Today we consider the coldest substance on earth.
Which is?
I knew you knew.
Liquid helium.
I have been covering helium for several years now, and it’s time to revisit the theme today. The reason? I keep reading articles about helium shortages (and these have nothing to do with the controversial cryptocurrency of the same name).
Bull markets come along every few years in some niche but strategically important commodity. I’ve seen it in cobalt, lithium, graphite, phosphate, uranium, rare earth metals, tin and others besides.
The story is almost always the same. Years of underinvestment have led to a shortage of supply of the said commodity. Government stockpiles are exhausted. And, now, suddenly, the commodity is essential to some new technology. Cue the bull market.
What do we need helium for - and why is there a shortage?
Helium is the second most common element in the universe, so how can there be a shortage?
You could say the same about hydrogen and that’s even more common. There may be plenty of it up there, but there isn’t plenty of it down here and down here is where we need it.
Nor is helium a huge market. Annual global demand is estimated at around 6 billion cubic feet (Bcf) or 170 million cubic metres (m3). It’s hard to establish just what the current price is because prices tend to be agreed by contract between buyer and seller, but Cliff Cain, CEO of rare gas consultancy Edelgas Group, which studies the market and consults with most of the companies operating in it, gives me the figure of $1,800 per thousand cubic feet (mcf). A year ago the price was closer to $500/mcf.
The entire global market for bulk liquid helium is probably around $3bn.
Demand keeps growing though, mainly from the medical, tech and aerospace sectors, and “it will keep growing”, says Cain.
Helium is seven times less dense than air. Replace the air in a hard drive with helium, there is less turbulence, the discs spin better and so more discs can be packed into less space, while consuming less power. Helium-filled hard drives increase capacity by 50% and energy efficiency by 23%. Thus almost all high-quality data centres now use helium-filled high-capacity hard drives.
It’s also used in barcode readers, computer chips, semiconductors, LCD panels and fibre optic cable.
Another rapidly growing industry that’s gobbling up helium is the space sector. Helium is used in fuel tanks for rockets and satellites. Physics requires it in particle accelerators.
Its low density means it also finds use in deep sea diving, but perhaps its most essential use is as a coolant, especially for the magnets in MRI (magnetic resonance imaging) machines. They must be kept near absolute zero to maintain the magnets’ quantum properties and not lose their potential. A typical MRI machine needs 2,000 litres of liquid helium.
As someone who has recently broken his ankle, and also only discovered that I broke my neck in my younger days (it was never properly diagnosed), I can tell you the importance of MRI machines and the diagnostic clarity they bring. Some 38 million MRI examinations were carried out in the United States last year. Forbes suggests helium shortages may be the world’s next medical crisis.
“Given the importance of MRI in the medical profession,” it says, “the helium crisis should be front and centre for politicians, policy makers, physicians, patients, and the general public to discuss and find sustainable solutions for. The scarcity of helium is a serious matter and affects all of us directly or indirectly.”
And then there are the party balloons.
Where do we get helium from - and why its price is going up
As Cain points out to me, if you are an aerospace company whose business relies on putting satellites in space, ideally as many as possible, or an MRI manufacturer whose business relies on selling MRI machines, you are not going to let helium shortages get in the way of your business. You are not going to stop producing the machines you produce - you are going to want to produce more and more of them. You will pay whatever price is necessary for the helium and pass the cost on.
“Phones, computers, all modern life – it requires helium,” says Cain. “There’s no substitute. Without it, we go back to the Stone Age.”
Helium is produced as a byproduct of natural gas refining. The world’s largest producer is the United States (roughly 40% of supply), followed by Qatar, Algeria, and Russia.
However, the world’s largest single source of helium for the past 70 years, the US National Helium Reserve, recently stopped its supply. It is letting its staff go and the pressure has come off in its pipelines. “It is now at 700psi when it needs to be at 1,200 to be producing,” says Cain. The system is now for sale, at least in theory.
The paperwork has met with delays in the White House, this is likely to take some time to resolve and we won’t see any market until it does. Prospective buyers should also beware of contaminated supplies and ongoing legal suits.
Russian supply from the massive new Gazprom helium plant in the eastern city of Amur is also shut down. That is unlikely to see any production before the end of 2023 as, Cain tells me, it relies on Western engineers and the West is, at present, rather reluctant to send staff to Russia.
In any case, Russia will struggle to sell much beyond China and Russia. In fact, Russia has the potential to become the world’s largest producer, but it’s Russia.
There were two shutdowns in Qatar earlier in the year, though these have now re-opened, and all-in-all we have what has been dubbed Helium Shortage 4.0 – the fourth worldwide helium shortage since 2006.
Opportunities in the helium sector
As with Helium Shortages 1.0, 2.0, and 3.0, supply disruptions in a tiny industry have caused the upset. Cain is not crazy about this idea of Helium Shortage 4.0 – he says it's just the continuation of 2.0 and 3.0, a situation Cain describes as “never-ending”.
Put simply, the world needs new helium supply.
The solution is to invest in prospective helium producers and developers. There are plenty out there. But, as with all natural resource companies, it’s a question of separating the wheat from the chaff. “75% of them,” says Cain, “are going to fail …”
Please check out my special report on investing helium.
This article first appeared at Moneyweek.
Helium can only go higher