Helium industry on the verge of change
The inert gas is needed not just for children’s balloons, medical imaging and the space industry, but also the fast-growing semi-conductor chip sector has raised the alarm on helium supply needed during the manufacturing process.
But 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 undefined market.
“If you try and find a spot price for helium, you can’t," said Greg Robb, president and chief executive officer of Helium Evolution Inc., in a phone interview. “You can get sort of rough ideas. We were offered at one point a contract for $350 per mcf [thousand 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.”
Helium Evolution was approached by German energy company Uniper as well as groups from Japan and the Middle East, Robb said. “They were kind of all going, ‘Hey talk to us first!’” he added
Bear in mind, all of these offers came rolling in before Helium Evolution even started drilling for the gas. 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 invested $3.5 million in June for a small stake in Helium Evolution. The two companies plan to partner on drilling two wells by the end of the year, with an option to drill more. The lack of industry transparency and spot price activity means that Helium Evolution doesn’t actually know how much of 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 TSX 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 and chief executive officer of Royal Helium Ltd. The Saskatoon-based company controls over one million acres of prospective helium land in southern Saskatchewan and southeastern Alberta. He said you can find out the price of the gas, 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 in a phone interview. “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 – known as “midstreamers” and buy from producers, process and then sell it to end users – have dominated the helium industry and now have 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,” he noted. “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.”
Robb said 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 later accused of controlling pricing in order to push out competitors.
“It’s like the days of J.D. Rockefeller,” Robb said. “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.”
Robb added that helium producers like his hope to sell directly to end-users to capture some of the profit gains some “midstreamer” companies currently enjoy.
“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," he said.
On Aug. 19, Royal Helium received an independent resource assessment under a so-called “competent persons report” and appraisal of its helium assets 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 said it had acquired from assessing other private contracts.
“There is no public disclosure,” said Leonard Herchen, vice-president of International Business Development at GLJ, in an email. “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 said Royal Helium recently entered into a three-year contract directly with “one of the two space exploration companies in North America” which simply cut out “midstreamer” companies.
“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 [per mcf[. We’re getting double what we were offered by the industrial gas companies.”
It’s moves like that which are signalling the industry is on the verge of change.
“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.”
Industry executives expect more changes on the way, including greater 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 [the second-quarter] of next year and as a public company, we do have to disclose obviously revenues and volumes, so it’s going to be pretty easy to figure out,” Davidson said.
Robb added that price disclosure may be “tricky” once publicly-traded helium producers report sales data on their quarterly filings. “The price points at some point have to become transparent,” he said.
Davidson said 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.