Update May 13 2020
The Alberta government has issued a new information letter regarding the new royalty rate applied to Helium production in Alberta.
“Effective April 1, 2020 the helium royalty rate is 5 per cent minus a Helium Royalty Adjustment Factor of 0.75 per cent, leading to an effective rate of 4.25 per cent for all wells in Alberta from which helium is recovered.”
The complete letter can be found here.
Most people know helium as the good time, party element, all colourful balloons and high-pitched squeaky voices if inhaled. However, helium has a seriously useful side and potentially an economic one.
Helium is recovered as a by-product of natural gas production. However, while the value of natural gas has gone down in the past decade, the value of helium has increased significantly; so much so that companies are actively exploring for helium and the produced natural gas has been relegated to a by-product. Several companies are actively exploring for helium in Canada including Thor Resources, Royal Helium, Weil Group, the City of Medicine Hat, First Helium and North American Helium. The hot spot for helium exploration and production is southern Saskatchewan but there are areas in Alberta, British Columbia and Manitoba that have potential.
Helium is number 2 on the periodic table, atomic mass 4, it is a colourless, odourless, non-toxic inert gas and has many interesting chemical and physical properties. Helium is the second lightest element (after hydrogen), it has the lowest boiling point of any element and it is inert. These characteristics make it useful as a lifting gas in helium balloons, it is not as light as hydrogen but considerably safer (remember the Hindenburg). The very low boiling point makes liquid helium critical in very low temperature cryogenics. For instance, liquid helium is used in MRI machines to cool the superconducting magnets. The inertness makes it a good shielding gas for welding and processes in semiconductor manufacturing that demand an inert atmosphere. The low reactivity and lightness mean it is also used in purging and pressurizing rocket propulsion systems and for leak detection.
In the universe, helium is the second most abundant element and was created as a product of the Big Bang (a few degrees in particle physics may help here). On Earth very little helium is left and is mostly the product of alpha decay of radioactive elements such as thorium and uranium. The ejected alpha particle is essentially a helium nucleus and if it can find two lonely electrons to pair up with it becomes a full helium atom.
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Helium can be produced in the laboratory but would demand a large amount of radiogenic material and is completely uneconomic and probably dangerous. Therefore, it is considered a non-renewable resource. On Earth it is produced, very slowly, in rocks high in suitable radioactive elements which are usually crustal (or deeper) igneous or metamorphic rocks. The helium must migrate out of the source into traps in the overlying sedimentary cover. These traps are the same as conventional hydrocarbon traps, but the lightness of the helium molecule means the seal must be very effective to prevent migration of helium through the seal. Predicting where high concentrations of helium will be in natural gas reservoirs is difficult. Most exploration for helium concentrates on where older wells have gas analyses indicating high (>1%) helium content. There are several geological features that helium accumulations seem to have in common, but not always: close proximity to Precambrian basement and/or deep-seated faults extending into the basement. As mentioned, a very good seal must also be present.
In terms of oil and gas reserves and resources, helium is considered a non-hydrocarbon by-product as defined by the Canadian Oil and Gas Evaluation Handbook which may be a valuable revenue stream, much like sulphur extracted from sour gas. GLJ has evaluated reservoirs in the northern United States and western Canada where the primary revenue stream is helium instead of saleable hydrocarbons. To calculate ‘helium initially-in-place’ and ‘recoverable helium’ GLJ has followed the same engineering and geological workflow and applied the same standards as we would for a conventional hydrocarbon gas reservoir.
In air, the concentration of Helium is approximately 5 ppm. In natural gas reservoirs Helium may be in concentrations up to approximately 3 percent; however, anything above 0.5 percent is considered high. Most natural gas reservoirs have no or very low helium concentration. The helium is often associated with high concentrations of nitrogen and to a lesser extent carbon dioxide. In some cases, the raw produced natural gas may have very little actual hydrocarbon gas and it will not burn. To separate the helium from the other gases present in produced natural gas, low temperature gas liquefaction has typically been used. The temperature of the gas is lowered to liquify all the other gases and these can be removed, leaving only helium behind. However, selective permeation through membranes under higher pressure, ‘a molecular sieve’, is also being developed and used to purify helium from other gases.
There is no standard price for helium on the world market such as WTI for oil or Henry Hub for gas. The price of helium is difficult to make any generalities about because most of the contracts are private. The one publicly available source of helium price information is the US Department of the Interior Bureau of Land Management Crude Helium Price. To understand where the only real source of publicly available price data for helium comes from, we need to understand a little bit of helium commodity history.
The history of helium use and exploration is quite unusual. During World War I, helium was the preferred gas to fill airships or blimps and therefore was considered by the US as a strategic resource. The Helium Act of 1925 prevented export of the gas from the US which had a monopoly on production. In the 1960s the US Bureau of Mines arranged to have all the available helium produced to be pumped into the partially depleted Cliffside gas field in Texas for storage. All the produced helium at that time came from the Panhandle-Hugoton Field in Texas, Oklahoma and Kansas (helium concentrations between 0.3 and 2.7 percent). This proved quite effective at storing lots of helium but was also costly. By 1995, almost one billion cubic feet of gas was stored but the facility was heavily in debt. Also, in the intervening time period the US had lost its monopoly on helium production and other countries such Qatar, Algeria, Russia, and Canada started producing helium. In 1996, the United States Congress decided to sell off most of the reserves. The facility is still responsible for providing over 40 percent of the US domestic demand for helium but is now run by the Bureau of Land Management (BLM). BLM was charged with managing the helium available to domestic users which included selling most of the stored helium. Live auctions of helium reserves started in 2014 and these auctions are ‘real’ auctions including a fast-talking auctioneer and are recorded and presented on the very informative BLM Helium website.
These auctions are the only publicly available data we have to gauge the cost of helium – despite warnings by BLM that “the average Mcf (thousand cubic feet) bid is not intended to serve as a benchmark price for helium sales contracts”. These are wholesale costs before expensive processing. The actual cost of refined helium is almost certainly considerably higher. In 2017, 30 lots were available ranging in size from 5 MMcf to 25 MMcf, with an average per Mcf price paid of $119 (all prices in US dollars) and ranged between $112 to $128. In 2018, 12 lots were offered, and the average price was considerably higher at $280 per Mcf and ranged from $236 to $337 per Mcf. Compared to the cost of 1 Mcf of methane (approximately $2.50) its easy to see why some companies have taken a significant interest in helium recovery. Many people believe the price will continue to go up, so much so, that there have been calls to stop wasting it filling party balloons.
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