The helium industry is on the verge of change 'The power has shifted': The helium industry is on the verge of change
Helium is booming amidst growing concerns over shortages.
The gas is needed not just for children’s balloons, MRIs and the space industry, but now the fast-growing semi-conductor chip sector is taking the largest chunk out of global supply.
But even as helium demand grows, the industry is still a niche market with no public spot price for the product. As more prospectors enter the growing space, they’re finding out that it’s a bit of a black market.
“If you try and find a spot price for helium, you can’t," said Greg Robb, president and CEO of Helium Evolution Incorporated. “You can get sort of rough ideas. We were offered at one point a contract for $350 per mcf [million cubic feet]. That was probably six months ago and it would have been a two-year contract starting next summer. So, we thought, OK, they know something we don’t.”
That offer was from German energy company Uniper. However, Helium Evolution Inc. was also approached by groups from Japan and the Middle East, “and they were kind of all going, ‘Hey talk to us first!’” said Robb.
Bear in mind, all of these offers came rolling in before Helium Evolution even started drilling. The company bought 5.5 million acres in Saskatchewan’s Cambrian formation in 2020, making it the largest publicly-traded land holder in North America.
The land is adjacent to a discovery by North American Helium, a private company that has $3.5 million equity investment into Helium Evolution. The two are partnering on drilling two wells by the end of this year, with the option to drill more. The lack of industry transparency means that Helium Evolution says it doesn’t actually know how much the product they find will be worth.
“We were at a little mineral conference about four weeks ago,” said Robb. “It was mostly mining companies and there was a company called Desert Mountain Energy Corp. which is a helium company listed on the venture exchange, but working down in Arizona. The guy that presented, [company president] Don Mosher, said the market in Arizona for wholesale helium was $1,500 per mcf. Then I heard from talking to someone at the Schacter Energy conference, a knowledgeable person in the helium space, who says the current price for 2024 is US$750.”
That person was Andrew Davidson, president, CEO and director of Royal Helium Ltd. The Saskatoon-based company controls over one million acres of prospective helium land in southern Saskatchewan and southeastern Alberta. He says you can find out the price, if you know who to call.
“It’s gotten a fair bit better in the last year or so than it’s ever been,” Davidson said. “The data is available on what the current price is, but only through helium consultants which is kind of hilarious.”
For years, companies in the middle, those who buy from producers, process and then sell it to end users, have dominated the helium industry.
“These companies – the midstreamers we call them – now have sort of a captive market,” Robb said. “It’s more like an oligopoly. There’s a handful of them, like five or six, and they like their position. The contracts that we were offered, we had to sign non-disclosure agreements and so we couldn’t tell our price point to other end users or other competitors in the market.”
Rodd says the helium market is still reminiscent of the "wild west" beginnings of other industries, like oil. That’s when companies such as Standard Oil controlled a vast majority of U.S. refineries and pipelines and was accused of controlling pricing in order to push out competitors.
“It’s like the days of J.D. Rockefeller. If you have a monopoly, you have pricing power. The oligopoly is – I mean I don’t know how much collusion there is, or if there is any, but when you can’t find a price point for your product, it’s difficult to make the proper investment decisions too. This is a risky business. On our five million acres, there are only five wells that go down through the full sedimentary section so we’re just wildcatting.”
“And to take that risk, you know, we want to get some of that upside,” said Rodd. “We’re not against the midstreamers making margin, but if we’re selling it at the well head for $450 (Mcf) and they’re selling it for $1,500, we’d like to find a way to capture some of that,” Robb said.
“For one thing, their business is the risk-free business. Our business is the high-risk end. So our shareholders are taking the risk and their shareholders are getting an oligopoly kind of rent and we need to close that gap."
On Aug. 19, Royal Helium received an independent resources assessment and appraisal of its helium assets, known in the helium industry as a "Competent Persons Report," by reserve evaluator GLJ Ltd., a global energy consultant firm.
GLJ based its evaluation on US$450 per mcf of helium, a price assumption that GLJ says it had gathered over time from assessing other private contracts.
“There is no public disclosure,” Leonard Herchen, vice-president of International Business Development at GLJ. “When we do an evaluation, we can only work with the confidential marketing information the clients give us, and our experience we‘ve learned from confidential projects.”
Herchen notes that like other resources, helium pricing is based on factors such as how pure the product is and its processing costs.
"You can get a relative spot price, but whether or not that translates into a price you can contract at is a whole other story,” Davidson said. “It depends entirely on who you’re selling it to.”
Davidson and Royal Helium recently entered into a three-year contract directly with “one of the two space exploration companies in North America” and simply cut out the middle men.
“We signed a deal with an end user as opposed to an industrial gas company so it’s one of the reasons why we got such a high dollar value,” said Davidson. “We got US$450 or C$600. We’re getting double what we were offered by the industrial gas companies.”
And it is moves like this that are signalling the industry is on the verge of change.
Royal Helium has been in operation since 2016 and Davidson says the recent spike in helium demand, exacerbated by Russia’s invasion of Ukraine, has really shaken up the helium market.
“The power has shifted firmly into the producers’ hands for the first time probably ever,” said Davidson. “Now producers have the ability to sell to end users. As far as we can tell, ours is the first contract that we can see where a producer has sold to an end user. That is a major dynamic change in the helium industry.”
And more changes are on the way, including more price transparency. As more public companies like Helium Evolution, Royal Helium and Desert Mountain Energy enter the market, they will have to file earnings reports, which divulge all of those details, including the price they’re getting for their products.
“More than likely we’ll be the first to actually disclose pricing because we’ll be in production by Q2 of next year and as a public company, we do have to disclose obviously revenues and volumes, etc., so it’s going to be pretty easy to figure out.”
“It will be tricky if we have to sign non-disclosure agreements, but we have to disclose information on SEDAR [System for Electronic Document Analysis and Retrieval] and certainly to our shareholders,” adds Robb. “The price points at some point have to become transparent.”
Davidson says that the public reporting will help, but says the sheer growth of the helium industry itself and the growing consultancy base within it is also beginning to provide a great deal of clarity.
https://www.bnnbloomberg.ca/the-power-has-shifted-the-helium-industry-is-on-the-verge-of-change-1.1842052