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New Year, same shortages – EXCLUSIVE

[ 02 Jan 2009, Rob Cockerill, ]
As almost three years of the notorious helium supply shortage fast approaches, gasworld can reveal that little is likely to change as 2009 unfolds.

The cracks began to appear in the helium market back in the second half of 2006. Since then, the supply ‘dilemma’ has continued to snowball and attract much media attention, catching the eye of both industry and public alike.

Over two and half years later and there is perhaps a sense of intrigue towards when exactly the imbalance will be over. Indeed, with the dawn of a New Year there may even exist a renewed hope that an equilibrium is in sight.

In sight it may be, but not in 2009 we understand. In fact, it could be mid 2010 before any noticeable new capacity enters the market.

Attempting to understand what may lie ahead for the helium market in 2009 and beyond, gasworld exclusively caught up with the key figures behind helium operations at Matheson Tri-Gas Inc.

From our discussion it seems important to understand the fundamentals behind the shortage and how it began, rather than trying to simply pinpoint a specific date for parity to resume.

Supply driven

A common misconception is that raging demand has delivered this dilemma, when in fact this is not the case. While demand has undoubtedly grown, this has actually been fairly modest and it is a supply-driven shortage that our industry has been enduring.

Phil Kornbluth, Executive Vice President of Global Helium for Matheson Tri-Gas (MTG), explains, “I guess the shortage started in April 2006, and the market was very much in a shortage situation through the remainder of 2006 and pretty much all of 2007. I think the key point, is that it was really more of a supply-driven shortage than a demand-driven shortage.”

“So while there has been demand growth in the market, it’s been relatively modest and certainly nothing that would drive a market into shortage under normal circumstances.”

So, gasworld asks, how did we reach that stage of shortage in 2006? Could anything have been done to avoid this?

In short, a number of factors contributed to the production pandemonium, as Kornbluth elucidates, “It was a combination of reasons, which included the restrictions the Bureau of Land Management (BLM) put on the helium refineries that rely upon the BLM pipeline for feed gas, and also a whole series of issues away from the BLM pipeline, including the delayed start-up of new sources in Qatar and Algeria and a series of unplanned outages. So, it was a combination of things that took a lot of supply out of the market unexpectedly.”

Taking supply out of the market so unexpectedly is even more significant, when considering the source of this multi-functional, inert gas.

Picking-up the energy trail

Another fact that tends to go unnoticed in some quarters is that helium is merely a by-product of natural gas processing, a fundamental that leaves our industry restricted and largely dependent on the investment of others for development of natural gas processing capacity.

In essence, to source helium you have to go where the energy companies are and wait for the right opportunity. It’s not as simple as just erecting an air separation unit (ASU) and getting results. This is a point the MTG guys are keen to point out.

Kornbluth adds, “Another point is, that helium is a by-product of natural gas processing. With very few exceptions, our industry is not able to build new helium capacity until someone in the energy industry makes an investment, which could be billions of dollars to build a new LNG facility, or it could be a hundred million-plus to build a new natural gas processing facility.”

“Rarely is anybody going to build a helium plant, without someone else having to make very large investments before them.”

“In 2006 and 2007 there was a lack of new capacity coming into the market, partially because of delays to new sources - the Skikda, Algeria plant and the Qatar plant were delayed in starting-up. There weren’t any other opportunities for new sources, so it’s not like the air separation business where you can build a plant anywhere you can get a decent power rate,” he said.

Looking ahead – what to expect

With a lack of new capacity and a notoriously tight market for the past two years, what can we expect to see this year and beyond?

In MTG’s esteemed view, it appears likely that little will really change throughout both 2009 and 2010. We gather that a number of anticipated projects between 2011 and 2013 could paint a brighter picture, though the very nature of establishing a helium production facility provides a somewhat clouded or uncertain outlook.

John Bigham, MTG’s Director of Helium Production, told us, “It’s true that Asian growth has certainly been strong over the last couple of years, but overall I would say that we’re going to continue to experience modest growth.”

