Anish is one of the leading experts on the helium industry. The helium industry is a niche market with opaque data and one that suffers from a lack of detailed analysis. Anish has created a proprietary helium supply and demand balance and has completed a comprehensive analysis into helium pricing, where there is little easily accessible data given the lack of any relevant spot market and a paucity of published helium price benchmarks.
Much of the data in the market at present is stale and has relied on extrapolated trends from outdated information. As a result, Anish has conducted a comprehensive analysis of the demand dynamics and created an exhaustive list of all the new potential supply sources.
Why is helium an important commodity?
Helium has several unique properties with numerous applications that make it an essential and irreplaceable element for many industries. This is because it cannot be synthesised, manufactured or substituted in many cases. Helium is listed on the critical materials lists for the US, EU, China and other major economies. Its key properties are that it is the second lightest element, it is the least reactive material known (inert), has the lowest boiling point and is one of the smallest elements. It is colourless, tasteless, odourless, non-toxic, non-flammable, has high sound, specific heat and thermal conductivity and extremely low solubility. Helium becomes a superfluid at temperatures close to absolute zero.
What is helium used for?
Helium is a vital resource, essential in modern technologies with major critical uses throughout the science, medicine and manufacturing industries. It is an inert gas for cryogenic, heat transfer, shielding, leak detection, analytical and lifting applications. It is the most important element in studying super-cold conditions in low-temperature physics studies. It is a critical component in the manufacturing process, specifically ones which serve unique high-tech applications in MRIs and semiconductor chip manufacturing. More recent uses include hybrid air vehicles, helium filled hard drives, nuclear fusion technology and Google X Project Loon.
Helium market size and opportunities?
The helium market is around 6bcf/y. Based on an upstream price assumption of US$250/mcf it is worth around US$1.5bn pa to the producers but based on end user pricing it is likely a 3-4x larger market. We see the key uses of helium coming from MRI/NMR machines at 20% of demand; around 15% each for the lifting, scientific and semiconductors categories; around 8-9% for both welding and fibre optics; and 5% or less for leak detection, space and diving.
Who are the main players?
There are numerous players involved in the helium market but just a handful of companies control the majority of supply and distribution. For example, on the supply side Qatargas, the US Government (through its strategic storage), Sonatrach in Algeria and Exxon produce the majority of supply and will be joined by Gazprom as it ramps up production in the next few years. There are a handful of mainly US focused midstream companies operating helium purification plants. There are now around 20 independent E&P companies globally that either have helium production or are looking to develop helium. These are generally relatively new companies that have emerged over the last few years to capitalise on rising helium prices. Finally, there are the industrial gas companies that buy the helium: Linde, Air Liquide and Air Products are the main players. As with other commodities, we believe there is a good chance that China will look to stockpile helium (build storage similar to the US Bureau of Land Management) and also look to acquire helium resources globally.
What does the supply and demand balance look like?
We expect that helium supply will grow at a CAGR of around 5-6% over the next five years based on all the current projects planned. However, we see risk skewed to the downside given the history of delays/ramp-up issues for new projects and also the risk of operational/geopolitical disruptions from existing projects. We expect that helium demand will grow in a range of 2-5% p.a., which suggests that some of the current tightness may be eased; however, if there is downward pressure on price from incremental supply, we see the potential for higher demand as companies look to secure supplies at lower prices and possibly also look to top up storage levels.
How is helium priced?
Market pricing for helium is difficult to ascertain as it is not a traded commodity and pricing is normally based on long-term, confidential contracts, resulting in opaque pricing given there are only a few key suppliers and industrial gas buyers. Many helium users tend to be price insensitive as there are no substitutes for helium in many cases, making them price-takers. This is another reason for long-term contracts as security of supply is crucial to many users. Therefore, spot or current pricing is not overly relevant for producers and means production is more bankable given security of cash flows. The market is very susceptible to supply disruption, which has led to price spikes in the past. It has been estimated that around 10% of global helium demand was lost in 2011-13 due to shortages and pricing doubling.
What is current helium pricing?
We see recent pricing at around US$250-300/mcf for producers. For example, the majority of imports into Europe have recently been around US$250/mcf and imports into China at US$300/mcf based on the data available to us. The latest US auction pricing (back in 2018) was at US$280/mcf. Gazprom has apparently been selling individual cargoes of helium for ~US$700/mcf. From the data we have seen, when cargoes are being sold in single ISO sized containers (1mmcf) they appear to be selling for well over US$500/mcf. To put these prices in context, end users such as universities have been paying >$1,000/mcf.
What is the carbon footprint and environmental impact of helium?
Helium does not suffer from environmental criticism, pipeline constraints, regulatory burdens and excess taxes. There is no direct carbon footprint associated with the use of helium, unlike burning fossil fuels, which is another attraction for increasingly ESG savvy investors. Producing helium as a standalone product rather than as a by-product of natural gas production is another benefit.
FEB 2021 - TUDOR, PICKERING, HOLT & CO
Anish Kapadia joins TPH’s Close Of Business Tuesday weekly forum to discuss the helium and international oil and gas markets
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Anish discusses the strong start Helium One has made on the London Stock Exchange