Did you know that helium prices in the US topped more than $600/Mcf recently? In fact, there are claims of helium spot sales at between $2,000 – $3,000 per mcf. It is hard to know if these numbers are accurate due to the opacity of the helium market but in any case, the price of helium is at or near all-time highs. In this episode, we talk about this rare naturally occurring gas and how mineral owners can profit from the production of any helium from your mineral rights.
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What is Helium?
Helium is an odorless and colorless gas that has the symbol He and an atomic number of 2. It is part of the noble gas group on the periodic table. Most of the Helium found on Earth is produced by the radioactive decay of thorium and uranium (which is why it is also called “radiogenic helium”).
While helium is the second-most common element in the universe, it is considered relatively rare here on Earth comprising only around 5 parts per million by volume in our atmosphere. Helium is different than many other gases because once it is released into the atmosphere it doesn’t stay there. Instead, it escapes directly into space.
What is Helium Used For?
Helium is most well known for its use as a lifting gas in dirigibles and balloons but that is only a small fraction of its many uses.
According to Wikipedia,
“Liquid helium is used in cryogenics (its largest single use, absorbing about a quarter of production), and in the cooling of superconducting magnets, with its main commercial application in MRI scanners. Helium’s other industrial uses—as a pressurizing and purge gas, as a protective atmosphere for arc welding, and in processes such as growing crystals to make silicon wafers—account for half of the gas produced. A well-known but minor use is as a lifting gas in balloons and airships.[18] As with any gas whose density differs from that of air, inhaling a small volume of helium temporarily changes the timbre and quality of the human voice.”
Helium – Wikipedia
Where is Helium Found?
While helium is found in many geologic systems, it must be of sufficient concentration in order for it to be commercially viable to extract. All commercial production of helium comes from natural gas. There are two basic types of commercial helium deposits: natural gas produced primarily for the hydrocarbon content, typically containing less than 3 percent helium; and gas with little or no hydrocarbons that is produced solely for the helium, which typically makes up between 5 and 10 percent of the gas. Although natural gas in which helium is only a byproduct contains a much lower percentage of helium, historically it has been the largest source of supply.
In addition to being scarce, helium is unique in that special geologic conditions are required for helium to collect in commercial quantities in natural gas reservoirs. Specifically, “helium accumulations are commonly in structural closures overlying bedrock highs. Faults, fractures, and igneous intrusives are regarded by some geologists as important pathways for helium to migrate upward into the sedimentary section. The atomic radius of helium is so small that shale, which is effective in trapping methane, allows the helium to migrate upward through the shale pores. Nonporous caprock such as halite (rock salt) or anhydrite is more effective in trapping helium.” (Source: Wikipedia).
Many times, reservoirs that contain a high concentration of helium also contain significant amounts of nitrogen and carbon dioxide. For example, the Pinta Dome in Apache County, Arizona, contains “8.3 percent helium, 89.9 percent nitrogen, 1 percent carbon dioxide, and only 0.1 percent methane. In such cases, the gas is produced solely for its helium content.” (Source: Wikipedia).
Some of the most important natural gas plays known for their high helium content are the Hugoton, Panhandle, Greenwood, and Keyes fields, all located in western Kansas, and the panhandles of Oklahoma and Texas, the Ladder Creek Field in eastern Colorado, and the Riley Ridge field in southwestern Wyoming.
The Four Corners area of the southwest US also has a number of gas fields containing 5 to 10 percent helium and large percentages of nitrogen, with little or no hydrocarbons.
Another helium field that has gotten recent attention is the Lyons helium play in Las Animas and other counties in Southern Colorado.
How is Helium Priced?
Because helium is so scarce and demand has been increasing, there currently is a major helium shortage which has caused prices to rise significantly. This has caused some demand destruction as companies look to alternate solutions or ways to reduce the amount of helium required for a given application. For example, early MRI machines with large permanent magnets require helium cooling and these units would expend 1-3% of their helium capacity per month so they would need to be refilled periodically. Current generation MRI machines can now go 7-10 years before needing to top off helium.
