Categories: Stock Market
Topics: Alternative Investments

Investing in Helium

Helium Shortage 4.0

Imagine... rushing a loved one to the hospital with a life-threatening emergency such as a possible stroke only to find out the medical staff can’t confirm your suspicions because the MRI machine is inoperable due to lack of one critical element: HELIUM. 

That’s just one poignant example of the type of daunting scenario the world may soon face due to the global helium shortage.

Helium (He), a nonrenewable element, is found deep within the Earth’s crust and is currently in short supply due mainly to decreased output from major producers.

According to the gas industry, the world is presently in the grip of “Helium Shortage 4.0” which can be blamed on declining and unreliable production from existing sources, including Russia and right here in the United States.

It’s the fourth time in just two decades the world has found itself facing a dire helium shortfall.

The Kremlin, a key culprit, has systematically curtailed helium production ever since it invaded its peaceful neighbor to the west, and there have been unforeseen supply disruptions in Russia as well.

The country’s Amur helium plant, which is owned by Gazprom, caught fire early last year leading to a catastrophic explosion and indefinite shutdown (see below). 

Around that same time, a major leak at the Cliffside crude helium enrichment plant near Amarillo, Texas, put a temporary clamp on the flow of helium in the southwestern United States. 

Major supply disruptions such as those are a very big deal for a number of industries that rely on helium, including… as you’re about to discover… medical and tech.

What are Helium’s Main Uses? 

Helium is critical to a wide range of applications that require extremely low-temperature environments (below minus 429 degrees F) that are only attainable at the frigid temperatures delivered by liquid helium.  

Hospitals — which utilize liquid helium to cool superconductive magnets in MRI machines — make up about a third of global helium demand.

And that’s only the very tip of the iceberg.

Aerospace engineers use liquid helium to pressurize the structure of rockets prior to blastoff.

For processes requiring temperatures below minus 429 degrees Fahrenheit, there simply is no substitute for the second lightest element on Earth.

And because helium is non-reactive to most other elements (and, subsequently, provides an inert protective atmosphere), it’s ideal for the growing of silicon crystals needed for wafers used in semiconductors. 

Other applications are as varied as weather and party balloons, airships (such as the Goodyear blimp), automobile airbags, fiber optics, microscopes, and even as a coolant for the world’s expanding fleet of nuclear reactors.

Gaseous helium is used as an inert shielding gas in metal arc and laser welding. It also serves as a carrier gas for gas chromatography (GC) in analytical laboratories and as a leak detection gas in a wide range of industries. 

Of course, we’ve all gotten used to the reliability of weather reports… and there’s a reason for the noticeable increase in accuracy over the last decade or two. 

Weather balloons, which are powered by helium, are typically released twice daily from some 900 locations worldwide, including around 100 launch sites across the US and Canada (see below).

Last year, due to a worsening helium shortage, the US National Weather Service in Florida had to cut its weather balloon launches from twice to once daily — causing critical disruptions to weather forecasting services. 

That’s a growing concern especially with the dramatic increase in severe weather events globally.

Then, there’s the very controversial topic of solar geoengineering, which involves using large helium-filled balloons to send certain particles — such as sulfur dioxide — directly into the sky to either 1.) reduce levels of carbon dioxide so that the atmosphere traps less heat or, 2.) reflect sunlight away from the planet so less heat is absorbed in the first place. 

Again, solar geoengineering has become a hotly debated topic of late — you know, intentionally and perpetually messing with the Earth’s atmosphere and then hoping for the best — but one that some US legislators have already begun contemplating in terms of its potential use in battling climate change. 

No matter the eventual outcome, when you think of giant balloons being sent up into the sky (or, on the flip side, being shot down by the US military), all of these combined factors are shining a spotlight on the fact that, very soon, there may not be enough helium to go around. 

Helium Demand: It’s Only Going UP! 

As supply continues to be constrained, helium demand is only going to go up as new applications are being developed primarily in the medical and industrial sectors. 

As a result, industry analysts expect the growing supply/demand imbalance to support higher helium prices and demand growth through 2028 where the market could balloon — no pun intended — to US$6.5 billion.

Numerous helium-focused investment opportunities are popping up as a result, including right here in the United States. That’s because the US, by far, has the world’s largest reserves of helium at an estimated 8.5 billion cubic meters; other top producers include Algeria, Qatar, and Russia. 

The question is, with such massive reserves, how did the United States — and the world for that matter — find itself facing such a severe helium shortage?  

Enter the US Government! 

For decades, the US government dominated the global helium business through its Federal Helium Program (FHP) wherein the Bureau of Land Management was tasked with gathering and storing the lion’s share of the world’s helium. 

Those were the salad days, so to speak, where the federal government viewed helium as a natural resource deemed critical to national security.

Then, in 1996, Congress — like so many other critical miscalculations on natural resources by the US government — directed the FHP to sell off most of its helium stockpile and, years later, in 2013, made moves to essentially privatize its remaining helium storage and pipeline infrastructure.  

Those mandates, of course, completely backfired, resulting in lower helium prices, making it difficult, if not impossible, for private companies to attract investment capital into the space. 

And, thus, a period of severe underinvestment in the exploration and production of helium has ensued ever since. 

How is Helium Produced?

Helium occurs with other gases in pockets deep beneath the Earth’s surface. 

