By John Helmer, Moscow
Blimps long ago lost their value as a means of cargo transportation, military reconnaissance, or anti-aircraft defence; whilst the helium that fills them – more safely than the combustible hydrogen gas which brought down the Hindenburg in 1937 – is sharply increasing its value in other applications. But the US, which is currently producing most of the world’s helium, is short of fresh supplies and low on stocks. This is because the government-set price is rising too slowly to cover the combination of rising demand, delivery and distribution costs, and spot-price speculation. To fix this in the short term, the US Congress is considering a new bill, the Helium Stewardship Act of 2012, but no vote is likely on that until next year. Much of the recent reporting of a helium shortage, and threat to helium-supplied operation of medical scanning machines, has been stimulated by lobbying for the enactment of this bill by the commercial interests; naturally, they want to see the US government lid on helium prices lifted.
The Americans believe not only that they dominate worldwide production, but also that they hold the largest reserves of helium in the global market. In theory, that’s a combination which should keep most of the profit from a commercial helium bubble in American pockets. However, Gazprom and Russian experts believe the US reserve estimates to be quite wrong. Russia, they claim, holds the largest share of helium reserves. The key to meeting rising demand, they also claim, lies in the opening of two of Gazprom’s biggest new gasfields, Chayanda (Sakha region) and Kovykta (Irkutsk), accompanied by investment to build Russian plants to liquefy helium – a form of the gas which currently isn’t produced in Russia, and must be imported.
Building these two gasfields is exactly what chief executive Alexei Miller told President Vladimir Putin on October 29 that Gazprom intends to do as quickly as possible. Either that will take the gas out of the helium bubble, or else it will blow the windfall profits in an unexpected, Russian direction.
Last year, according to the US Geological Service (USGS), the US produced 140 million cubic metres (mcm) of helium gas; of that, 83 mcm came from active natural gas wells, and 57 mcm from the federal government’s National Helium Reserve. That’s an underground stockpile known as the Bush Dome Reservoir at Amarillo, Texas. Altogether, this US output amounted to 78% of worldwide production. The USGS calculation is that US reserves of helium are 4 billion cubic metres, trailed by Algeria with 1.8 bcm, and Russia with 1.7 bcm.
WORLDWIDE DISTRIBUTION OF HELIUM RESERVES:
Source: UGSG report.
According to Lola Ogrel, deputy general director of the Infomine Research Group in Moscow, last year Russia produced a little less than 4 mcm of helium gas. But data collected in 2003 by Russian experts indicate that Russian helium reserves total almost 17 bcm – 322.6 mcm in Russian reserve classifications A and B; 9.1 bcm in classifications A, B and C1; and an additional 7.9 bcm in classification C2. “The Americans are wrong on the order of magnitude,” Ogrel says. “ In my latest report, I have determined that Russia holds 34% of world reserves; and the US 18%. Qatar holds 21% and Algeria 17%.”
Other Russian experts say they are puzzled by the American figures. Even allowing for counting classification differences, and the distinction between reserves and resources, the Creon Energy firm in Moscow says “the [USGS] figures are rather strange. According to our data, the leaders of helium reserves are [in order of magnitude] Russia, Qatar, the United States and Algeria. The figures for reserves are as follows: 11.2, 10, 8.5 and 8.4 billion cubic metres, respectively. It should be understood that the reserves data are based on the percentage of helium in natural gas in the fields.”
Recent claims by Iran for its South Pars gasfield suggest helium reserves of 10 bcm. A Russian-led feasibility study is under way in Iran to prove the field’s capacity.
At a conference of Russian helium industry experts in Moscow on October 23, it was reported that growth in demand for helium in Russia is growing faster than 15% per year. For the time being, advertising blimps and balloons are the biggest source of domestic demand for the gas. But liquefied helium for cooling applications – in Magnetic Resonance Imaging (MRI) scanners, for example – is required in even faster growing volumes, all imported. A study of the Russian helium market by Ogrel is available from Infomine.
