Free-For-All In Helium Market Could Send Prices Sky-High
30 Mar, 2022, 08:00 ET
FN Media Group Presents Oilprice.com Market Commentary
LONDON, March 30, 2022 /PRNewswire/ -- The gas that is critical for everything from supercomputing and space travel to MRIs and medical and scientific research was facing a supply shortage even before the geopolitical landscape was thrown into disarray. Now, the supply squeeze is on new-footing, and some investors are on the lookout for a North American supplier that can get this gas to the market–fast. Mentioned in today's commentary includes: Linde plc (NYSE:LIN), DuPont Corporation (NYSE:DD), Air Products & Chemicals (NYSE:APD), Westinghouse Air Brake Technologies Corporation (NYSE:WAB), Dow Chemical Company (NYSE:DOW).
The gas is helium…The backbone of much of our existing technology …And the beating heart of our future technology.
Helium prices, which are already 100x those of natural gas, are now soaring even further. And while some investors are eyeing longer-term bets on junior explorers who hope to be able to extract helium from natural gas fields, where it normally occurs, there's a near-term opportunity that answer a supply squeeze without any exploration time.
Total Helium (TOH; TTLHF) is years ahead of its competition, with a helium play in the biggest conventional natural gas field in the United States that is already producing–and already selling.
Downstream, Total Helium has a deal with $158-billion Linde (NYSE:LIN) one of the biggest downstream companies in the sector and a member of what some refer to as the helium "oligopoly". The world needs helium right now.
America's Biggest Helium Play?
In our view, Total Helium is parked in the right place at exactly the right time. The "right place" is the Hugoton natural gas field in the Kansas-Oklahoma panhandle.
Hugoton is the largest natural gas field in the United States, and the largest conventional natural gas play in North America, having already produced 75 trillion cubic feet of methane. The field has already produced some 300 BCF of helium.
Now that the Federal Helium Reserve in Amarillo, Texas, has been shut down and all its helium auctioned off, Hugoton has become one of the most important helium supply sources in North America.
Armed with technology that completely changes Hugoton's role in one of America's most critical resources, Total Helium is expanding this massive field–eyeing a potential 1.65-million-acre extension that is all about helium.
So far, they've scooped up over 115,000 acres in leases and farmout agreements with various other players in the area, and are looking to continue the expansion at breakneck speed.
With Total Helium (TOH; TTLHF) estimating that each well they drill could produce over 27,000 Mcf of helium, the company is targeting a total of 70 billion cubic feet of potential helium, along with an estimated 8.5 trillion cubic feet of produced gas, enriched with liquids.
Expected Payout in Only 18 Months
Total Helium is already producing, and on March 15th, it announced it has started selling its first helium and methane. Its helium is already in the pipeline and will be on its way to Linde's plant, where the helium will be liquified and the liquids stripped out. The economics look brilliant.
With Total Helium's drilling completion costs estimated at about $600,000, its net from 300 Mcf means a payout that is anticipated in less than 18 months. As dewatering continues and assuming production rate increases as expected, this could come down to 6 months.
Total Helium (TOH; TTLHF) expects it can drill up to 180 wells with these economics and they are working to expand their land position to implement their plans to drill many more wells. Lower costs are anticipated because Hugoton is a shallow gas play, and because there are processing facilities nearby, Total Helium doesn't expect to be paying any big transport-processing capex.
Agreement with A Member of the Helium Oligopoly
An exciting point for investors is Total Helium's purchase and sale agreement with Linde, which enjoys a helium market share of around 40%, and which runs one of the biggest helium plants in the world, in Kansas, among others in Qatar, Algeria and Australia.
Total Helium has generated over $2.2 million in current and upcoming cash flows from its agreement with Linde.
The Technology Transforming Hugoton's 100-Year Legacy
The technology here is important: If you haven't heard of giant Hugoton before, it's because this field, discovered back in 1922, fell off the radar amid the shale boom, leaving the rest of its gas resources in the ground, waiting for new technology that could tap into it.
Hugoton is a conventional field, but its proven reservoirs have high water concentrations, which make recovery very challenging without the right technology.
That's where Craig Steinke comes in–a wildcatter now famous in the industry for bringing us some exciting resource plays while many were distracted by the obvious. And Steinke is all about putting the right technology to work in places that have been all but forgotten.
If you're not familiar with the name, Steinke is the wildcatter behind Recon Africa (RECO/RECAF) who discovered the giant Kavango Basin in Namibia–another conventional onshore play currently being explored that could end up being the last major onshore discovery we will ever see.
Exactly the Right Time
Helium is non-renewable, and it can't be replaced by any other gas. It's extremely lightweight, non-reactive, and can liquify at extremely low temperatures.
There is no supercomputing without helium. There's no big data either. All of our hard drives are now essentially helium drives. There's no fiber-optic telecommunications without it. A helium shortage would likely be devastating, too, for medical equipment and scientific research. Space travel progress would grind to a halt without helium. A NASA space shuttle requires 1 million cubic feet of helium just during the launch countdown.
Now, we're facing a market free-for-all, which is also why prices are soaring. That makes a North American helium play a matter of national interest. And that could make Total Helium (TOH; TTLHF) a very attractive opportunity with a potentially very fast payout.