“We’ve been seeing low double-digit growth in Asian markets in the last couple of years, but we think that may have softened a bit this year (2008). You also have applications in the US, such as MRI, which are actually requiring less helium at this stage. The new MRI machines that are installed are much more efficient, using a lot less helium than the older models that they’re replacing. Combining that impact with a few other contributing factors, we’ve actually seen the US market shrink in recent years.”

“If you look at everything in terms of the global picture, we think underlying demand has been growing at around 3-5%, up until this recent economic downturn. But it has been impossible to measure accurately, because demand was constrained by the shortage in both 2006 and 2007. It’ll be interesting to see what the final numbers are for 2008, because it may actually be flat,” he added.

Describing a relatively bland couple of years ahead for the helium market, Bigham continued, “I would say our view is still pretty consistent there, the helium market will remain tight due to a lack of near term opportunities to develop new capacity. If you look at new sources of supply that are going to start-up during this time period (2009-2010), there’s Linde’s plant in Darwin, Australia and then there is the partnership between Air Products and Matheson that is going to start-up at Riley Ridge, Wyoming.”

“Aside from those two projects, during that window there really isn’t anything else that’s going to come on-line. There’s a whole slate of projects that could start up during the 2011-2013 period, but again, the timing for those remains relatively uncertain.”

Bigham’s close colleagues clearly agree, as both Kornbluth and Bob Lein, Director of Helium Sourcing for MTG Global Helium, reaffirm the rather uncertain vision of the market after 2010.

Kornbluth added, “I would say there are a number of new projects that could come on in that 2011-2013 timeframe. Addressing this uncertainty, just because someone says they’re going to do something in 2011, it could mean 2013. Or it could mean that in 2011 they turn it on, but it doesn’t work right until 2012 or 2013.”

“For sure, the market stays tight until 2010. Then there’s 2011-2013 that I would call fuzzy or murky, or of an uncertain outlook.”

Echoing these sentiments further still, Lein concurred, “I would add on the 2009 outlook, that as John said, that probably the market remains tight and continues to be vulnerable to shortages in the event of unplanned outages. We’re close enough to a balance between supply and demand, that there’s not a tremendous amount of slack in the system to deal with a major outage.”

Alluding to the projects that could swell capacity slightly and provide a little light relief, Lein said, “There are a few projects in the works that would be coming on-stream in the next couple of years, probably the Darwin project would be the next plant to start-up. That would then reduce exports from the US to Australia and to Asian markets that would likely be supplied from Darwin.”

“Then we’ve got our project with Air Products near Big Piney, Wyoming, which would probably be the next project after Darwin to come on-stream. To the extent that it would help supply the US markets and also make some product available for export, it would bring some modest relief. But given the fact that some of the existing sources are declining as a result of depletion, it feels a little bit like more of the same, at least through the 2010 period.”

What is Matheson Tri-Gas doing?

The supply/demand balance is likely to remain tight then throughout 2009-2010, with only light relief enjoyed in the meantime as Lein suggests.

Affording some of this ‘relief’ will be the Air Products and MTG joint venture (JV) facility near Big Piney, Wyoming. This new liquid helium production plant will be the first new US facility of its kind since 2000 and is designed to produce 200 million cubic feet per year from start-up, processing crude helium produced by a natural gas processing facility owned by Cimarex Energy Co. and its partner Riley Ridge LLC.

gasworld can exclusively reveal that this project is making good progress although some minor delays have been felt along the way.

Lein explains enthusiastically, “Production was originally expected to commence in 2009 but we are now looking to start up the facility some time in 2010. Onsite construction should commence next summer (2009).”

“The most significant new supply opportunity we are currently working on,” Lein concludes, “is certainly the project in Wyoming, but we are always looking to develop new sources of supply, just like other folks in our industry are.”

“Will 2009 be a key year for developing new supplies of helium? “Until our project starts up in 2010, we’re not expecting huge differences in MTG’s supply situation.”