At the moment, there are two Russian plants processing helium for sale — Krior and NII KM. Feedstock gas for Krior comes from Gazprom’s subsidiary, Gazprom Mining Orenburg. When the latter lifted its helium price in 2011, Krior was forced to cut output. Imports of liquefied helium are managed by Russian subsidiaries of the two global leaders in the industrial gas market, Air Liquide (France) and Praxair (US). Gazprom estimates that domestic Russian consumption of helium is currently running at about 2 mcm per year, while the Orenburg production complex has capacity to turn out 5 mcm per year.
The circumstances in which Gazprom has exercised its helium monopoly to reduce the commercial independence of the domestic processors of liquid helium, preventing them from exporting on their own account, make a complicated tale which has moved in and out of the Russian courts.
If the new Congressional legislation doesn’t stimulate a rapid expansion of new helium in the US, the Gazprom plan for the two fareastern gasfields at Chayanda and Kovykta will be capable of exporting 60 mcm of helium by the year 2020. That’s a fraction more than the US government’s Bush Dome reserve is currently supplying the market. Washington’s strategic rationale for conserving Bush Dome may therefore shift – to saving helium consumers from Gazprom.
On October 29, the Kremlin released this transcript of Putin’s meeting with Miller. The bottom-line was that Gazprom must hurry to build a new plant for liquefied natural gas (LNG) at Vladivostok for tanker shipment to the Asian and Pacific market. Capacity will be 10 million tonnes per annum, to be supplied from Chayanda and Kovykta; they are to be connected to the LNG refinery by a 3,200-km pipeline. The output of the two new gasfields is estimated at about 50 billion cubic metres per annum, 20bcm to be piped eastwards to the Vladivostok refinery, and 30bcm to be delivered by a separate pipeline as natural gas to China. Agreement with the Chinese on that pipeline and volume of delivery is in negotiation.
Miller promised Putin the Vladivostok plant will be completed, along with the supply pipeline, by 2018. The plant will cost an estimated $7 billion, the pipeline $24 billion, and the Chayanda field start-up, about $14 billion.
There is no mention of helium in the Kremlin transcript. Gazprom confirms that Chayanda has a high concentration of helium. “The development of the Chayanda and Kovykta fields,” says Ogrel, “will make economic sense if a production level is achieved of 25 bcm of natural gas per year. The demand for gas in Eastern Siberia is estimated at 5 bcm per year. Therefore what must be resolved is the issue of natural gas exports to China and other Asia-Pacific countries.”
Asked to clarify its helium production plan, Gazprom says it “has begun to establish in Yakutia [Sakha] a gas production centre based on the large Chayanda field, the gas from which, in particular, contains a high concentration of helium. In 2017, the company will begin production of gas (including helium) at the field. The next step will be the creation of the Irkutsk gas production centre, and in particular, the development of Kovykta field, which also contains helium. In the future, large-scale production of gas (including helium) will be established in the Krasnoyarsk Krai”. Gazprom said it has prepared no estimate of the cost for developing the new production chain for helium gas and liquid helium.
Creon Energy estimates indicate that the compared to US helium concentrations of up to 1.9%, Chayanda is at the 0.5% level, while Kovykta is at 0.28%, still well above the current threshold for commercial profitability. A study of the future for the Russian helium industry, issued earlier this year by Ernst & Young, concludes that US supplies are likely to dwindle, while helium production and liquefaction projects planned by Algeria and Qatar may generate an over-supply in the global market. “There is clearly a market niche which Russia can occupy in the foreseeable future,” the Ernst & Young report concludes, “if an investment decision is made today. In addition, project development should be supported with incentive programs for helium consumption in Russia to avoid the risk of overproduction. Third, construction of a storage reservoir for helium extracted at all gas fields in Eastern Siberia will require an investment of USD1 billion–USD2 billion to purchase helium in 2030, and these funds would probably be frozen for a long period.”
At the Moscow helium industry conference in October, a Gazprom export executive, Nikita Pozdnyakov, said the importance of helium is not in question. But he added that the strategic storage of helium should be created, “not as an end in itself, but in order to be able to quickly monetize the volume of helium pumped into storage in line with the growth in global demand for the product.”