Helium: An Inert Gas With a Volatile Market

8 MINS READJun 14, 2017 | 15:50 GMT
Helium often plays understudy to other elements or serves a supporting function in modern technologies. Nevertheless, in a select few applications, it is irreplaceable.
Editor's Note

At Stratfor, we use geopolitics to break down the constraints and advantages that geography confers on a country and the political, technological and economic decisions it compels. The exercise, taken to its logical conclusion, can extend all the way down to an atomic level. This occasional series examines the elements and the power that various combinations of protons, neutrons and electrons can exert on the world around us. In the second installment, we look at helium.

Helium has never quite lived up to its illustrious name. The second-smallest element, named for Helios, the Greek Titan who personified the sun, has been relegated to a less prominent role than its etymology would suggest. It often plays understudy to other elements or serves a supporting function in modern technologies. Nevertheless, in a select few applications, it is irreplaceable. Occurring naturally as a gas, helium, with its two electrons, two neutrons and two protons, is the lightest of all the noble gases. It is also inert, or nonreactive, a property that makes it vital to the production of semiconductors and other high-end electronics. Perhaps its greatest advantage, though, is its low boiling point, lower than that of any other element, which lends it to applications in cryogenics. Without helium to cool their magnets, MRI machines and some high-speed rail lines would not be able to function.

That helium is the second-most abundant element in the universe would seem a boon to the industries that rely on the gas. But because it easily escapes the Earth's atmosphere, helium is rarer on the land below. The gas is typically isolated for commercial applications during the extraction and purification of natural gas, where it can occur in concentrations of up to 7 percent. Only a few companies worldwide extract the gas, however, leaving the helium market vulnerable to abrupt changes in the supply chain, often at the hands of politics. Uncertainty over U.S. helium policy in recent years has raised concerns about supply, causing consumers to look for ways to diversify their sources. And now that Qatar, another key producer, is at the center of an international diplomatic crisis, the threat of supply disruption will only grow.

Helium does not react with other atoms -- it is inert. In its basic form, each atom has a certain number of electrons, but to increase stability, some atoms can gain, lose or share electrons in chemical reactions, such as combustion or rusting.

Politics and the Noble Gas

The helium supply has long been a political issue. After World War I, the rise of the airship turned helium into a strategic resource. The U.S. legislature passed the Helium Act of 1925, allowing the government to establish a national reserve of the gas and authorizing the Bureau of Mines to extract and purify it. The space race gave helium renewed importance in the mid-20th century, and Washington worked to further incentivize its extraction from natural gas. By the 1990s, the U.S. government had 1 billion cubic meters of helium gas stocked at the Cliffside Storage Facility near Amarillo, Texas — more than enough to sustain the country. (All of North America consumed just over 71 million cubic meters of helium in 2015.) It had also amassed more than $1 billion in debt. To pay down its obligations, Congress passed legislation in 1996 to sell off the United States' helium reserves and eventually privatize the helium industry. The subsequent sell-off, which began in 2003, caused helium prices to drop and made extraction cost-ineffective for many competitors. As a result, new production fell off.

Though the federal government was on track to pay off its debt before the end of 2013, its policies had precipitated a worldwide helium supply crunch. Washington realized its initial time frame for privatization was shortsighted, and in 2013, Congress passed the Helium Stewardship Act, enabling the U.S. government to keep selling its helium reserves through 2021. The Bureau of Land Management will hold annual auctions for the public until the federal stores drop below 85 million cubic meters of gas. From then on, the sales will be limited to federal buyers.

By extending its deadline, the United States bought the global helium market enough time for new or expanded production facilities to come online. International production ramped up to the point that by the end of 2016, the world's helium market was in oversupply. Other countries, namely Qatar, which today accounts for nearly one-third of the world's supply, stepped up to fill the void that the United States will leave behind once it takes its helium off the market. Together, Qatar and burgeoning helium producers Algeria and Russia are poised to start producing the majority of the world's helium supply over the next several years. Algeria has already expanded its facilities, and Qatar is slated to bring yet more capacity online in 2018. Russia, meanwhile, is set to start production at new facilities in Siberia in the early 2020s. Despite diversification efforts, however, the helium market is still divided among a handful of producers. And most of the new arrivals face a higher level of political or economic instability relative to the United States. The geopolitics of the Middle East and Eurasia may wind up destabilizing the helium market in the years to come.

