Helium to Move from Byproduct to Primary Drilling Target
Helium is likely to move from a derived product of natural gas production in the United States to a primary drilling target in the next five years. Historically produced as a byproduct of natural gas, the U.S. helium supply is declining, which has caused alarm throughout the industry.
Why is helium so important? Most people associate helium with party balloons and squeaky cartoon voices; however, there is a very serious side of the helium industry that few people comprehend. Without helium, MRI machines don't function, NASA rockets aren't launched and semiconductor manufacturing grinds to a halt. Helium is simply indispensible to these and various other critical applications, and its increasing scarcity has many people nervous.
According to Bo Sears, president of Inter-American Corporation, U.S. helium extraction from natural gas has been declining since 2000. The fast depleting Hugoton gas field, which covers parts of Kansas, Oklahoma and Texas, is yielding lower and lower volumes natural gas and helium.
"Throughout the 20th Century, the Hugoton field was the source of most of the world's helium production. Hugoton gas contains concentrations of helium ranging from 0.3 percent to 1.9 percent and it represents about 75 percent of all domestic helium production," Bo Sears explained. ExxonMobil's LaBarge field in western Wyoming started producing helium in 1986 and represents the other 25 percent.
As per the U.S. Helium Act of 1960, the government built a crude helium pipeline through the Texas and Oklahoma Panhandles and Kansas to collect enriched helium volumes from the Hugoton field that were being vented from nitrogen treating facilities. Multiple nitrogen rejection facilities filled the Federal Helium Reserve at the Cliffside field near Amarillo, TX with enriched off-gas, the gas that is removed from the natural gas. The Hugoton hit peak production in the late 1970s.
The Bureau of Land Management (BLM), a division of the US Department of the Interior, manages the Cliffside reserve and related helium infrastructure. Cliffside is the only significant storage facility for crude helium in the world. As per the Helium Privatization Act of 1996, the BLM is now tasked with selling the helium reserve to pay down debt incurred since the enactment of the Helium Act of 1960. By virtually all accounts, the disposition price for crude helium sold, as stipulated by the 1996 Act, is substantially below the actual market price for helium. This dynamic is leading to shortages of helium to end users and an opportunity cost to the U.S. Treasury.
Industrial gas companies with strap-on plants (attached to the BLM helium pipeline running from Cliffside to Bushton, KS) purchase crude helium from the Cliffside reserve via stipulated annual allocations. The composition of this crude helium is roughly 80% helium and 20% nitrogen. At these plants, engineers refine, liquefy, transport and sell the crude helium to any number of domestic and international customers.
An IACX Energy helium plant at Otis, Kansas
For most of the 1900s, conventional gas treating operations captured helium as a byproduct. For natural gas to meet rigid sales specifications, engineers must purify it to "something close to 1,000 Btu," Scott Sears, CEO of IACX Energy, explained. "Most pipeline interconnections have specifications that limit the quantity of inert gases being pushed into the line. A typical sales line specification is no more than 4% total inerts. And, where large nitrogen rejection facilities were placed in high-helium bearing reservoirs such as Hugoton, the nitrogen waste gas was found to contain high percentages of helium. This helium byproduct was and is further refined and sold. IACX Energy builds small scale helium purification and nitrogen rejection facilities that can be used in tandem to realize multiple profit centers for a gas treating project".
"Helium sales can really augment a project's economics, an especially appealing proposition given today's low prices for natural gas," Scott Sears said. "When used in tandem, small scale helium and nitrogen rejection facilities can reap considerable value, even at lower pressures and volumes. When we started this venture late in 2006, we had no treating units in operation. Now, we have 17 units treating gas streams in seven different states."
"If a producer is curious about whether or not he has helium in his gas," Scott said, "he can start by looking for high nitrogen levels – there appears to be a correlation between high helium and high nitrogen. Moreover, if any high nitrogen gas is observed from reservoirs at or near any deep-seated Precambrian uplifting events, the chances of having economic levels of helium gas is relatively good. Lastly, just because a gas analysis shows 0 percent doesn't make it so. Most gas chromatographs use helium as a carrier gas and the device cannot measure for the carrier gas. You must specifically ask the testing company for measure for helium, though not all companies are set up to do so," Scott advised.
The government "formula price" for the crude helium sold from the Cliffside field (set by the Helium Privatization Act of 1996) is equal to "the total cost of the government helium program, plus accrued interest, divided by the estimated recoverable helium in the reserve," Bo Sears explained. Currently, the formula price sits at $75.75 per thousand cubic feet.
What is Helium?
Although helium is the second most abundant element in the universe, behind hydrogen, it is quite rare on Earth, Bo Sears explained.
"It comes from two different sources, which is cause for the discrepancy. The helium that makes up nearly a quarter of the known universe is of primordial origin, meaning it has been here since the Big Bang. The helium on Earth, however, is solely the result of millions upon millions of years of radioactive decay of three isotopes (Uranium-238, Uranium-235, and Thorium-232)," Bo Sears said.
The helium found on Earth is very mobile and accumulates in natural gas reservoirs.
"Virtually all of the commercially extractable helium in the U.S. is found in the mid-continent," Bo Sears said. The Hugoton field has been the primary source for global helium since U.S. helium production began.
