The helium shortage has captured headlines across the country. Over the past few months, there have been hundreds of articles written about the current state of supply and the rising costs of helium. Just in the past few days, headlines like “Helium shortage deflates grad parties” and “Helium shortage threatens parties as we know them” have graced the banners of local and national news outlets across the country. While most of these articles fail to capture the gravity of the situation beyond the outlook for party balloons, this is not the real concern. What is concerning is the amount of misinformation swirling around about the helium shortage.
“The helium shortage was caused by the government.”
This fallacy pervades news reports, and the bottom line is it’s simply not true. An Associated Press article appearing in such publications as The Washington Post states, “Helium is in short supply because of the 1996 Helium Privatization Act that called on the government to sell off most of its helium reserves by 2015.”
Meanwhile, an editorial in Tuesday’s edition of The Boston Globe reads, “The nation is selling off its vast helium reserve — in such a ham-fisted way that it’s led to a shortage of the gas.”
These statements are not only simplistic, but inaccurate. The Chicago Tribune, on the other hand, correctly reported that the helium shortage has been caused by a variety of coinciding factors, particularly plant outages and shutdowns across the globe. It helps that The Tribune spoke with industry experts like Linde’s head of global helium, Nick Haines.
I also had the pleasure of speaking with Haines a few months ago, who explained that helium is a globally traded product, and outages anywhere in the world affect everyone. Planned and unplanned outages across the world are largely to blame for the current situation, not the U.S. government’s plan to sell off its reserves.
“The United States is running out of helium.”
While partially true, it’s not for the reasons outlined by the media. An article in The Washington Post attempted to explain the need for legislation to replace the Helium Privatization Act of 1996 (HPA), but when it was reprinted in The Boston Globe, careless editing made the statement even more off base: “Thanks to a 1996 law that has forced the government to sell off its helium reserves at bargain-bin prices, the country’s stockpile of the relatively rare and nonrenewable gas could soon vanish.” (WP used the word “dwindle” in place of “vanish.”)
Here’s the problem with that statement. Under the existing system, the federal helium program will be shut down long before it ever runs out of helium. This is one of the main reasons the industry is scrambling to get new legislation in place before the HPA expires. Air Products’ Director of Helium Sourcing Walter Nelson told the Senate that “At current production rates of about two billion cubic feet per year, the reservoir could continue to produce helium for five to six more years.” He also noted that “Helium was removed from the reservoir at rates lower than those projected.”
So while we may run out of helium if the HPA expires, it’s not because the government is selling it off too fast. It’s simply because we would lose access to stockpiles that currently provide almost a third of the world’s helium, stranding valuable helium supplies.
Overall, the media is sending a lot of fuzzy and often incorrect messages. Distributors may be wise to take advantage of this opportunity to share their expertise with local news outlets, and receive some visibility in exchange.
As a person who is intimately involved in helium sourcing endeavors in the lower 48 United States, I can assuredly say that the Government is a LARGE part of the existing shortage. There is nothing sinister about this – Lawmakers merely chose a path that proved to be imprudent (through time). Let me explain:
When the Government chose to exit the helium business via the 1996 Helium Privatization Act, they had to choose a pricing mechanism for the helium in storage. The lawmakers decided that they wanted to recoup the Government’s investment in the project (from its inception) plus accrued interest (no profit). Thus, they estimated how many Mcf of recoverable helium there was in the reserve and placed a number on these Mcfs that got them to that point. Put another way, there is absolutely NOTHING RESEMBLING THE MARKET CLEARING PRICE for the helium being sold from the Government’s reserve.
Now fast forward…. The uses of helium began to drastically increase AFTER the 1996 Act was implemented, yet the price of the helium in storage was fixed – by the Government (again, nothing sinister at play here). More and more, the helium from the Government became the flywheel production for the entire world. Helium refiners up and down the BLM pipeline took large allocations of helium, paid a low fixed price, then sold the same helium for pretty hefty multiples. But I digress….
The main point is this: there is plenty of helium in this country; however, as long as the Government keeps the lid on the price of crude helium, there is no incentive for producers to risk capital to bring in new volumes. The major industrial gas companies (such as the ones noted in this article) are scared to death that the Government will allow for the price of the Government helium to “float” with the market. They have a reason to be scared: their “sweetheart”, fixed raw material cost will then go sky high, and their margins will be squeezed. If I were them, I would be pleading with Congress to keep the status quo – wouldn’t you???
Let me pose the following question: how many gasoline refineries would absolutely LOVE for the Government to “fix” the price of their feed stock (oil) to, say, $20 per barrel? Think about how their margins would be improved…. Ah, but not so fast. Economics 101 tells us that if the price of a raw material is fixed below the market equilibrium price (the way Nixon did in the early 1970s), you would have shortages. In this scenario, oil producers would stop taking risks on oil wells if their market was limited to $20/barrel and there would be less product coming into the refineries. This is the way the market works and this is why we had lines at the gas stations in the 1970s (Nixon implemented price controls to help curb inflation – a failed experiment).
Virtually all economists would agree that the U. S. Government’s “experiments” with price controls were disasters. The Government’s fixing of the price of crude helium as killed new supplies over time, plain and simple… It didn’t happen overnight, but it happened insidiously over time.
We have helium shortages today because we have FEW new sources of helium coming into the market (noted, there are some, but I’ll argue it’s hardly enough). The free markets will work just fine IF Government lets the price of crude helium resemble the MARKET CLEARING PRICE. Moreover, the United States Taxpayers would be the DIRECT BENEFICIARY of such an endeavor because the Government would make a lot more money selling the helium at the market price – instead of giving the helium away at a price that merely brings them to a break even point.
In summary, let the price of crude helium resemble the market clearing price and helium shortages will go away.
It is true that there is plenty of helium in this country; however, as long as the Government keeps the lid on the price of crude helium, there is no incentive for producers to risk capital to bring in new volumes.