The United States has long been the worlds largest producer of helium. The gas was declared a strategic resource nearly a century ago and its availability in the United States is heavily influenced by policy.

Sucking the Air Out of the Market

In fact, the recent dispute in the Gulf Cooperation Council (GCC) has already taken a toll on production. Reports published June 13 suggest that Qatar, the world's second-largest helium producer, has shuttered two plants in response to the isolation campaign some of its fellow members in the Gulf bloc are waging against it. When the rest of the GCC states imposed an air, land and maritime blockade on the country, they also threw a wrench in the global helium supply chain. Most of the helium exported from Qatari state gas subsidiary RasGas ships out of the Emirati port of Jebel Ali after reaching the city by truck. Lacking entry to the United Arab Emirates or Saudi Arabia, the Qatari government in Doha decided to shut down the RasGas facilities.

Although reports of helium shortages have yet to surface, the export restrictions facing Qatar may well reduce the world's supply, especially considering the time constraints entailed in transporting it. After refining, helium in its gas or liquid form is typically delivered directly to large customers, transported to transfill stations or loaded onto ships for maritime export; its natural properties pose a challenge for long-term storage. The liquid helium produced at Qatar's major liquefaction plants, for instance, can be stored for 45 days at most. Qatar could use the Port of Doha as a backup point of origin for maritime shipments that would otherwise go through Emirati facilities, should it choose to resume production. But Doha lacks the capacity and efficiency of the Jebel Ali port. Oman's Salalah and Sohar ports could provide a suitable alternative; after all, they are already serving as points of origin for other containerized goods. Oman has done its best to stay out of the spat between its fellow GCC members so far, despite pressure from Saudi Arabia, the United Arab Emirates and Bahrain to side with them against Qatar. Container traffic through Salalah soared in 2016, and Oman's government has ambitious projects planned to expand the port. Salalah could eventually become a transit hub for helium supplies, though Doha would likely still be a bottleneck because Qatar and Oman are not linked by land. Alternatively, airfreight could be an option, albeit a more expensive one, for smaller shipments.  

Preparing for the Worst

Should the standoff between Qatar and Saudi Arabia continue, the helium market will likely suffer the effects. The world's other leading helium sources, the United States among them, would fall far short of covering the gaps in supply if Qatar is forced to halt its exports for an extended period. Considering the limited pool of producers and the small number of containers that meet the specifications for transporting helium, moreover, delays will probably ensue. Big helium consumers may even lobby Saudi Arabia to lower the transport barriers it imposed on Qatar if efficiency declines enough. Japan, for instance, has an interest in settling the conflict sooner rather than later because its Iwatani Corp. has a long-term contract with one of the RasGas plants in Qatar. Helium is crucial for Japan given the size of the aging country's health sector and its focus on developing high-speed rail lines that employ magnetic levitation. Beijing, meanwhile, has already expressed concern over the discord in the Gulf, a region in which it has invested heavily. Its calls for a resolution would doubtless increase should its access to helium — a vital component in its booming semiconductor sector — come under threat. In the meantime, Riyadh and Doha are digging in their heels. The demands that Qatar's partners in the GCC have made of it are numerous, and many of them contradict Doha's imperatives, especially where Iran's influence in the country is concerned.

Helium has three distinct qualities that make it vital for numerous industries. It is inert, meaning it doesn't react with other elements, ignite or oxidize. It is lighter than air, giving it lifting capabilities similar to hydrogen. And it has the lowest boiling point of any element, making it a highly effective coolant.

As additional processing capacity comes online in Russia over the next several years, it could help protect the international helium market against future disruptions. But Russia's economic and political position is by no means stable. With that in mind, countries are looking for other avenues to address the vulnerabilities in the world's helium supply chain. Scientists discovered a massive helium deposit suspected to contain 1.5 billion cubic meters of the gas in Tanzania in June 2016. Still, developing the field will take years, if not decades. And between the drop in demand that the recent shortages caused and the market's sluggish growth, developing new resources may not be an economical solution. Other helium producers are looking toward alternative sources. A plant in the United States, for example, extracts helium from underground carbon dioxide deposits. Regardless of these new developments, though, the helium market will be subject to the vagaries of domestic policy and international politics so long as it rests in the hands of a limited number of countries.

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