Helium interest is rising

Helium is the second-most abundant element in the universe after hydrogen. An odourless, colourless and inert gas, it is incredibly stable — and will not burn or react to other elements. It has both the lowest melting and boiling points, but can be turned into fluid when cooled to near absolute zero.

Helium is a non-renewable resource that is usually recovered from natural gas deposits, with US states Kansas, Oklahoma and Texas some of the best hotspots for viable discoveries.

What is helium used for?

Yes, well done. Helium is used to blow up party ballons — mostly because they look good, but also because human beings cannot adequately allocate critical resources where they are actually needed. 

In no particular order:

• Lifting Gas: Being lighter than air, helium provides lift for airships, balloons, and some spacecraft.

• Cooling: Liquid helium achieves extremely low temperatures, crucial for scientific research and medical applications. MRI machines, for instance, use it to cool their magnets.

• High-Tech Research: Helium is critical for cooling scientific instruments, including those at the Large Hadron Collider.

• Inert Atmosphere: Helium is unreactive, making it ideal for creating an inert environment in industrial processes such as welding and manufacturing silicon wafers for computer chips.

• Electronics Production: Helium is involved in various stages of chip manufacturing, essential for our everyday electronic devices.

• Data Transmission: Helium is used during the production of fibre optic cables, which carry internet data.

• Leak Detection: Due to its small atomic size, helium easily penetrates tiny openings, making it perfect for detecting leaks in air conditioning systems, pipelines, and sealed containers.

• Deep-Sea Diving: A helium-oxygen mixture is used by deep-sea divers to reduce the risk of decompression sickness compared to nitrogen.

• Medical Treatments: Helium-oxygen mixtures can assist in breathing for individuals with asthma or other respiratory conditions.

• Space Exploration: Liquid helium serves as a propellant in certain rockets.

There are dozens more use cases, but you get the picture. And for most of these applications, there is no substitute for helium.

This is a really, really important point. Lithium is the best element for EV batteries, but nickel or sodium-ion or even hydrogen can act as a substitute. Copper is the most conductive element, but again, if there are shortages you can replace copper with aluminium in many use cases.

This is not the same with helium; it’s irreplaceable, non-renewable, and also difficult to recyclable. You can probably already see the wider investment case.

Supply shortages?

Helium is only really found in economically viable quantities within a small number of places in the world, and many of these are rapidly being depleted. The largest reserves are found in Qatar, Algeria, Russia and the US.

Indeed, as a by-product of petroleum exploration, the first commercial helium-rich gas system was discovered in the United States in 1903. 

An important factor to consider is transport time — if a shipment takes longer than roughly 35-50 days, liquid helium will literally evaporate. This makes a shipment from, say, China to the US, expensive to insure for obvious reasons. And if there’s geopolitical instability, as there is now, this only adds to the problem — Qatar is sending its helium round the Cape of Good Hope at present instead of risking the Red Sea, which adds three weeks to the original journey to Europe or beyond.

It's worth noting that three of the five major US helium suppliers are already rationing the element for use in critical equipment like MRI machines and refusing to sell for non-essential uses such as balloons.

For some mad reason, the US government recently decided to sell the Federal Helium Reserve — a massive underground stockpile based in Amarillo, Texas, that supplies up to 30% of the country’s helium.

With 425 miles of pipelines across Texas, Oklahoma and Kansas and 1 billion cubic feet of helium, there are already warnings that the 40 million MRI scans taken in the US every year are at risk of an increased shortage with the supply in private hands. Again, helium is not replaceable in this use case, as it is the only element capable of keeping magnets cool enough to generate images.

The problem is that a private owner would have to reconcile state-specific laws unlike the federal government. And a separate system will now need to be built or leased to enrich the helium before it can be used — because current enrichment systems are not part of the federal reserve, and instead privately owned by four private companies.

These issues could cause a three year delay to the reserve being usable in the supply chain again, which could send helium prices rocketing in the US — effecting the rest of the world.

