequence is that the price of federally owned helium, which is set not by current market conditions but by the terms of the 1996 Act, dominates, if not actually controls, the price for crude helium worldwide. The committee recommends that procedures be put in place that open the price of federally owned helium to the market.”
In elaboration of the BLM’s crude helium pricing policies, the committee said: “The 1996 Act set minimum selling prices, adjusted for inflation, for crude helium held by the BLM such that the sale of that helium at those prices would generate sufficient revenue to repay the federal government for what it originally spent to purchase the helium and to build the supporting infrastructure, plus inter est. BLM has elected to sell its helium at those minimum prices. At the time of the 1996 Act, the minimum selling price was almost double the price being paid for privately owned crude helium. A market that had been stable for several decades prior to the sell-off of federally owned helium, experiencing neither drastic price increases nor shortages of supply, began to change after BLM started to sell its crude helium. Almost immediately, privately sourced crude helium prices began to rise, and those prices continued to steadily increase so that they now meet or exceed BLM’s price, and many of the sales contracts for private helium expressly tie future selling prices to BLM’s price. Thus this legislatively set price for federally owned helium is now setting the price for crude helium, and there is no assurance that this price has any relationship to the current market value of that helium.
“To the extent BLM’s price is lower than the price the market would otherwise set for crude helium, this pricing mechanism could have several negative conse quences: (1) it could lead to inaccurate market signals, increased consumption, and accelerated depletion of the Federal Helium Reserve; (2) it could retard efforts to conserve and develop alternative sources of crude helium; (3) it could result in transfers of taxpayer assets to private purchasers at below-market values — that is, it could amount to a taxpayer-financed subsidy for consumption of this scarce publicly owned resource; and (4) sales of federally owned crude helium could end up subsidizing exports of helium.
“The managers of the Reserve should shift to a market-based pricing policy to improve the exploitation of this important national asset. The report notes that several mechanisms could be used to implement marketbased pricing and thereby introduce competition, or the threat of it, to the process. However, one complicat ing factor is that before federally owned helium can be used, it must be refined, and the refining capacity linked to the Reserve is owned by four companies. The committee believes that marketbased pricing of crude helium from the Reserve will require that purchasers other than those four companies have access to refin ing capacity linked to the Reserve. However, additional details on mechanisms to pro- vide access to excess refining capacity and to attain the goal of market-based pricing of crude helium from the Reserve are beyond the committee’s charge.”
Given the above, the committee recommended that “BLM should adopt policies that open its crude helium sales to a broader array of buyers and make the process for establishing the selling price of crude helium from the Federal Helium Reserve more transparent. Such policies are likely to require that BLM negotiate with the companies owning helium refining facilities connected to the Helium Pipeline the conditions under which unused refin ing capacity at those facilities will be made available to all buyers of federally owned crude helium, thereby allowing them to process the crude helium they purchase into refined helium for commercial sale.”
As noted, the committee was charged with examining the possible adverse effect of selling the Federal Helium Reserve on the US scientific community. Small R&D users of helium are involved in projects that are deemed vital to the long-term development of a wide variety of important new technologies. The committee finds that small-scale government- funded researchers who use helium have been hit particularly hard by the sharp price rises and shortages that have characterized the helium market in recent times, and notes: “This group was singled out mainly because such research is an important public enterprise and the funding mechanisms available to the researchers, typically grants on three-year cycles for set amounts, do not allow them to respond to short-term fluctuations. These research programs should have some protection from the instabilities recently characterizing the helium market. Accordingly, the committee recommends that the researchers be allowed to participate in an existing program for government users of helium that would give them priority when there is a helium shortage; it also recommends that funding agencies help such researchers to acquire equipment that would reduce their net helium requirements. Implement ing these recommendations would not subsidize such users nor would it require significant additional outlays: Indeed, over time, it would lead to the much more efficient use of the federal funds with which helium is purchased.”
Small R&D users of helium are involved in projects that are deemed vital to the long-term development of a wide variety of important new technologies.
In elaboration of the BLM’s crude helium pricing policies, the committee said: “Among the events that triggered this study were the soaring prices and limited supplies that characterized the refined helium market in the fall of both 2006 and 2007. The committee, composed of individuals from a wide range of professions — economists, business people, and scientists — notes that smallscale scientists were particularly hard hit by price shocks and interruptions in the supply of refined helium during that time. An informal poll conducted by committee members of approximately 40 research programs at universities and national laboratories that use helium indicated that shortages of liquid helium interrupted the helium sup ply for almost half of these programs, with some interruptions lasting for weeks at a time during the late summer and fall of both 2006 and 2007. While anecdotal, these poll results provide clear indication that this community of users is directly impacted by general shortages of helium. For many of those scientists, losing access to helium, even temporarily, can have long-term negative repercussions for their research.
“In general, the federal grant programs that support these researchers simply are not designed to cope with the pricing shifts and other market volatilities experi enced here. The grants typically are for two or three years and for a set amount that does not adjust if a principal expense of research such as helium significantly increases. Further, the relatively short duration of such grants, with no guaranty of renewal, effectively precludes these research programs from entering into longterm con tracts that might at least partially reduce the risk of significant price increases and shortages. Further, if BLM implements the market-based pricing mechanism rec - ommended in this report, the retail price for helium may commensurably increase, which will have an even greater negative impact on those helium users.
