Investing in Helium

How to play this unique opportunity

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(Previous pieces on helium can be found here and here)

We are talking helium today, the second most abundant element in the universe (after hydrogen).

If it wasn’t for the effect helium has on your voice, you might not even know it was there: it has no taste, no smell and no colour. It’s inert and non-toxic. Doesn’t mean we don’t need it.

While there may be plenty of it up in the universe, down here on earth there is something of a shortage. Being so light, helium, when liberated, tends to rise, so it is considered one of the earth’s only non-renewable elements. This has seen the price of the noble gas rise (sorry!) to all time highs.  

It’s difficult to know exactly what the price is as there is no spot market, most contracts are private and price is dependent on purity. But prices seem to range enormously. Per thousand cubic feet (MCF) I’ve read of trades as low as $500/mcf all the way to $3,000/mcf. Purity, quality and location are all factors, but the general consensus is that prices have risen at least ten fold over the last fifteen years.

Normally when there is a shortage of a commodity, one way or the other, whether via recycling or extraction, production tends to increase to meet the shortfall, and so prices come back down again. What is remarkable about helium is that that has not happened. Supply has not risen. Annual helium consumption, at around 7 billion cubic feet (BCF), is not far off where it was in 2011. Instead, end users are finding ways of using less, though this is not always possible.

Helium is the second-lightest element and it has the lowest boiling point of any element, so it finds considerable use as a coolant. Its main uses are in MRI machines, in military equipment, high tech manufacturing (especially fibre optic cables), in semiconductors, scientific research, quantum computing, data centres and in aerospace. NASA is the world’s single biggest helium consumer. It recently signed a $1 billion contract with Air Products and Chemicals (NYSE:APD) (who we covered here) to supply 33 million litres of liquid helium.

MRI helium usage is actually decreasing, even with MRI machines finding more and more use, because manufacturers are finding ways to use less helium in machines. But demand in computing, data centres and semiconductors is on the increase, and it will increase further with the boom in AI. Demand from the space industry is also likely to grow as space travel and satellite usage increase. For example, SpaceX is planning 40% more rocket launches this year than last. The generally accepted forecast is for a growth in helium demand of at least five percent per annum until 2032.

We obtain helium mainly as a bi-product of hydrocarbon production, especially natural gas, and the two biggest producers are the United States and Qatar. Between them they account for 85% of global supply. Saskatchewan in Canada is a potential growth area, however. Currently, it produces 1% of global helium, but has the world’s 5th largest reserves and has a stated goal of increasing output to 10% of world supply by 2030. Easier said than done.

I heard one analyst describe helium as a flea on the tail of the dog of hydrocarbons. Even with the price rises, this is a tiny market, worth around $3bn worldwide. Grade-A helium sold privately in the US last year was around US$820 million, says analyst Anthony Milewski of Oregon Group.

There has been a spate of small companies forming looking to find and extract helium and cash in on the price rises. Many have already agreed off-take agreements with big players from the tech and space industries. But, while many have made discoveries (many have not even done that) or secured land packages, and some have off-take agreements, it is hard to find an example of one that has successfully made it to production. That is because “helium production is hard”, as Cliff Cain of rare gas consultancy Edelgas keeps reminding me. (Cliff is extremely articulate about the space. I spent a good hour with him on the phone last week - many thanks, sir!)

The result is that helium companies have been something of a disappointment, to put it mildly. On the one hand, there are a couple that have made their mistakes and are now a year closer to production. Companies that can successfully make production are going to make a lot of money. On the other, there are stories verging on the fraudulent. Who’d’ve though there would be BS merchants in Canadian junior resource sector …

In Russia Gazprom has a large facility, which was dependent on US expertise to get it producing. Of late US expertise has been somewhat lacking in that neck of the woods, but it’s likely we will see some supply from there within three years. We are likely to see increased supply from Tanzania, as well as from Saskatchewan, in a similar timeframe, as well as from the plethora of smaller cap plays. Recycling practices are also improving. Commodities bull markets never go on forever, even in helium which appears to be never-ending, and I suggest there is perhaps a two-to-three year window for a company to make helium while the sun shines. 

There is no helium ETF to my knowledge. The large caps, such as Air Products and Chemicals (NSYE: APD), tend not to be pure plays. That’s not to say this $63bn market cap company which sells gas and chemicals to industry is not worth a look. $12bn of sales last year. A yield of 2.5%. Illustrating the importance of helium to aerospace, it recently landed a $1bn deal with NASA to supply it with helium. The long-term chart of this company shows years and years of gradual growth, though when we covered it at the beginning of the year, it was $314 and we suggested waiting for it to have a “two" handle”, which it now has.

Would be helium investors will have to explore the spicier, small cap end of the market, therefore. There are perhaps twenty such plays, most of them listed in Canada, but also in Australia and on AIM here in the UK. Having spoken at length with Cliff Cain, and others, we have whittled the list down to six speculative plays that are best placed to exploit this two-to-three year window of opportunity. Here they are.