The most economical source of helium is natural gas, all of which contains some helium. Natural gas in the states of Texas, Kansas, Colorado, Utah, and Wyoming is typically richer in helium than what’s produced from other states.

It’s important to note that almost all of the world’s helium production comes from natural gas reservoirs, many of which were discovered and developed decades ago, and that only a tiny fraction of those reservoirs have helium in a high enough concentration for economical extraction to occur. 

Helium extraction from natural gas fields where the concentration is greater than 0.1% is typically deemed economically viable.

When a gas pocket containing economically recoverable amounts of helium is found, a well is drilled to release the gas. It then travels by pipeline to a processing plant where the helium is separated from the other gases. 

One method of separation is a cryogenic process, which uses cold temperature differences to split the components. Another process, membrane filtration, uses molecular size difference to split components.

Is Helium Renewable? 

Although helium is the second most abundant element in the universe — accounting for around 25% of the atoms in the universe — it is a non-renewable resource here on Earth, which means our supply of helium will not last forever.

In fact, helium is the only element on the periodic table that is considered a nonrenewable resource on Earth.

It’s why the Federal Government stores billions of cubic feet of it in a natural gas reservoir at the aforementioned Cliffside crude helium enrichment plant located just outside of Amarillo, Texas.

Helium is generated deep underground through the natural radioactive decay of elements such as uranium and thorium. 

Sophia Hayes, a chemist at Washington University in St. Louis, states, “It takes many, many millennia to make the helium that’s here on the Earth. The helium seeps up through the Earth’s crust and gets trapped in pockets of natural gas where it can be extracted.”

And since it cannot be renewed, our planet is indeed running out of helium — FAST! That, in turn, is creating a number of potentially lucrative investment opportunities in the helium space for foresighted investors who see the writing on the wall here in early 2023. 

How to Invest in Helium

There are a number of small-cap “pure play” helium companies out there that explore for and develop underground sources of helium. 

Those firms represent the riskier plays in the helium space as their success is highly dependent on a lot of difficult things going right, including the acquisition and discovery process, permitting, drilling, extraction, and, perhaps most importantly, funding.

For the purposes of this article, our focus is on the large-cap, diversified producers that generate revenues not just from helium production but, as well, from the production of other high-value gases. 

So let’s take a look at a couple of ways to invest in helium. 

Air Products & Chemicals Inc. (NYSE: APD)

Headquartered in Allentown, Pennsylvania, Air Products & Chemicals is a globally diversified provider of industrial gases. Its vast portfolio of products includes atmospheric, process, and specialty gases and related equipment. 

The company generated approximately $12.7 billion in revenues in 2022.

Operating through a network of production facilities and industrial gas pipelines — with a presence in the Americas, Europe, the Middle East, Africa, and Asia — the company supplies gases such as hydrogen, nitrogen, and helium (among others) to a variety of industries. 

Air Products offers liquid helium and compressed helium gas in a variety of purities and in various modes of supply around the world thanks to its wide network of storage and transfill facilities.

On 26 January 2023, Air Products announced an increase in its quarterly dividend from $1.62 to $1.75 per share — representing an 8% increase and marking the 41st consecutive year the company has increased its dividend payment.

Linde PLC (NYSE: LIN)

UK-based Linde PLC is a worldwide industrial gas and engineering company that manufactures and distributes gases like oxygen, argon, and helium.

Established in 1879, Linde is one of the oldest currently running companies in the industrial gas sector. 

Linde’s main source of revenue is its atmospheric gas provision services with operations in the North American, South American, Middle Eastern, African, and Asian markets. The company had sales of about $33 billion in 2022. 

Linde operates one of the world’s largest helium plants in Ulysses, Kansas, along with several other facilities around the world including in Algeria, Qatar, and Australia.

With access to more than 50 helium transfill facilities located in all major helium markets around the globe, Linde is well positioned in the helium space and has the infrastructure in place to store and deliver helium to customers around the world across a wide range of industries. 

Linde PLC pays a competitive quarterly dividend of $1.17 per share. 

In Closing...

The world is currently in the grip of a global helium shortage — aka, Helium Shortage 4.0 — due to a confluence of factors including:

• Decreased output from major producers
• A long period of underinvestment in the space
• Mismanagement of reserves by the US Bureau of Land Management
• Russia’s intentional curtailing of production since its invasion of Ukraine
• Unforeseen supply disruptions due to damaged infrastructure 
• The scarcity of helium in economically viable concentrations 

A continuance of those trends will likely cause the price of helium to skyrocket well above current price levels, which, in turn, could lead to record profits for the world’s top helium producers and suppliers. 

We covered two well-diversified helium producers in this article: Air Products & Chemicals Inc. (NYSE: APD) and Linde PLC (NYSE: LIN). 

Both companies offer excellent exposure to the helium industry with the associated risk factor being somewhat mitigated due to the high level of diversification of both firms into an array of other high-value gases.  

As always, it’s important to conduct your own due diligence… and two great places to start are the corporate websites for Air Products & Chemicals and Linde PLC.

In the weeks and months ahead, we’ll be exploring additional ways to capitalize on the global helium shortage, including emerging investment opportunities in the smaller, higher-risk pure plays as helium projects right here on US soil are advanced to the drilling stage.

Strap in, investors… the helium party’s just getting started!

CLICK HERE TO LEARN MORE!

Mike Fagan
Editor, Daily Profit Cycle