Market pricing for helium is difficult to ascertain as it is not a traded commodity and pricing is normally based on long-term, confidential contracts, resulting in opaque pricing given there are only a few key suppliers and industrial gas buyers. Many helium users tend to be price insensitive as there are no substitutes for helium in many cases, making them price-takers. This is another reason for long-term contracts as security of supply is crucial to many users. Therefore, spot or current pricing is not overly relevant for producers and means production is more bankable given security of cash flows. The market is very susceptible to supply disruption, which has led to price spikes in the past. It has been estimated that around 10% of global helium demand was lost in 2011-13 due to shortages and pricing doubling.
Federal Helium Operations
Because of the many unique helium use cases and the critical nature of this rare element, the Federal Government in the United States staked their claim to any helium produced as part of Federal acreage. In fact, if fee acreage is included in an area that produces Federal helium, then a proportional share of all helium belongs to the U.S. Government:
Helium produced from Federal acreage is reserved to the Federal Government. State owned or privately owned minerals are not reserved to the United States. But, if fee lands are included in an area that produces Federal helium, then a percentage (commensurate with Federal mineral ownership) of all the helium is deemed to be Federal.
Source: BLM Website
The Storage for Government and Private helium as of October 1, 2021:
- Government = 2,218,857 Mcf
- Private = 2,187,721 Mcf
Cliffside Helium Field including helium storage reservoir, enrichment plant, and pipeline system near Amarillo Texas that supplies over 27 percent of domestic demand for helium is in the process of being sold. On April 25, 2022, an operations contract was awarded to Messer to operate the Crude Helium Enrichment Unit at the Cliffside facility. This is a shift in operations from the BLM to private industry.
BLM crude helium price from the BLM cliffside field is $100/mcf however some anecdotal evidence claims current helium prices can be between $2,000 – $3,000/mcf.
How Royalty Owners Can Profit From Helium
If you own mineral rights in areas that are propsective for Helium production (including Western Kansas, Eastern Colorado, the panhandle of Texas or Oklahoma, or parts of Arizona, it is important to make sure that your Oil and Gas Lease ensures that you will get paid for production of this valuable gas. If you have an older oil and gas lease, you may be stuck with the existing terms but hopefully you will benefit from any helium production on your acreage. When negotiating an oil and gas lease, it is important to ensure that you get paid royalties for the sale of any helium that is produced and sold or used.
For example, in a recent oil and gas lease that I signed, the following language was included:
“The term gas as used in this lease shall be interpreted to include any substance, either combustible or non-combustible, which is produced in a natural state from the earth and which maintains a gaseous or rarified state at ordinary temperature and pressure conditions, including but not limited to natural gas, helium, nitrogen, carbon dioxide, hydrogen sulfide, coal bed methane gas, casinghead gas and Sulphur.”
In addition, I made sure that the royalty clause in my lease mentions that I will get paid a royalty on any gas or gaseous substances that are produced and sold or used. As always, this should not be construed as legal advice so be sure to consult a qualified attorney licensed to practice law in the state where your minerals are located for advice specific to your situation.
The moral of the story is to ensure that any lease you negotiate in the future includes provisions so you will be paid royalties on any helium that is sold or used.
Resources Mentioned in This Episode
- Helium production in the United States – Wikipedia
- Rising on the plains: This Colorado plant is one of a handful in the world to produce helium
- Helium supply crunch looms as US alters storage strategy
- Why Helium Could Be The Hottest Commodity Play Of 2022 | OilPrice.com
- Bureau of Land Management Crude Helium Price
- BLM announces disposal process for Federal Helium System | Bureau of Land Management
- The Bureau of Land Management helium sales generate $60 million for American taxpayers in 2020
- Helium Market Insights, 2027
- MRP 89: State and Federal Mineral Rights
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