“These negative impacts could, however, be mitigated at least in part through a programmatic and policy change that would allow small users being supported by government contracts and grants to participate in a program — commonly referred to as the inkind program — operated by BLM for the sale of helium to federal agencies and their contracting agents. Under that program, qualified buyers purchase their refined helium indirectly from BLM on a cost-plus basis. Notably, participants in the program have priority access to helium in times of shortages. The committee believes that such an expansion of the in-kind program would eliminate supply concerns and many of the price fluctuations that have negatively affected federally funded researchers during the past few years. Further, such an extension would be without significant cost to the programs supporting these researchers and, indeed, should lead to a more efficient use of the federal funds being used to purchase helium.”
The committee recommends: “The crude helium in-kind program and its associated customer priorities should be extended by the Bureau of Land Management, in cooperation with the main federal agencies not currently participating in the in-kind program — for example, the National Science Foundation, the National Institutes of Health, and the extramural grant programs of the Department of Energy — to research being funded in whole or in part by government grants.”
Regarding those allowed to participate in the in-kind program, “the committee believes that the conservation and reuse of helium by these users should be promoted by the agencies funding this research. Although adopting such a policy may be costly in the short run, the committee judges that it would save money in the long run and would help to reduce many of the negative effects of the price and supply disruptions referred to in the preceding discussion.”
Regarding those allowed to participate in the in-kind program, “the committee believes that the conservation and reuse of helium by these users should be promoted by the agencies funding this research.
The committee’s further recommends: “Federal agencies such as the Department of Energy, the National Science Foundation, the National Aeronautics and Space Admin - istration, and the Department of Defense, which support research using helium, should help researchers at US universities and national laboratories acquire systems that recycle helium or reduce its consumption, including low-boil-off cryostats, modular liquefaction systems, and gaseous recovery systems.”
Finally, the committee noted: “Because total US research applications account for only two to four percent of all usage of refined helium in the United States, the negative effects of supply and price disruptions for the US research community not cur rently participating in the in-kind program could be addressed at relatively low cost. Moreover, in the judgment of this committee, the benefits for the nation that would accrue from minimizing these disruptions would be substantial.”
Several other important recommendations, taken directly from the report, of relevance to the industrial gas industry include:
• The BLM should develop and implement a long-term plan that incorporates appropriate technology and operating practices for delivering crude helium from the Federal Helium Reserve in the most cost-effective manner.
• The BLM should acquire, store, and make available to any interested party the data to fill gaps in (1) the modern seismic and geophysical log data for characterization of the Bush Dome Reservoir; (2) information on the helium content of gas reser voirs throughout the world, including raw data, methodology, and economic assessment that would allow the classification of reserves contained in spe cific fields; and (3) trends in world demand. BLM or other agencies with the necessary expertise, such as the US Geological Survey, should develop a forecast over the long term (10–15 years) of all US demand for helium for scientific research and for space and military purposes.
• Unless expressly prohibited from doing so, the BLM should publish its database on the helium concentrations in the more than 21,500 gas samples that have been measured throughout the world and provide its interpretations of gas sample analyses, especially those reflecting likely prospective fields for helium.
• The BLM should promptly inves tigate the feasibility of extending the Helium Pipeline to other fields with deposits of commercially available helium as a way of prolonging the pro ductive life of the Federal Helium Reserve and the refining facilities con nected to it.
• The BLM should form a standing committee with representation from all sectors of the helium market, including scientific and technological users, to regularly assess whether national needs are being appropriately met, to assist BLM in improving its operation of the Federal Helium Reserve, and to respond to other recommendations in this report.
• The BLM, in consultation with the Office of Science and Technology Policy and relevant congressional com mittees, should commission a study to determine the best method of deliver ing helium to the in-kind program, especially after the functional depletion of the Bush Dome Reservoir, recognizing that this will not happen until well after 2015.
• The congressional committee or committees responsible for the federal helium program should reevaluate the policies behind the portions of the 1996 Act that call for the sale of substantially all federally owned helium on a straightline basis. It or they should then decide whether the national interest would be better served by adopting a different sell-down schedule and retaining a portion of the remaining helium as a strategic reserve, making this reserve available to critical users in times of sustained shortages or pursuant to other predetermined priority needs.
In the committee’s final conclusion it noted “that securing a stable and accessible helium supply in the future requires addressing several important issues that are beyond the scope of this study. For example, the legislative framework for the operation of the Fed - eral Helium Program is silent on the management of the Federal Helium Reserve after January 1, 2015, the mandated date for disposal of substantially all federally owned crude helium. What is to be done with the remaining federally owned crude helium? How will BLM operations beyond 2015 be financed? Should the Reserve, either as a federal or a private entity, as appropriate, continue to exist after the BLM debt to the US Treasury has been retired? While the committee supports maintaining a strategic reserve, addressing these issues requires the involvement of Congress and the broader federal science policy establishment because the issues go well beyond the reserve management responsibilities of BLM.”