Every once in a while, word gets out about a looming shortage of a certain–usually niche–commodity. Natural resource companies, both large and small, then quickly “pivot” to said commodity, and the next thing you know a surge of investment interest and, frequently, commodity bubbles quickly follow.
It’s a script that has played out with numerous commodities including potash, graphite, cobalt, rare earths, vanadium, and even marijuana (though not strictly a commodity).
And it’s now playing out with helium, the second-most abundant element in the Universe behind only hydrogen, yet also one of the rarest elements on our planet.
Helium’s scarcity and value stems from the fact that it’s an inert gas that does readily react with other elements or much of it generated by earth’s natural processes. It’s also 7x lighter than air and readily leaks into space and eventually gets torn away by solar winds.
Each year, our planet generates about 3,000 tons of helium through radioactive decay deep in the bowels of the earth. Unfortunately, the vast majority leaks off into space, and the little that is trapped in the atmosphere comes nowhere close to meeting our global demand of 32,000 tons of helium per year (about 6.2 billion cubic feet measured at 70°F and under earth’s normal atmosphere).
Indeed, the majority of our helium reserves are found in ancient shale formations. Helium is, therefore, regarded as a finite, non-renewable resource.
Yet, many investors have been sleeping on an unraveling helium boom, thanks to
explosive growth in the semiconductor and healthcare industries as well as space and quantum computing.
This rare gas is endowed with unique qualities that make it indispensable in many key applications including space exploration, rocketry, high-level scientific applications, in the medical industry for MRI scanners, fiber optics, electronics, telecommunications, superconductivity, underwater breathing, welding, cryogenic shielding, leak detection, and in lifting balloons.
At a melting point of -261.1°C (-429°F), helium has the lowest melting point of any element, meaning there’s no substitute for the gas where ultra-low temperatures are required such as superconductors. For instance, the fastest train ever built, the SC MagLev, capable of speeds of more than 600 km per hour, uses liquid helium to cool the superconducting material, niobium‐titanium alloy, to 452 degrees Fahrenheit below zero.
According to ResearchAndMarkets, the global helium market is projected to reach US$18.2B in 2025, growing at a CAGR of 11.2% during the period 2021 to 2025 mainly driven by robust medical and consumer electronics demand. About 30% of the world’s helium supply goes into MRI scanners while another 20% goes into the manufacture of hard disks and semiconductors.
Meanwhile, Big Tech companies such as Google, Facebook, Amazon, and Netflix are heavy users of helium in their massive data centers.
With demand constantly outstripping supply and the federal government no longer freely selling helium, prices have skyrocketed, hitting $35 per liter in 2019, more than double an average of $14.60 per liter they commanded three years ago.
Source: Helium One
No more helium from the Fed
The biggest chink in the helium supply chain is the fact that a large chunk of the supply is in the hands of the U.S. federal government.
Back in 1925 when helium-based airships seemed like they would become vital to national defense, the U.S. government created the Federal Helium Reserve (FHR) out of a giant, abandoned salt mine located 12 miles northwest of Amarillo, Texas. Over several decades, FHR collected as much helium as it could and essentially became the world’s strategic helium reserve supplying ~40% of the world’s needs.
Unfortunately, the FHR eventually ran into debt trouble to the tune of billions of dollars thanks to its habit of selling helium at well below market prices. In 1996, the U.S. government passed laws mandating FHR to sell off its reserves and close in 2021 in an effort to recoup its debts.
The Bureau of Land Management (BLM) has outlined the process and timeline by which the FHR will dispose of its remaining helium and helium assets. BLM, which now manages the reserve, managed to sell off most of the stored helium to all users, with the remaining 3 billion cubic feet (84 million cubic meters) by 2018 restricted for sale to only federal users, including universities that use helium for federally sponsored research. BLM held its last Crude Helium Auction in Amarillo, Texas, in 2019 with the price rising 135%, from $119/Mcf in 2018 to $280/Mcf in 2019.
The sale of crude helium to private industry has been discontinued and the remaining stockpile is earmarked for Federal users only.
The sale deadline has since then been extended to 30 September 2022, but privatization likely won’t be completed until at least 2023.
There are a ton of stocks to play in this space, including giant Exxon (NYSE:XOM), which produces about 25% of the world’s helium supply at its plant in LaBarge, Wyoming. Regeneron (NASDAQ:REGN) is also poised to become a major helium player, with South Africa’s first-ever liquid helium processing technology. And plenty of small-caps form some potentially juicy new entrants to this space.
This is one to watch. It’s not about balloons anymore.