Key factors to know about helium assets 

When a company talks about an asset with helium potential, other than the standard questions like jurisdiction or previous successes etc, you need to look for four things in an asset:

1. Size of project — how many millions (or billions) of cubic feet of helium there is, which informs the size of plant and economic viability of operations.
2. Grade — investors tend to focus on grade over other factors when it is only one component of four. An exceptionally high grade is good news but does not by itself demonstrate commercial viability. World class grades can be up to 10% helium by volume.
3. Flow rate — the higher the flow rate, the better. Flow rate can be artificially enhanced to a degree, but the bottom line is this determines how many wells you need to feed each processing plant.
4. Contaminants — complex gas compositions requires more modules, though if you have some natural gas you can use this for your own electricity needs.

The takeaway is that you need all four factors to be good — you tend to get a rough idea of the project size first, and then grade, and then flow rate, and finally contaminants. At every stage, a project that looks awesome can become worthless — which is very different to most other junior resource assets.

As a general rule, helium-rich fields can be classified according to their primary gas component:

• Methane-rich as the most common gas which is trapped in producing fields
• Nitrogen-rich fields with some amounts of helium accumulated in natural gas fields
• Carbon dioxide-rich fields where CO2 is the primary constituent of the gas volume

Once you go into production, it’s commonly thought that capital expenditure is so high you effectively have to have a large partner with deep pockets — however small scale plants within the $10 million to $20 million range are perfectly viable. These can often be funded through loans from OEMs paid back via toll agreements, family offices, or even the traditional debt and equity route.

The misconception arises because of the industry production standard method of cryogenic distillation — which is expensive but not the only way forward:

• Cryogenic Distillation — industry standard because it's very effective at separating helium from natural gas. It works by cooling the natural gas down to extremely low temperatures, which liquefies most of the other components. Helium, having a much lower boiling point, remains gaseous and can be separated. However, it requires expensive equipment and a lot of energy to maintain the low temperatures.

• Membrane Separation — uses special membranes that allow helium to pass through more easily than other gases. It's less efficient than cryogenic distillation but can be a good option for smaller scale operations due to its lower initial investment.

• Pressure Swing Adsorption — uses an adsorbent that selectively attracts and holds helium under pressure. By cycling between pressure changes, the helium can be separated from other gases. Similar to membrane separation, PSA is less efficient than cryogenic distillation but can be more suitable for smaller operations with lower upfront costs.

One of the key concepts to understand is that helium is an incredibly rare and valuable resource — if you get excited with a standard gas asset, you’ll positively explode if you find anything half-decent in helium.

This means both that you become very attractive to commercial partners, but also that developing a field yourself is a viable option because even if you use the less efficient membrane separation or PSA methods, you are still printing money (though perhaps creating a gas waste issue) — and with a very low initial capex investment. Helium is literally hundreds of times more valuable than natural gas. 

In that same vein, transporting helium as a gas is the most common method for large-scale operations as it’s most efficient — but can also be transported in a liquefied state in small scale operations. Again, this is more expensive, and again, completely viable given the price premium at sale.

Finally, it’s worth noting that due to the rarity of helium finds and the irreplaceable nature of the gas, the element is effectively subject to an unofficial cartel in the US. If a junior finds a deposit, the cartel will buy it up — and if not, you can develop it and sell the helium at an undercutting price, which tends to elicit an offer.

The good news is that there are now several decent helium plays for the discerning investor to consider.

Leading the pack, we believe that Helix Exploration has the largest potential near term upside due to the upcoming Q3 drilling campaign in the US state of Montana, and the management team including CEO Bo Sears - who literally wrote the book on helium.

It's also worth keeping an eye on the Georgina Energy RTO, as the company boasts two assets in Australia which both have the potential to deliver significant returns. 

And then there's AIM-listed Mosman Oil & Gas. 

Of course, there is also Helium One - whose Tanzanian assets were the story of 2023's market, though initial investors have suffered through a 26-fold set of dilution since the IPO. 

Zephyr Energy's plans for the Salt Wash Field project in Utah could also be an interesting play.