"Most natural gas in the U.S., and elsewhere for that matter, does not contain economic concentrations of helium," Bo Sears said.
Incidences of high helium in natural gas are almost always associated with high percentages of nitrogen as well.
"As helium concentrations rise, so too does the nitrogen component," Bo Sears said. "However, the opposite is not always true. If you have nitrogen in a gas stream, it does not necessarily imply a high helium concentration."
For substantial helium gas to develop, three important geological events must be present, Bo Sears explained.
"First, there must be adequate concentrations of helium-generating isotopes in the basement rock. Second, there must be adequate fractures and fissures so that helium can escape the tight granite lattices of crustal rock. And lastly, there must be a caprock tight enough to hold any helium in appreciable quantities."
The helium atom is so small that an average caprock holding hydrocarbons likely would not hold helium.
"If any one of these three events is missing, there will be no accumulation of helium," Bo Sears said.
History of U.S. Helium
The U.S. became interested in helium during World War I as a substitute for highly flammable hydrogen for use in military dirigibles and blimps. The first commercial plant, however, did not come onstream until 1921 -- three years after the war ended. In October 1918, the Linde Company signed a contract to build the first commercial helium plant in Fort Worth to process gas from the Petrolia field near Wichita Falls, TX. After Petrolia's depletion, a larger production plant was constructed in 1929 for the Cliffside field near Amarillo, TX. Since then, Amarillo has been the epicenter of the global helium industry.
Until the early 1950s, helium's primary purpose was for military dirigibles and blimps but it was also playing an increasingly significant role in magnesium welding applications. Helium played a very important role in World War II as the non-flammable lifting gas for these vessels that escorted naval ships and identified enemy submarines. Demand increased dramatically through the 1950s after engineers developed more applications for helium, such as arc welding and breathing mixtures.
Demand grew so much, in fact, that Congress passed the Helium Act of 1960, which it designed primarily for the U.S. to buy (with borrowed money) and store crude helium for future use in the Cliffside field. The Helium Act offered incentives for private natural gas producers to strip helium from natural gas and sell it to the government. The principal purpose was to prevent wastage of valuable helium that would otherwise be vented by private producers.
From 1929 to 1960 the federal government was virtually the only domestic producer of helium. However, in 1971, Congress terminated the storage contracts created by the 1960 Act because private producers were processing helium with greater efficiencies. Thus, the U.S. incurred an enormous helium debt.
In 1996, President Bill Clinton signed the Helium Privatization Act, which would ultimately remove the U.S. from the helium industry and place it into private hands. Congress designed this Act to sell most of the remaining stored helium reserves out of Cliffside by the year 2015, while paying off the Helium Debt incurred by the 1960 Act.
Future of Helium
The U.S. is not only the largest supplier of helium but also the largest consumer. The U.S. consumes about 39 percent or 2.45 Bcf/yr of the worldwide helium demand, compared to Asia, which represents about 27 percent 1.65 Bcf/yr, according to Maura D. Garvey's article in the October 2011 CyroGas International newsletter. Europe represents about 21 percent (1.3 Bcf/yr) of the worldwide demand, while the rest of the world (Canada, Latin American, and Middle East) represent about 13 percent.
A new helium plant is due to come online near Big Piney, Wyo., soon. The Air Products and Matheson Tri-Gas helium purifier and liquefaction plant will process 0.6 percent (0.006) helium content out of a constituent gas stream of roughly 20 percent methane, 65 percent CO2, 5 percent H2S and 7 percent nitrogen from the Riley Ridge field. The plant is designed to produce 200 MMcf of helium per year at start up with possible expansion capacity to 400 MMcf per year.
Nevertheless, international helium plants are more likely future sources. There are currently seven international helium plants and more are planned. Most recently, the Darwin, Australia, plant came online in March 2010 and more are planned in Algeria, Qatar, and Russia during the next three years.
"Production from these sources should be sufficient to meet worldwide demand for the next five years," Garvey wrote.
"Substantial worldwide helium reserves in North America, the Middle East, Africa, and Russia could sustain the helium industry for hundreds of years," Garvey wrote, "but those reserves are typically more difficult and costly to develop, which is why they have remained undeveloped to date."
The future of the U.S. Helium Reserve is uncertain, Bo Sears said. The reserve has a short life span and new reserves need to be found so that the U.S. is not importing the gas from Qatar and Algeria in the near future.
"Besides Cliffside and Riley Ridge, there are no other domestic helium projects currently online. All of the industrial gas company helium assets (ie, large cryogenic facilities) are on the Hugoton field … and there they will sit until there is no more gas to run through them. There has been no push by any industrial gas company to locate and secure new sources."
"If we are going to secure our domestic helium supply, we need to find new sources and these will have to come from smaller fields. Those new sources are going to have to come from areas where helium is the primary target as opposed to secondary or tertiary. Our company is focused on exploiting these new sources."
"If the U.S. ultimately becomes an importer of helium, I cannot even fathom what helium would cost. You certainly wouldn't see any more toy balloons at birthday parties. They would simply cost too much. Besides, helium is far more important for science, industry and academia."
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