Federal Helium Reserve Update (6-8-00)

With the passage of the Helium Privatization Act (Public Law 104-273) on October 9, 1996, the federal government inaugurated a plan to shut down its helium refining operations and dismantle its facilities by early 1999.  Any sale of the Federal Helium Reserve was tabled until 2005, however, pending the release of a National Academy of Sciences' study indicating that such sales are, indeed, in the nation's best interest.  By April 9, 1998, the Bureau of Land Management (BLM) had terminated its production and sale of Grade A helium (99.995 % pure), but no sale of the Federal Helium Reserve's crude helium had taken place.  Recently, the National Academies released their findings in a National Research Council (NRC) report, The Impact of Selling the Federal Helium Reserve, concluding that Congress' proposed liquidation of the federal reserve will not have a substantial impact on the helium industry in the next two decades.  These findings now pass to Secretary of the Interior Bruce Babbitt so that he may personally evaluate the situation and make any legislative recommendations he deems necessary to forestall adverse impacts from the sale.

The helium industry is a small but growing segment of the U.S. economy.  In its report, the NRC noted that the total amount of helium used in this country almost doubled between 1985 and 1996, swelling from 36 to 69 million standard cubic meters at standard conditions (scm).  Although cryogenic applications in magnetic resonance imaging, semiconductor processing and basic research consume the largest portion of the helium market presently, this light, inert gas has many other uses.  NASA uses it in the pressurizing and purging of its rocket engines while civilian industries use approximately 13 million scm annually in various welding applications.  By the time one accounts for helium's role in atmospheric control and leak detection as well as its obvious use as a lifting gas, it is clear that the industry is an important part of the U.S. economy.

Under the Helium Privatization Act, Secretary Babbitt is to commence the sale of 850 million scm of the Federal Helium Reserve by January 1, 2005, completing the sale by January 1, 2015.  Although the impact of reserve liquidation will be re-evaluated in 2015, any future sales must leave at least 17 million scm in the Federal Helium Reserve (a two year supply at current demand levels).  The government is to continue to operate its Cliffside gas field storage system and collect royalties as well as sales fees from helium taken on federal lands. The legislation predicts that such revenues will eventually be used to pay back the Department of the Interior's $1.4 billion helium "debt" to the Treasury, although many are unsure whether such a paper debt - resulting from an intragovernmental "loan"- actually exists.

While the helium industry was certainly concerned about the economic fallout from such a large sale, the NRC report states that such fears may be unrealistic.  According to the Congressional Research Service, the federal government will pay $1.50 per scm, a figure some 25% higher than the present price for commercial helium.  If the helium market grows modestly (~2%) in the coming decades, the sale of the Federal Helium Reserve should not deflate the market price.  Other scenarios in which the federal price does, in fact, push commercial prices down are rather unlikely, the report concludes.

In its closing chapter, "Impact of the Implementation of the Helium Privatization Act," the NRC panel notes that its judgment is predicated on three important assumptions:  no new sources of helium will be discovered, no reduction in capacity will occur, and no increase in helium demand will appear in the coming decades.  Because the helium industry is subject to change, the report recommends that future reviews of the industry be commissioned by BLM either in response to extreme changes in helium capacity/use or regularly (every 5 or 10 years).  The report cautions against waiting until 2015 to examine the impact of Federal Helium Reserve sales on the helium industry, as the Helium Privatization Act requires.

Whatever monitoring scheme the federal government eventually adopts, the NRC report recommends research into both enhanced helium conservation and exploration technologies.  Unless helium is extracted from natural gas, it is lost to the atmosphere when the gas is burned.  Consequently, the report concludes that future research efforts are necessary if the United States is to maintain a continued helium supply.

For a more extensive introduction to the politics behind the enactment of the Helium Privatization Act (Public Law 104-273) as well as the helium industry (both federal and civilian), see the AGI 1997 update on helium legislation.

Sources: National Research Council

Please send any comments or requests for information to the AGI Government Affairs Program.

Contributed by AGI/AIPG Geoscience and Public Policy Intern Michael R.Wagg

Posted June 8, 2000

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