Selling the Nation's Helium Reserve (2010) / Chapter Skim
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1 Overview, Conclusions, and Recommendations
1 Overview, Conclusions, and Recommendations
Pages 14-44
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is steward of the Federal Helium Reserve (see Box 1.1) , the only significant depository of crude helium in the world.
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crude helium is stored, • An extensive helium pipeline system running through Kansas, Oklahoma, and Texas (the Helium Pipeline) that connects crude helium extraction plants with each other, with helium refining facilities, and with the Bush Dome Reservoir, and • Various wells, pumps, and related equipment used to pressurize the Bush Dome Reservoir, to place into and withdraw crude helium from it, and to operate other parts of the Helium Reserve.
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All of these factors must be taken into account in assessing whether selling off the Helium Reserve in the manner prescribed by law has had any adverse effect on important users of helium in the United States. This chapter begins with a discussion of why helium has become so impor tant to such a disparate set of activities.
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When combined with helium's chemical inertness -- especially when compared with the highly flammable alternative, hydrogen -- its buoyancy makes helium an ideal lifting gas. Uses that depend on helium's lifting capability include military reconnaissance, weather monitoring, and party balloons.
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4,00 0 3,00 0 2,00 0 1,00 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 FIGURE 1.2. Consumption of refined helium in the United States (blue)
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in air, it is not economically feasible to extract helium from the atmosphere using current technology. Rather, the principal source of helium is natural gas fields.
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compressing it for transport through the Helium Pipeline to another refining facility connected to the Helium Pipeline or for transfer to the Bush Dome Reservoir for storage. Once stored, it can later be retrieved and further processed to produce refined helium.
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Only 6 of those facilities, owned by 4 companies, are located on the Helium Pipeline, and only these 6 facilities can process the federally owned crude helium stored in the Bush Dome Reservoir. These facilities also have access to crude helium extracted from natural gas in deposits near the Helium Pipeline -- largely in the Hugoton natural gas field spanning Texas, Oklahoma, and Kansas.
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Consequently, there is no market price for crude helium. Rather, other than the public sales of federally owned helium from the Bush Dome Reservoir, discussed in the following section, all sales of crude helium involve negotiations between a fairly small number of companies engaged in refining and a similarly small number of companies producing the crude helium, and the terms, including the prices at which crude helium is sold, are not typically made public.
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Other than the Bush Dome Reservoir there are no significant long-term helium storage systems in the world.5 The average amount of time that helium is in the supply chain, from the time it is separated from natural gas until it is delivered to the ultimate consumer, is between 45 and 60 days, so that any significant disruption in the supply of crude helium to refiners or the processing of that helium into refined helium is felt almost immediately by end users. FEDERAL HELIUM RESERVE The federal government has been extensively involved in the production, storage, and use of helium for almost as long as there have been commercially extractable sources of helium.
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Importantly, purchasers of refined helium under the in kind program are entitled to priority treatment in the event of helium shortages.8 Current regulations restrict access to the in-kind program to federal agencies or contractors with federal agencies that use more than 200 Mcf of gaseous helium 6 Part of the rationale behind the value of the Bush Dome Reservoir is that it can serve as a fly wheel for the storage of crude helium that has been extracted but is not immediately in demand. The effectiveness of that usage is evaluated in more detail in Chapter 5, in the section "Efficiency and Conservation Benefits of the Flywheel." While the committee supports the idea of having the reservoir available to serve as a flywheel, it has not been able to obtain any data indicating it was ever used as such.
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The authoring committee found that the helium market was in an extended period of stability and that no drastic increases in the price of helium or shortages of supply had occurred since the mid-1980s. It also found that because the price established by the 1996 Act for the sale of federally owned crude helium was significantly higher than the then-current prices for privately owned crude helium, and because the helium refineries on the Helium Pipeline were under long-term contracts with the natural gas companies establishing the prices they would pay for privately owned crude helium, it was highly unlikely that the refining industry would buy gas from the Helium Reserve, other than as a last resort to meet unanticipated customer demand or to satisfy obligations under the in-kind program to supply the helium needs of federal agencies.
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Around the same time, BLM negotiated and entered into a partnership with the four companies then owning helium refining facilities on the Helium Pipeline. The partnership, Cliffside Refiners LP, had as its principal objective the design, purchase, and installation of equipment to enrich and compress the crude helium in the Bush Dome Reservoir so that the helium could meet specifications required by the refining facilities.
