Helium rising in the West

by Marshall Swearingen

Near the middle of the Utah-Colorado line, a two-track winds into dry hills where rusty pipes poke from the sagebrush, marking cement-capped natural gas wells. Wildcatters drilled here in the 1920s, but abandoned the holes after striking mostly nitrogen and helium instead of hydrocarbons.

Now, Denver-based oil and gas company Flatirons Resources wants to tap the area again -- this time for the helium. In March, the federal Bureau of Land Management approved the company's plan. It's the first time the agency has permitted a helium-only well, and the decision signals the rising importance of the inert gas, essential for a variety of high-tech applications, such as manufacturing fiber-optic cable, cooling MRI machines and performing certain types of welding.

The U.S. holds about 40 percent of the world's estimated helium resources. More than a third of the global supply comes from the BLM-operated Federal Helium Reserve near Amarillo, which taps a mother lode stretching from Texas to Kansas. The Reserve's dominance of the market has long suppressed private development of helium, though refineries in Utah and Wyoming produce some as a byproduct from natural gas extraction.

But with the Reserve now nearing the end of its life just as rising demand heightens global shortages, helium-

focused drilling is emerging in the West. "In 20 years," predicts Joe Peterson, assistant field manager for helium operations at the Reserve, most U.S. helium "will be coming from those Western areas."

Starting in World War I, when the U.S. Navy extracted helium for floating dirigibles, the federal government was the U.S.'s only major producer. In 1960, the Bureau of Mines created the Federal Helium Reserve to store the gas for Cold War rocketry and welding, pumping billions of cubic feet of it from private natural gas wells into an underground pocket of rock.

By the mid-'90s, the funds borrowed to construct the Reserve had ballooned into a $1.3 billion debt, and Congress passed the Helium Privatization Act hoping to amend the situation. The law mandated that the BLM -- which had taken over for the Bureau of Mines when that agency dissolved in 1995 -- sell off the helium stockpile to repay the debt, at which time the Reserve's funding would end.

The sell-off came with unintended consequences. Congress pegged the helium price high to repay the debt. But demand from high-tech industries pushed market prices above the Reserve's, making it the most desirable supplier and slowing down private development, says Janie Chermak, professor of economics at University of New Mexico. The private helium industry struggled for other reasons, too.

"It's a lot of work for a little bit of gas," shouts Nick Bradshaw, superintendent of Castleton Commodities International's Paradox Midstream gas plant, over the rumble of compressors in the facility's helium refinery. The maze of pipes and gauges chills a mix of nitrogen, helium and traces of other gases to 340 degrees below zero to liquefy the nitrogen so the helium gas can be siphoned off. Tanker trucks then take the gas to another plant where it's liquefied for distribution.

The Paradox plant, tucked in the red- rock hills south of Moab, Utah, started refining helium from nearby natural gas wells in 1992. When that field declined, the plant started pulling high-nitrogen gas from fields as far away as Colorado. Paradox is small compared to the West's biggest helium producer, an ExxonMobil natural gas refinery in southwest Wyoming, which pumps out a fifth of U.S. supply.

The Paradox plant shut down its helium facility in 2011, even though demand was high. A nationwide shale-gas drilling boom had slashed natural gas prices. With few wells being drilled, the plant was operating at a fraction of capacity and couldn't cover helium production's fixed costs.

The rise of shale gas -- which contains no helium because the small, buoyant molecules escape from porous shale -- hit production of helium-containing gas especially hard. Where helium is found, typically within impermeable  domes  of rock, it's mixed with nitrogen and carbon dioxide, and contains fewer hydrocarbons than shale gas -- an unattractive blend when natural gas prices slump.

But in February, with refined helium prices nearly quadrupled since 2000, CCI resumed production. "With the shortage, people (wanting helium) kept coming back to us," Bradshaw says. Praxair, a helium distributor, "put a deal in front of us to make (restarting the helium plant) worthwhile."

The prospect that the Federal Helium Reserve, now almost out of debt, could close this year has compounded the global helium shortage -- caused mainly by mechanical problems at plants in Algeria, Qatar and the U.S. -- and sparked an outcry from industry. "To put it simply, without helium, we cannot operate," a semiconductor manufacturer told the House Natural Resources Committee in February.

In response, the usually-divided House voted 394-1 for the Responsible Helium Administration and Stewardship Act, which would extend the Reserve's life (about three years at current drawdown rates, more if the rate is slowed), base its prices on the market and reserve some helium for government use. That bill and a similar Senate bill are sitting in the Senate Committee on Energy and Natural Resources.

Even if the Reserve stays open, its role is waning along with the fields it taps. New helium sources are expected in Russia and Qatar, while U.S. helium production is moving westward. A Big Piney, Wyo., natural gas and helium plant is expected to be completed this year, and could produce about a tenth the amount of helium currently supplied annually by the Reserve. And if the Utah helium-only project succeeds, it may become a model for others.

Lack of private helium development in the past creates challenges for the industry now, says Scott Sears, a third-generation oil and gas man whose company, IACX Energy, will refine the helium from the new Utah well. The process for leasing helium on federal lands is cumbersome from lack of use, he says. Also, oil and gas companies, whose drill rigs and pipelines are necessary for growing helium production, tend to focus on hydrocarbons and overlook the gas's value.

Meanwhile, Sears is quietly scouting possible locations for other helium projects in Utah, Colorado, New Mexico and Montana, trying to get ahead of the competition. "My pitch to the oil and gas guys is, 'Hey, it's fun out here ... helium appears to be going nowhere but up,' " he says. "And the other side of me is saying, 'Shoot, maybe I should shut my mouth.' "

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