An ongoing global helium supply shortage exasperated by robust and growing demand has driven renewed interest into securing reliable sources. In part a result of the US Federal Helium Reserve depleting its resources (~25% of global supply), the current landscape for new entrants into this emerging industry has never been better.
-Michael Mueller, P. Geo, CFA. Analyst, Cormark Securities. July 29, 2020
Helium (He) is colourless, odourless, inert, non-toxic gas that is the second lightest amongst all elements and has the lowest boiling point of any element (-268.9 C). These qualities enable helium to be the perfect fit for cryogenic applications (its largest single use), particularly in the cooling of superconducting magnets in MRIs. Other applications include cooling of magnets in NMR (nuclear magnetic resonance); as a shielding gas in welding; leak detection for rocket propulsion systems (NASA); deep sea diving gases; and in high tech environments – specifically in semiconductor manufacturing where an inert atmosphere is required, as well as other well-known uses, such as, balloons and medical equipment. Helium cannot be replaced in many of its applications.
Where Does it Come From?
Helium sources are non-renewable and scarce in economically recoverable quantities.
Helium (4He – the stable isotope of helium), is radiogenically sourced from the radioactive decay of Uranium and Thorium at significant depths in the earths crust. Typically, Precambrian metamorphic or granitic basement rock have higher concentrations of U238, U235 or Th232 and are old enough to have the necessary time component, as well as the necessary heat, for radioactive decay of these elements to helium. Once uranium and thorium decay, the released helium remains trapped beneath caprock.
Historically, helium has predominantly been extracted as a by-product of natural gas production with natural gas prices largely dictating the economics of these plays. With the recent increases in helium prices and natural gas prices dropping, there has been a resurgence in companies actively exploring for helium with the natural gas now being thought of more as a by-product. A number of companies (Royal Helium and N American Helium) are also seeking to produce helium from reservoirs where nitrogen and/or carbon dioxide make up the bulk of the carrying gas stream rather than natural gas which is generally cheaper to produce and process.
Importantly, drilling for helium is nearly identical to the process of drilling for natural gas allowing for the transfer of knowledge from the oil and gas industry and benefiting from a current abundance of idle rigs in North America. As most of the wells targeting helium are simple vertical wells, they don’t necessitate the higher-spec (and more in-demand) rigs required to drill longer and deeper horizontal wells.
Michael Mueller, Cormark Securities – July29, 2020
Unlike the “typical” helium well, in which helium is a by-product of natural gas, wells in Saskatchewan are “helium primary”, due to the unique nature of the minerals within the Precambrian basement located in Southern Saskatchewan.
Once produced, the Helium is separated from other elements (principally nitrogen) using one of the following techniques:
- Cryogenic separation
- Membrane separation
- Pressure swing adsorption
Economic grades for primary helium production wells is as low as 0.30%, with existing productions in Saskatchewan ranging from this lower limit up to ~3%, with the remaining gas stream consisting primarily of nitrogen. Globally, helium grades are as low as 0.04% when associated with large natural gas processing facilities, and as high as ~9%, though this is certainly not the norm.
Given the lack of substitutes for helium in a number of its applications and being a non- renewable resource, the demand for the gas should remain largely price inelastic as evidenced by the significant increase of prices in recent years. With increasing space exploration and advancements in technology and healthcare applications, demand is expected to sustain the growth it has experienced over the past decade. Industry studies have estimated total global demand for helium reached ~6.3 Bcf p.a. in 2018…”
“The US is the largest producer of helium in the world, followed by Qatar, Algeria, Australia, Poland, Russia, and Canada (Figure 6) but with the BLM sales effectively terminated and several new prospects for helium production around the world attracting more capital, this picture is likely to change in the coming decade. Considering this, with much of the world’s helium supply potentially shifting to regions with greater political risk (e.g., Qatar, Algeria, Siberia, Tanzania), an attractive opportunity for new projects in North America exists.
Michael Mueller, Cormark Securities – July29, 2020
Helium In Saskatchewan
The “Saskatchewan Advantage”. Though new large-scale LNG projects overseas (e.g., Qatar, Siberia) aim to fill a portion of the current supply gap, many end users require a politically stable supply of helium given a lack of substitutes in many of its applications. Aside from the obvious benefit of known concentrations of helium and a history of helium production in the province, Saskatchewan boasts a stable regulatory environment with an attractive royalty regime and a largely idle, but knowledgeable, workforce currently redundant to the local O&G sector.”
“With a reliable supply of helium needed in North America (the US alone makes up nearly 25% of global demand), Saskatchewan’s history of helium production and stable regulatory regime make for a logical jurisdiction to meet demand. Beyond already proving the feasibility of producing the commodity in the province, an established oil and gas industry in the area allows for the relatively easy transfer of knowledge, skills, and equipment to the industry.
Michael Mueller, Cormark Securities