Congress Struggles With Helium Shortage

GAWDA distributors selling helium are smaller players in a larger drama involving the continued sale of crude product from the Federal Helium Reserve outside of Amarillo, Texas. As far back as the early twentieth century, the federal government started acquiring helium and storing it, and selling it in the open market.

The Federal Helium Reserve consists of:

  • The Bush Dome Reservoir, a naturally occurring underground structural dome near Amarillo, Texas, where federally owned (and some privately owned) crude helium is stored;
  • An extensive helium pipeline system running through Kansas, Oklahoma and Texas (the Helium Pipeline) that connects crude helium extraction plants with each other, with helium refining facilities, and with the Bush Dome Reservoir; and
  • Various wells, pumps and related equipment used to pressurize the Bush Dome Reservoir, to place into and withdraw crude helium from it, and to operate other parts of the Helium Reserve.

In 1996, Congress passed legislation authorizing the Department of the Interior’s Bureau of Land Management (BLM) to sell all of the Helium Reserve to pay back the monies loaned from the U.S. Treasury to purchase the helium initially. At present, the remaining inventory in the reserve is worth about $1 billion on a cost basis, and comprises upwards of 50 percent of the U.S. domestic supply, and some 30 percent of the world supply, of helium.

The reserves debt will be paid off by October 2013, and under current law the BLM will no longer have authorization to sell any more helium. This would take the supply off of the market and create additional shortages; many large and small scale users of helium are already on partial allocations due to product scarcity. Removing the federal helium from the market would be a devastating blow for manufacturing of semiconductors, fiber optics, metal fabrication, health care and other industries that rely on helium for various uses.

In addition, a recent audit from Interior Department’s Inspector General found that the BLM was not getting market rates for the helium it sold. No one seems certain as to what the appropriate market price for crude helium would be, but a 25 percent increase in the price of the total inventory in the reserve would bring another $250 million in revenue to the federal government.

The U.S. House of Representatives is considering a bill, H.R. 527, which would authorize BLM to complete the sale of the product in Helium Reserve over the next several years. This is hoped to provide a sufficient transition until other sources become available on the market. The bill would establish an auction at least every six months to sell off the remainder of the reserve to private interests, after giving preference to federal agencies and grant recipients. Sixty percent of the product would be sold only to those bidders with their own refining capacity or contracts to refine product if they were the winning bidders; the remainder would be available, with certain restrictions, to all bidders. No winning bidder could take more than 30 percent of the total amounts for sale at a single auction.

The House Natural Resources Committee held a hearing on this approach on February 14, 2013. Witnesses included government representatives, end-users, refiners and large distributors without refining capability. While all of the witnesses at the hearing agreed that Congress should act this year to reauthorize the Bureau of Land Management sales, existing refiners questioned whether they should have to provide access to their refining processes to those purchasers of crude helium without refining capabilities. In fact, some helium in the Federal Reserve that was sold in prior years remains in the Bush Dome reservoir because the owner cannot contract to refine it.

GAWDA submitted comments to committee focused the effect of “winner take all” auctions on long term, exclusive contracts with suppliers and customers. GAWDA is concerned that a periodic auction, with different winning bidders and a scarce market, will force distributors and their customers to seek alternative supplies of helium for at least part of their needs for that period, and to pay above market prices to the winning auction bidder(s) to ensure a continuous supply of product.

GAWDA stated, “Refiners, distributors and end-users will not know which parties will have adequate supplies of helium to meet existing contractual demands. This will generate legal questions about contract default, partial product allocations, mitigation of damages and obligations to cure, as well as commercial questions about which parties may be able to meet supply obligations on a consistent basis. . . An unreliable product stream for helium will make it difficult for any distributor to entertain long-term, exclusive supply arrangements with customers that foster stable commercial relations and support economic growth.”

H.R. 527 has bipartisan support, and the House is expected to vote on the bill in the spring of this year. There is no companion bill in the Senate at this time, but the Senate is also expected to pass a bill in order to meet the October 2013 deadline, and the House and Senate will have to resolve any differences in their bills in conference.

The difficulty with this legislation is that there are several competing objectives:

  • An orderly draw down of the Helium Reserve
  • Maximizing revenue to the federal government
  • Providing sufficient supply of refined product to critical industries
  • Avoiding market manipulation by speculators.

There is also the question of mandating access to refining capacity for non-refining successful bidders, which presents a number of additional legal and practical questions.

It seems certain that the market for helium will not ease in the foreseeable future, and GAWDA distributors might have to consider redesigning their contracts with suppliers and customers to impose some new flexibility required by the uncertainty of the auction process.

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Rick Schweitzer Meet the Author

GAWDA’s Government Affairs & Human Resources Legal Consultant Richard P. Schweitzer, Esq., is president of Richard P. Schweitzer, PLLC in Washington, D.C. Members can reach him at 202-223-3040 and rpschweitzer@rpslegal.com.