Insights From the Wiki: No More Helium For Balloons?

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Wikistrat recently concluded a geostrategic speed-simulation titled “Countering Conventional Wisdom: The Coming Resource Wars.” The following is a scenario produced in the simulation, called “No More Helium For Balloons?”

Helium is a crucial gas in any industrial production. It is used in car production, medical equipment, NASA space shuttles, cameras, ballistic missiles, nuclear reactors, semi-conductors and many other fields. According to the 2009 data from Air Products and Chemicals Inc., superconductors and magnetic resonance imaging account for 28% of helium consumption, balloons and dirigibles for 16%, welding for 11%, optic fiber for 8%, leak detection for 12% and semiconductors for 6%. As EY reported in 2009, historically the chief consumer of helium has been the U.S. (over 50%). Recently, however, with the rapid development of the semiconductor industry, helium consumption in APR countries has increased its share to 15% of the total (and continues to show growth potential). Europe is also among the major consumers of this unique raw material, representing around 25% of global consumption.

Helium is the second-most-abundant element in the universe – yet here on Earth, it’s extractable solely from the natural gas fields and only in very few cases is the extraction of helium economically feasible. Extraction of helium is deemed economical if its concentration in natural gas exceeds 0.1%. American gas fields in Texas, Kansas and Oklahoma contain about 0.5%-1% helium by volume. Thanks to these gas fields, around 75% of the world’s helium is produced by the United States. According to the U.S. Geological Survey (USGS), 77 mcm of helium (with a concentration of 99.997% and higher) was produced in the U.S. in 2010, worth an estimated $730 million. Half of the American supply is stored at the National Helium Reserve in Amarillo, Texas, a facility built in the 1920s to secure a steady flow of helium for the American industry.

In 1996, the U.S. Congress passed a law ordering the government to sell off all the helium held at the NHR by 2015 in order to balance the debt created by the facility. It was thought that by 2015 a new method of helium extraction would be invented; consequently one third of the world’s helium supply is sold at a flat price of $64.75 per thousand cubic feet in 2010. The cheap price makes it impractical to recycle helium. By the end of September 2012, the Bureau of Land Management had sold 16.2 billion cubic feet and had just 11.4 billion cubic feet left in the conservation reserve. At the current rate of consumption and waste, the world is supposed to run out of helium between 20 to 30 years. Even the production plants currently under construction will be unable to cover the shortage.

The rest of helium production comes from Algeria, Qatar, Russia and Poland. Qatar is the second biggest producer in the world with 1.3 billion cubic feet, while Poland’s production plant is the only one in all of the European Union, satisfying a mere 9% of EU demand while the rest is mostly imported from Algeria. Russia’s reserves in the European part of the country have almost entirely been depleted, but it still holds gasfields in East Siberia with helium concentration between 0.15%-1%, which is comparable to the American reserves in Texas, Oklahoma and Kansas. According to the All-Russia Petroleum Research Exploration Institute (VNIGRI), Russia’s helium reserves in East Siberian gas fields are approximately 16 bcm, while estimated world reserves, excluding Russia, amount to 27 bcm. However there is no infrastructure in place which would enable helium extraction on an industrial scale.

Currently there is almost no recycling program for helium and the production plants will not cover the future shortage until after the prices skyrocket and global economy gets hit by soaring prices. Hoarding by governments will likely occur in order to prevent declining production in national industries, leading to an even bigger price jump. Helium prices have already quadrupled between 2000 and 2012 to $160/1000 cubic feet.

Speculation taking advantage of fear on the markets will also ensue leading to further imbalance of helium prices. Russia has already expressed its intent to extract helium from its Eastern Siberian fields as early as in 2011, yet has also indicated that it will keep the current reserves undeveloped until after the global demand will reach the point of making Siberian helium exports profitable. If the U.S. does not take any measures to counter its current policy of wild sellout of its helium supplies, it will run out of any reserves in 2015 and will have to start importing it, giving Russia and Qatar an upper hand in negotiating prices.

Given the potential economic impact of the closure of the National Helium Reserve, including on the massive and politically well-connected defense industry, there are likely to be significant efforts undertaken to lobby policy-makers to halt or even reverse the sell-off. With only half the reserve left U.S. policy-makers may be persuaded to halt further sales to non-U.S. customers in an effort to extend the life and economic benefit of this resource to the United States.

Although military conflict is highly improbable, political pressure and extortion will be attempted causing friction and political crises especially between the states producing helium and those needing it to sustain their industries. Russia, the owner of huge untapped helium reserves can use them as a bargaining chip against Europe, China and Japan. Such a scenario has a large chance of taking place, as Russia might try to counterbalance the falling natural gas prices, which has been her main source of worries in recent years.

The biggest and gravest consequences will be a major decline in economic and scientific progress, as helium will go from one of the cheapest to one of the most expensive materials. Scientific research in a multitude of fields will be impossible or too costly to conduct. Car production will stall and space programs will have to be suspended. Medical equipment like MRI machines – taken for granted in many countries – will become inaccessible, taking medicine back a few decades. IT industry in California, Europe, Taipei and elsewhere will decline drastically, and electronics will become a thing of luxury. Meteorological forecasts will virtually cease to exist, as weather balloons and space satellites both need helium.

The lobbying efforts of U.S. industry, particularly that of the military industrial complex, may persuade policy-makers to halt the sell-off of the National Helium Reserve and possibly even to rebuild this in the interests of economic and national security interests of the country. This would reduce pressure to restrict sales to foreign customers and ensure the continued supply of helium on world markets – possibly even arranged in a way to ensure it operates at a profit to the U.S. government.

However, should the U.S. government persist in its sale of the National Helium Reserve, then the laws of economics can be expected to come into play: Higher prices at some point will make helium extraction of lesser concentration in natural gas economically viable and new plants will pop up feeding the global demand.

While industrial production is heavily dependent on helium, high prices might prompt the governments of industrial countries – and especially the net exporting ones – to sustain the production levels through subsidization of the manufacturers in order to avoid economic crisis, growth in unemployment and ultimately social unrest. These support programs would continue until the new plants were built and prices would decrease to sensible level, however such top-to-bottom protection would be financially and socially viable only in short to medium term.

Recycling of helium can also be a surprisingly pragmatic approach to conserving world’s helium reserves. Helium recycling should occur as a natural economic development, as the manufacturers would not allow high financial losses incurred by wastage and would meticulously recycle helium for further use.

There have already been certain alternative materials identified in some areas like aluminum welding, where helium can be replaced by hydrogen. Alternative gases in other areas are yet to be identified. Argon is already an alternative in many welding applications. Nitrogen and Carbon Dioxide can also substitute for helium in certain cases.

Social campaigns and realistic helium pricing could limit the wasteful use of helium for entertainment, which comprises a substantial portion of the helium use.

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