Helium Prices Are Set To Soar As Supply Shortage Looms / Commodities / Metals & Mining
Every few years or so, the investing universe gets word about alooming shortage of a certain--usually niche--commodity. Soon thereafter,dozens or even hundreds of natural resource companies, both large and small,quickly “pivot” to said commodity and the next thing you know a commoditybubble ensues before, eventually, bursting.
This script has played out numerous times with commodities includingcobalt, rare earths, vanadium, potash, graphite, and even marijuana.
But the script may be playing out very differently with the latestcommodity to fall on Wall Street’s radar: helium.
As one of the rarest yet most valuable and indispensable elements onour planet, the world is quickly coming to grips with one of the biggest supplysqueezes of our times as severe helium shortages continue pushing prices up.
Scientists have been forced to shut down their superconducting magnets for lack of helium…while refiners have been limited to drawing amounts wellbelow their requirements since 2017.
A helium supply crunch may be growing more critical with each passingday… and oil and gas executives are now said to be looking for this preciousrarefied gas that is used for everything from rocket ships to computer chips.
It’s against this backdrop that early mover Avanti Energy Inc. (TSX:AVN.V;OTCMKTS:ARGYF) has announced the completion of its first helium well in its initial three-well program in its 100%-operated Greater Knappen property that extends from Montana to Alberta, Canada—which could be one of the bestprospects for securing future helium supplies.
The great news: the first well indicates a smashing success..
Avanti says the Rankin01-17 well was successfully drilled to a depth of 5,860 feet andencountered all the targeted zonesfor helium potential.
With Avanti’s drilling program off to what appears to be a successful startwith up to six wells planned to be drilled in the initial exploration phase, here are some important things we think investors should know aboutAvanti Energy’s Drilling Campaign.
Avanti HitsThe Ground Running
Avanti’s maiden helium well open-hole logging indicated five zoneswith reservoir characteristics (good porosity and low water saturation)suggesting further testing is warranted.
Drill stem tests were also performed to high-grade zones forcompletions and two of the targeted zones showed economic helium potential.
"Theteam is excited to have completed our first exploration well in GreaterKnappen. Our initial analysis has demonstrated that there is potential foreconomic helium production in two of the three target zones. Followingadditional analysis by the technical team, our completions program will furtherdefine the economics of the well as we continue to develop the economicpotential of Greater Knappen," AliEsmail, Avanti VP Engineering, has said.
The Avanti team has spent the last 8 months assembling the landpackage, managing to put together a 69 thousand acre property they have dubbed‘Greater Knappen.’ Avanti estimates a potential helium yield of 1.4-8.9 bcffrom Greater Knappin, which is almost unbelievable as we shall explain shortly.
A big reason why the Avanti (TSX:AVN.V;OTCMKTS:ARGYF) team may havehad drilling success so quickly is due to the fact that they chose an area thatappears pretty targeted with the right mineralogy for helium production.
Other wells surrounding Avanti's lands have high helium shows inmultiple Devonian and Cambrian targets with helium percentages of up to 2% andnitrogen percentages of up to 96%. A helium percentage of just 0.3% isconsidered economically viable, and 2% is almost too good to be true.
The most exciting thing: potential for very fast payback.
Avanti estimates that if their wells produced~55,000 cubic feet ofhelium per day they would require just104 days to fully pay back drilling costs.
The potential MATH looks impressive:
With their substantial acreage and potential for fast payback, Avantishould have little trouble getting early inventors in.
In November, North AmericanHelium was able to raise $127 million. For context, the company has 5.5million acres, but a risked reserve report shows the land holds approximately 20bcf of helium.
In comparison, Avanti is estimating its potential at 1.4-8.9 bcf fromjust 70,000 acres, showcasing incredible productivity and efficiency.
Avanti (TSX:AVN.V;OTCMKTS:ARGYF) estimatesthat its helium wells could potentially yield at a high level of 55-60 mcf aday for the first five years, then gradually decline at ~10% annuallythereafter for a total productive life of ~20 years.
That’s incredible production and could provide stable cash flows for15-20 years. To us, that’s simply stunning.
Helium is acritical gas, and we’re facing a serious future shortage
Helium is the second most abundant element in the universe after hydrogen,and the fact that it’s so rare on our planet is something of a paradox.
It’s important to understand that helium’s scarcity and value mainlystem from the fact that it’s an inert gas that’s generated naturally veryslowly with the majority leaking off into space.
Our planet generates about 3,000 tons of helium each year throughradioactive decay deep in the bowels of the earth, but with helium being ~7xlighter than air, it drifts off into the upper atmosphere where it’s eventuallytorn off by solar winds.
That leaves very little of the wonder gas to meet our global demand of32,000 tons per year (~6.2 billion cubic feet measured at 70°F and underearth’s normal atmosphere), making helium a finite, non-renewable resource.
Air is considered the only practical source for all of thehelium-group gases (argon, neon, krypton, and xenon)--except helium. That’s thecase because demand for other helium-group gases is insufficient to make air animportant source of commercial helium, while extraction of helium from air as aprimary product is prohibitively expensive and likely to remain so for theforeseeable future.
The onlycommercially viable helium source on our planet is from ancient shaleformations.
Yet, there’s an ongoing helium boom thanks to explosive growth in thesemiconductor and healthcare industries as well as space and quantum computing.
Helium’s unique qualities make it an indispensable commodity in manycritical medical, tech, and industrial applications including MRI scanners, nuclear magnetic resonance spectrometers,rocketry & space exploration, telecommunications, superconductivity, fiberoptics, electronics, cryogenic shielding, leak detection, lifting balloons andin underwater breathing.
