Today we consider the coldest substance on earth.
I knew you knew...
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
I have been covering helium on these pages for several years now, and it’s time to revisit the theme today. The reason? I keep reading articles about helium shortages (and these have nothing to do with the controversial cryptocurrency of the same name).
Bull markets come along every few years in some niche but strategically important commodities. I’ve seen it in cobalt, lithium, graphite, phosphate, uranium, rare earth metals, tin and others besides.
The story is almost always the same. Years of underinvestment have led to a shortage of supply of the said commodity. Government stockpiles are exhausted. And, now, suddenly, the commodity is essential to some new technology. Cue the bull market.
The upcoming helium shortage
Helium is the second most common element in the universe, so how can there be a shortage?
You could say the same about hydrogen and that’s even more common. There may be plenty of it up there, but there isn’t plenty of it down here and down here is where we need it.
Nor is helium a huge market. Annual global demand is estimated at around 6 billion cubic feet (Bcf) or 170 million cubic metres (m3). It’s hard to establish just what the current price is because prices tend to be agreed by contract between buyer and seller, but Cliff Cain, CEO of rare gas consultancy Edelgas Group, which studies the market and consults with most of the companies operating in it, gives me the figure of $1,800 per thousand cubic feet. The entire global market for bulk liquid helium is probably around $3bn.
Demand keeps growing though, mainly from the medical, tech and aerospace sectors, and “it will keep growing”, says Cain.
Helium is seven times less dense than air. Replace the air in a hard drive with helium, there is less turbulence, the discs spin better and so more discs can be packed into less space, while consuming less power. Helium-filled hard drives increase capacity by 50% and energy efficiency by 23%. Thus most high-quality data centres now use helium-filled high-capacity hard drives.
It’s also used in barcode readers, computer chips, semiconductors, LCD panels and fibre optic cable.
Another rapidly growing industry that’s gobbling up helium is the space sector. Helium is used in fuel tanks for rockets and satellites and particle accelerators.
Its low density means it also finds use in deep sea diving, but its most essential use is as a coolant, especially for the magnets in MRI (magnetic resonance imaging) machines. They must be kept near absolute zero to maintain the magnets’ quantum properties and not lose their potential. A typical MRI machine needs 2,000 litres of liquid helium.
As someone who has recently broken his ankles, and also only discovered that I broke my neck in my younger days (it was never properly diagnosed), I can tell you the importance of MRI machines and the diagnostic clarity they bring. Some 38 million MRI examinations were carried out in the United States last year. Forbes suggests helium shortages may be the world’s next medical crisis.
“Given the importance of MRI in the medical profession,” it says, “the helium crisis should be front and centre for politicians, policy makers, physicians, patients, and the general public to discuss and find sustainable solutions for. The scarcity of helium is a serious matter and affects all of us directly or indirectly.”
And then there are the party balloons.
The cost of helium is going to rise
If you are an aerospace company whose business relies on putting satellites in space, ideally as many as possible, or an MRI manufacturer whose business relies on selling MRI machines, you are not going to let helium shortages get in the way of your business. You are not going to stop producing. You will pay whatever price is necessary and pass the cost on.
“Phones, computers, all modern life – it requires helium,” says Cain. “There’s no substitute. Without it, we go back to the Stone Age.”
Helium is produced as a byproduct of natural gas refining. The world’s largest producer is the United States (roughly 40% of supply), followed by Qatar, Algeria and Russia.
However, the world’s largest single source of helium for the past 70 years, the US National Helium Reserve, recently stopped its supply. It is letting its staff go and the pressure has come off in its pipelines. It is now at 700psi when it needs to be at 1,200 to be producing. The system is now for sale, at least in theory.
The paperwork has met with delays in the White House, this is likely to take some time to resolve and we won’t see any market until it does. Prospective buyers should also beware of contaminated supplies and ongoing legal suits.
Russian supply from the massive new Gazprom helium plant in the eastern city of Amur is also shut down. That is unlikely to see any production before the end of 2023 as, Cain tells me, it relies on Western engineers and the West is, at present, rather reluctant to send staff to Russia.
In any case, Russia will struggle to sell much beyond China and Russia. In fact, Russia has the potential to become the world’s largest producer – but it’s Russia.
There were two shutdowns in Qatar earlier in the year, though these have now re-opened, and all-in-all we have what has been dubbed Helium Shortage 4.0 – the fourth worldwide helium shortage since 2006.
Opportunities in the helium sector
As with Helium Shortages 1.0, 2.0, and 3.0, supply disruptions in a tiny industry have caused the upset. Cain is not crazy about this idea of Helium Shortage 4.0 – he says it's just the continuation of 2.0 and 3.0, a situation Cain describes as “never-ending”.
Put simply, the world needs a new helium supply.
The solution is to invest in prospective helium producers and developers. There are plenty out there. But, as with all natural resource companies, it’s a question of separating the wheat from the chaff. “75% of them,” says Cain, “are going to fail …”
It’s worth keeping that figure in mind as you do your research. If you’re looking for ideas, I covered my favourite picks in the sector last year.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
OpenAI – corporate drama unleashed
OpenAI, the firm behind ChatGPT, was in uproar as its boss was booted out, briefly snapped up by Microsoft and then brought back again.
By Dr Matthew Partridge Published
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
By Jane Lewis Published
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
By Ruth Emery Last updated
The top funds to invest in - November 2023
Tips Investors are focused on income strategies and FTSE heavyweights. We look at what investors have been adding to their portfolios in the last month
By Vaishali Varu Last updated
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published