Should The Government Be In The Helium Business?

With the Helium Privatization Act set to expire, is it time for the government to walk away?

Air Products' Walter Nelson

Air Products' Walter Nelson delivers his testimony on the Helium Stewardship Act.

The federal government has played an active role in the procurement of helium since the 1920s. Motivated by military interests, the government built an impressive stockpile of more than 30 billion scf of helium and a pipeline network 420 miles long. Today, two-thirds of the world’s helium supply uses that pipeline system, and 30 percent of the world’s helium originates from the Federal Helium Reserve.

All of this could come to an abrupt end, and it could happen as early as 2013. The Helium Privatization Act of 1996 (HPA) called for the Bureau of Land Management (BLM) to cease production of helium and pay back a debt of $1.3 billion through the sale of nearly 30 billion scf of helium from the Federal Helium Reserve. Although the HPA is not set to expire until the end of 2014, funding for the federal helium program will be dissolved as soon as the debt has been repaid. To date, the BLM has repaid over $1.1 billion of this debt, and is expected to be debt-free during fiscal year 2013. This means that the federal helium reserve, along with any helium contained within, could be shut down up to two years ahead of schedule.

It was with this in mind that the U.S. Senate Committee on Energy and Natural Resources has proposed the Helium Stewardship Act of 2012, which would supersede the HPA and oversee the continued operation of the helium program for several more years. However, the new legislation has left some questioning whether the government is right to continue its involvement with the helium market, or whether it should allow private industry to operate independently.

The Privatization Debate
The website Future of Capitalism published an article suggesting exactly that. The website’s editor, Ira Stoll, was previously managing editor of The New York Sun and a consultant to The Wall Street Journal. “Instead of allowing the [helium] program to go out of existence, the politicians and bureaucrats, after slow-walking the program’s elimination, now keep dreaming up new reasons it must continue to exist,” writes the site’s editor.

Stoll brings into question the length of time it has taken to privatize the helium reserve. “Compare it to the private sector. If a company decides it is going to close or sell a business or a factory, it usually manages to do that in a matter of months — maybe five years at the absolute most.”

He concludes that the helium legislation is “high priority to those receiving subsidies, to those working in the programs, and to the congressmen who have facilities in their districts.” Stoll adds, “To the rest of us, it is an annoyance.”

Supporters of the new legislation suggest that end-users will experience much more than annoyances if the government lets the current situation run its course. “Failing to enact successor legislation to the Helium Privatization Act of 1996 would produce a country without ready access to MRIs, the ability to manufacture semiconductors or fiber optic cable, or much or anything else that requires welding,” said Air Products Director of Helium Sourcing Walter Nelson in his testimony to the Committee on Energy and Natural Resources.

With recent shortages of helium, many distributors know what it’s like to be unable to provide customers with the product they need, let alone grow the business by seeking out new accounts. According to Nelson, an abrupt end to the federal helium program would create “a chaotic market” and would leave the U.S. dependent on imported helium from foreign sources. Instability in both supply and pricing is a likely outcome of this scenario.

Stoll’s comments about privatization were not unanticipated. In his testimony before the Senate committee, Nelson addressed what he saw as potential objections to the bill. “At a time when the federal government is looking to have the private sector take on functions previously handled by government, there could be some who might ask why a federal reservoir should exist at all. Why not just turn it all over to the private sector?” he asks.

“That was exactly the thinking of Congress in 1996, and the consequence was the Helium Privatization Act of 1996, which reflected Congress’s support for privatization to the extent possible. Getting the government out of the helium business altogether, however, is no more possible today than it was in 1996,” says Nelson. “The Bureau of Land Management was directed to offer for sale the approximately 29+ billion cubic feet of crude helium that had been stored in the reservoir. This sale, however, could not happen overnight. The helium in the reservoir is mixed with natural gas, and it is a complex operation to manage the geologic dynamics of the reservoir as the gas is being extracted from the ground. If the valve was simply left wide open to deplete the entire supply at once, valuable helium would be stranded in the ground and never recovered.”

Nelson adds, “Today, the federal government retains ownership and management of the reservoir, the production wells, the gathering system and the 420-mile pipeline distribution system. The helium enrichment unit and pipeline compressor stations are owned by private industry, but they are operated by employees of BLM under contract to the Cliffside Refiners Limited Partnership, the consortium of private companies that refine the helium. In our opinion, BLM is the only entity that can oversee the drawdown of this strategic asset to the benefit of the government and private industry. Turning over BLM’s functions to one or more private companies simply is not feasible.”

What do you think? Should the government turn everything over to the industrial gas manufacturers? Is such a thing even possible?

Gases and Welding Distributors Association