About 30% of the world’s helium supply goes into MRI scanners whileanother 20% goes into the manufacture of hard disks and semiconductors.
Helium Uses
Source:Helium One
With the lowest boiling point of any element at minus 261.1°C(-429°F), there’s no known substitute for helium where ultra-low temperaturesare required such as superconductors. It’s for this reason that the fastest train ever built,Japan’s SC MagLev that’s capable of speeds of more than 600 km per hour, usesliquid helium to cool thesuperconducting material, a niobium‐titanium alloy, to 452 degrees Fahrenheitbelow zero.
Meanwhile, Big Tech companies such as Facebook, Amazon Google, and Netflix are heavyusers of helium in their massive data centers. With one-seventh the density ofair, helium produces less buffeting or disturbance on rotating disks thusallowing hard drive platters to be thinner and placed closer together, therebyincreasing capacity as more disks can now fit into less space.
According to ResearchAndMarkets,the global helium market isprojected to reach almost US$18.2B in 2025, growing at a CAGR of about 11.2%during the period 2021 to 2025 mainly driven by robust medical and consumerelectronics demand.
With demand constantly outstripping supply, the world may be facing a severe helium shortage,and prices have substantially increased to $35 per liter--more than double theaverage of $14.60 per liter they commanded three years ago.
Companies and their shareholders are feeling the helium shortagekeenly.
In 2019, Party City (NYSE:PRTY) closed 45 stores amid a global helium shortage that hasimpacted the retailer's balloon sales. PRTY stock has crashed 70% since 2018.
No morehelium from the Fed
But the biggest chink in the helium supply chain is the fact that theU.S. federal government--the world’s largest supplier of the rare gas--ain’tselling no more.
The U.S.government created the Federal Helium Reserve (FHR) out of a giant, abandoned salt minelocated 12 miles northwest of Amarillo, Texas back in 1925 when it seemed likehelium-based airships would become vital to national defense. Over severaldecades, FHR stockpiled as much helium as it could, in the process becoming theworld’s largest strategic helium reserve, responsible for meeting ~40% of the world’sneeds.
But, predictably, the FHR eventually ran into debt trouble thanks toits habit of selling helium at well below market prices. In 1996, the Fedpassed laws mandating FHR to sell off its reserves and close shop in 2021 in aneffort to recoup billions of dollars in debt.
The Bureau of Land Management (BLM) outlined the process and timelineby which the FHR woulddispose of its remaining helium and helium assets. BLM managed to sell off most of the storedhelium by 2018, with the remaining 3 billion cubic feet (84 million cubicmeters) restricted for sale to only federal users, including universities thatuse helium for federally-sponsored research.
BLM held its last Crude Helium Auction inAmarillo, Texas, in 2019 with the price rising almost 135%, from $119/Mcf in2018 to $280/Mcf in 2019.
The sale deadline was later extended to 30 September 2022, butprivatization likely won’t be completed until at least 2023.
In other words, up to 40% of the world’s helium supply has alreadybeen cut off, and the private sector will have to step up to the plate if someof the world’s most critical industries such as MRIs,NMRs, cryogenics, and superconducting magnets among others are to continueoperating.
Luckily, we think Avanti Energy (TSX:AVN.V;OTCMKTS:ARGYF) appears to bemore than up to the task.
By. Tom Kool
**IMPORTANT! BY READING OUR CONTENT YOUEXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
Forward-Looking Statements
This publication contains forward-lookinginformation which is subject to a variety of risks and uncertainties and otherfactors that could cause actual events or results to differ from thoseprojected in the forward-looking statements. Forward looking statements in thispublication include that prices for helium will significantly increase due toglobal demand and use in a wide array of industries and that helium will retainits value in future due to the demand increases and overall shortage of supply;that Avanti will able to successfully pursue exploration of its licenses andproperties; that Avanti’s licenses and properties can achieve drilling andmining success for commercial amounts of helium; thatindications of potential for economic helium in Avanti’s initial wells will predict futureresults; that Avanti will be able fulfill its obligations under its licensesand in respect of its properties; that Avanti will be able acquire the rightsto the helium on its prospective helium properties; that the Avanti team willbe able to develop and implement its helium exploration models, including theirown proprietary models, that may result in successful exploration anddevelopment efforts; that historical geological information and estimationswill prove to be accurate or at least very indicative of helium; that highhelium content targets exist on Avanti’s projects; and that Avanti will be ableto carry out its business plans, including timing for drilling and exploration.These forward-looking statements are subject to a variety of risks anduncertainties and other factors that could cause actual events or results to differmaterially from those projected in the forward-looking information. Risks that could change or prevent thesestatements from coming to fruition include that demand for helium is not asgreat as expected; that alternative commodities or compounds are used inapplications which currently use helium, thus reducing the need for helium inthe future; that the Company may not fulfill the requirements under itslicenses for various reasons or otherwise cannot pursue exploration on theproject as planned or at all; that the Company may not be able to acquire thehelium rights on its properties as contemplated or at all; that the Avanti teammay be unable to develop any helium exploration models, including proprietarymodels, which allow successful exploration efforts on any of the Company’scurrent or future projects; that Avanti may not be able to finance its intendeddrilling programs to explore for helium or may otherwise not raise sufficientfunds to carry out its business plans; that geological interpretations andtechnological results based on current data may change with more detailedinformation, analysis or testing; and that despite promise, results of therecent drilling and exploration may be inaccurate or otherwise fail to resultin locating or developing any commercial helium reserves on the Avantiproperties, and that there may be no commercially viable helium or otherresources on any of Avanti’s properties. The forward-looking informationcontained herein is given as of the date hereof and we assume no responsibilityto update or revise such information to reflect new events or circumstances,except as required by law.
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