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The BLM posted crude price does not include additional pipeline use and service fees that average 5 percent of the posted price. Overall trend in selling prices for privately owned crude helium (shaded areas)
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By 2008, private industry crude prices became approximately the same as prices established by the BLM for the crude helium in the Bush Dome Reservoir. This has led to significantly greater with drawals by refiners on the Helium Pipeline than the 2000 Report anticipated (see Figure 1.6)
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But the depletion of the Hugoton field, which is the principal source of crude helium for refining facilities connected to the Helium Pipeline, and the relative shifts in the prices of crude helium such that the helium sold by the BLM now costs as much as privately owned helium, mean that a growing share of U.S. "production" of crude helium has consisted of withdrawals of crude from the Bush Dome Reservoir (see Figure 1.7)
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During 2006, the unplanned shutdowns of U.S. refining facilities not linked to the Helium Pipeline, as well as a planned shutdown of the Enrichment Unit, contributed to global helium shortages and higher prices.
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The 1996 Act established a minimum selling price for the federally owned crude helium in the Bush Dome Reservoir. That price was arrived at by dividing the helium program's total debt by the amount of crude helium slated for sale from 2003 to 2015.
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Treasury, a central goal of the 1996 Act, and leave more than the required 600 MMcf of crude helium on reserve in the Bush Dome Reservoir after retirement of that debt, which the committee anticipates should occur before 2015. Several unusual characteristics of the Helium Pipeline and refinery infra structure, however, may complicate the development of a market pricing policy for federally owned helium reserves that is both transparent and more respon sive to changes in demand conditions.
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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.
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The research is carried out much like university-based research but with technical staff -- typically three or four full-time staff members rather than students -- as the main workforce. The annual consumption of liquid helium in the typical low-temperature physics research program is between 5,000 and 10,000 liters of liquid (1 liter of liquid expands to approximately 27 standard cubic feet of gas)
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In summary, a small-scale laboratory or a typical project at a national labora 15 The committee's assessment is shared by at least one commercial analyst of the helium market: "Rising helium prices should lead to demand destruction at non-industrial helium consumers. Small science labs with less capital for helium conservation projects and small party businesses that use helium for balloon inflation are likely to be most vulnerable, whereas larger industrial manufacturers can install equipment to capture and recycle helium." Jefferies, 2008, at p.13.
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In the committee's judgment, extending participation in the in-kind pro gram could eliminate or reduce the severity of the supply and price fluctuations encountered by many users of refined helium for small academic research since 2006. Because the price of in-kind refined helium is based on the price charged by BLM for crude helium, plus costs, these small users should face significantly smaller price fluctuations than over the past few years.
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Chapter 3 discusses, in the context of all the different helium uses, efforts that have been taken or might take place in the future to conserve helium with respect to those uses, including discussions of possible substitutes, where applicable. The committee feels that market effects associated with significantly rising helium prices should generate appropriate conservation responses and that a more general recommendation to support conservation efforts for other parts of the helium market is not called for.
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However, because the future performance of the Bush Dome Reservoir is so uncertain, particularly on the downside, it would be useful for BLM to consider how to deal with reservoir performance that falls well short of the base case predictions. 17When the 1996 Act was enacted, the value of the methane in the Bush Dome Reservoir was ignored for the purpose of establishing the schedule and pricing for retirement of the debt associated with the federally owned helium.
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Conclusion. Efficient long-term management of the federal helium pro gram requires that BLM have adequate information about the Bush Dome Reservoir and about current and potential sources of and demand for helium worldwide.
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Conclusion. Extending the Helium Pipeline into areas known to have helium, such as parts of New Mexico and Arizona, will give potential producers of helium in those areas access to the storage capacity of the Bush Dome Reservoir and the refining capabilities of those facilities connected to the Helium Pipeline.
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One alternative would be to leave sufficient helium in the Bush Dome Reservoir to provide for a multiyear U.S. reserve in the event of future market disruptions.
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Concluding Remarks Having heard testimony from helium users and suppliers, as well as representa tives of BLM, the committee was struck by the need to commence action now in order to secure a helium supply in the not-too-distant future when the prescrip tions of the 1996 Act expire. The legislative framework for the operation of the federal helium program is silent as to the management of the Bush Dome Reservoir and the Helium Pipeline after 2015, when substantially all of the federally owned crude helium stored in the Bush Dome Reservoir is mandated for disposal.
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• If BLM can retire its debt to the nation before selling off all but 600 MMcf, should it cease recovery operations and, possibly, leave the remaining helium stored in the Bush Dome Reservoir as a strategic helium reserve for the country? Since the sales of the hydrocarbons that are extracted along with crude helium have significantly reduced the debt, it is quite possible that BLM will be able to pay down the debt early, especially if it sells at a higher market price.
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helium reserves in the Bush Dome Reservoir and elsewhere. The stewardship of this valuable national asset could be much improved.
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