Other companies set to benefit from the industrial gas squeeze:
Linde plc (NYSE:LIN) has been in the business of manufacturing and distributing gas for over 130 years, making it one of THE oldest companies still operating today! It was founded by Carl von Linde who invented an improved process for liquefying air. Today they have customers all around the world including hospitals (especially ones that use anesthesia), petrochemical plants, steel mills – you name it; if there's anywhere with a demand on atmospheric gases like helium then likely someone at this factory can help meet those needs.
Linde is also involved in engineering. Linde Engineering designs and builds large-scale chemical plants for the production of industrial gases including oxygen, nitrogen, argon, hydrogen and carbon monoxide.
DuPont Corporation (NYSE:DD) is a global science company. DuPont's motto of "Better Living Through Chemistry" was applied to the development of products that help make agriculture sustainable and improve our daily lives.
Over 20 years ago, DuPont was already knee-deep in the fuel cell game, forming an entire division dedicated to hydrogen fuel cell technology. Richard J. Angiullo, then-VP of DuPont Fluoroproducts explained, ``Increasing global energy requirements and the desire for new, alternative energy sources in many markets make fuel cells an exciting new growth opportunity for DuPont." adding, "Fuel cells are a natural fit for DuPont technology and capabilities. More than 50 percent of a PEM fuel cell stack, the real transactional center of a fuel cell, can be made from DuPont materials."
Air Products & Chemicals (NYSE:APD) has been at the forefront of global hydrogen production for years. They recognize that this clean alternative fuel can help make an impactful dent in boosting our country's green energy initiatives as well as reducing carbon emissions across industries by decreasing reliance on fossil fuels like coal and petroleum products, etc., which Air Product's own extensive experience with helping others achieve sustainability goals through chemical innovation will bring about even more progress than before
Air Products and Chemicals has well over 60 years of experience producing hydrogen, and more than two decades designing fueling stations. It's SmartFuel stations have been deployed across the globe and support a number of different unique and interesting transportation applications.
Westinghouse Air Brake Technologies Corporation (NYSE:WAB), is an international technology provider who offers equipment and services geared towards solving problems within the freight rail industry- specifically related to cars or trains moving heavy loads across long distances without ever losing traction.
In the global market of freight and transit, Wabtec stands out. They are a company that provides technologies to help with everything from building new switcher locomotives to supplying railway electronics for various transportation modes in order to fulfill their mission: "We make what moves you."
Dow Chemical Company (NYSE:DOW) is an American multinational chemical corporation headquartered in Midland, Michigan with over a century in operation. This company has been called "the chemical companies' chemical company" as its sales are to other industries rather than directly to end-use consumers and it employs around 54 thousand people worldwide. Along with being one of the three largest producers of chemicals in the world, they also make plastics, agricultural products and more.
George Kehler, Dow's commercial manager for Fuels and Energy, notes, "One of Dow's options to develop a diverse portfolio to power our facilities is to produce energy off the grid through cogeneration, as well as having renewables become an increasingly more important part of the mix"
By. Tom Kool
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that helium prices continue to increase or remain at current levels; that helium will remain or grow in importance for future of many different technology applications; that Total Helium (the "Company") will be able to continue to successfully explore for and produce helium, methane and/or natural from its exploration properties and that the Company will be able to commercialize the production of any helium, methane and/or gas reserves found and recovered on its properties; that current technology, including the implementation of appropriate water disposal systems, will allow the Company to successfully explore and develop potential helium and/or gas reserves on the Company's properties; that the Company will achieve its anticipated return on investment on drilled wells; that the Company will be able to minimize the costs incurred during the exploration and development process; that the Company will be able to store any recovered helium in its agreement with Linde; that the Company and Lind will be able to develop the only alternative helium storage facility to the U.S. federal helium reserve in the entire world; that the U.S. federal helium will be auctioned off to private investors; that the Company will generate ongoing cash flow from its deal with Linde; and that management of the Company can leverage experience from other exploration projects to achieve success. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that helium prices may not increase in the future and may actually decrease for various reasons; that helium may be replaced with other resources such that its importance in technology applications may decrease in future; that the Company may fail to successfully continue its exploration and production of helium, methane and/or natural from its exploration properties or that the Company is unable to commercialize the production of any helium, methane and/or gas reserves found or recovered on its properties; that current technology may be inadequate or cost prohibitive for the Company to successfully explore and develop potential helium and/or gas reserves on the Company's properties; that the Company may not achieve a return on investment on drilled wells as anticipated or at all; that the Company's exploration and development efforts, if any, may be more costly than anticipated; that the Company may be unable to leverage its production agreement with Linde for the storage of any helium it recovers and the Company may be unable to develop a helium storage facility as anticipated or at all; that the Company may fail to generate cash flow from its deal with Linde; that the Company may be unable to deliver sufficient quantities of helium to Linde as required under the agreement and that the agreement with Linde may otherwise not be completed or otherwise fulfilled; that management of the Company may be unable to leverage any of its experience from other exploration projects; that the Company may be unable to secure any necessary financing to continue its operations; and that the business of the Company may ultimately fail for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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