[Senate Hearing 112-540]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-540

 
                           HELIUM STEWARDSHIP

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   TO

         RECEIVE TESTIMONY ON S. 2374, THE HELIUM STEWARDSHIP 
                              ACT OF 2012

                               __________

                              MAY 10, 2012


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          JAMES E. RISCH, Idaho
MARIA CANTWELL, Washington           MIKE LEE, Utah
BERNARD SANDERS, Vermont             RAND PAUL, Kentucky
DEBBIE STABENOW, Michigan            DANIEL COATS, Indiana
MARK UDALL, Colorado                 ROB PORTMAN, Ohio
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
AL FRANKEN, Minnesota                DEAN HELLER, Nevada
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Barrasso, Hon. John, U.S. Senator From Wyoming...................     3
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Chan, Moses, Professor of Physics, Penn State University, and 
  Member, National Research Council of the National Academies....     9
Joyner, David, President, Air Liquide Helium America, Inc........    26
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Nelson, Walter L., Director, Helium Sourcing & Supply Chain, Air 
  Products and Chemicals, Inc....................................    30
Rauch, Tom, GE Healthcare Global Sourcing Manager................    22
Spisak, Timothy R., Deputy Assistant Director, Minerals and 
  Realty Management, Bureau of Land Management, Department of the 
  Interior.......................................................     4

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    45

                              Appendix II

Additional material submitted for the record.....................    57


                           HELIUM STEWARDSHIP

                              ----------                              


                         THURSDAY, MAY 10, 2012

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. OK. Let's start the hearing. This is a 
hearing on S. 2374, the Helium Stewardship Act of 2012.
    Senator Barrasso, Senator Wyden, Senator Enzi, Senator 
Casey and I have all sponsored this legislation. It's a 
bipartisan bill that addresses the need for ongoing stewardship 
of the Nation's helium reserve in Amarillo, Texas. The helium 
reserve is not only an important domestic asset. It also 
provides nearly 30 percent of the world's helium.
    Helium is a commodity that's frequently overlooked. Often 
only considered when people are purchasing balloons for 
parties. Let me just take a moment and highlight the importance 
of this commodity as well as the importance of the U.S. Helium 
Reserve in the world helium market.
    Helium is critical to a wide range of industrial, 
scientific and medical markets including medical devices such 
as MRIs, industrial welding, high tech manufacturing of 
microchips and fiber optic cables, manufacturing of magnets for 
wind turbines, space exploration at NASA and many other 
important scientific research activities that are conducted at 
universities and laboratories throughout the country.
    The current sales and management structure for the Helium 
Reserve is distorting the private helium market and threatening 
helium supplies for Federal, medical and scientific research 
and for private commercial applications. The low government 
sales price is also a barrier to developing private sources of 
helium. More importantly if Congress does not act, the helium 
program will disappear all together in less than 3 years 
leaving our hospitals and national labs and domestic 
manufacturers and helium producers without an adequate supply.
    This bill addresses these issues by authorizing what we 
hope are prudent helium sales and management beyond 2015 and 
securing private access to Federal supplies.
    It also will allow for the continued repayment of the 
national debt by selling helium at fair market prices. This 
will bolster the private helium sector, help to create long 
term jobs in this industrial sector and ensure the continued 
success of domestic manufacturers that use helium in their 
processes.
    Finally S. 2374 will ensure secure access to helium for all 
of those who use it for research purposes. In particular, as 
the reserve is sold off there is a 15 year supply of helium 
that will be set aside for Federal researchers to guarantee 
continuity of research programs as we transition to purely 
private sources of helium.
    The bill is based on input from the National Academies of 
Science, the Bureau of Land Management staff, the various 
scientific researchers, high tech manufacturers and the private 
helium industry.
    I'll conclude by acknowledging the exceptional efforts of 
Allyson Anderson and Marcius Extavour, who are two former 
committee staffers, who worked diligently to help craft this 
important legislation.
    Let me defer to Senator Murkowski for any comments she has.
    [The prepared statement of Senator Casey follows:]

  Prepared Statement of Hon. Robert P. Casey, Jr., U.S. Senator From 
                              Pennsylvania

    I would like to thank the Chairman and Ranking Member for allowing 
me to offer this statement. I am pleased to have at today's hearing two 
witnesses from Pennsylvania.
    Walter Nelson is the Director of Helium Sourcing and Supply Chain 
with Air Products and Chemicals, which is based in Allentown, 
Pennsylvania. Air Products is one of the world's leading industrial gas 
companies and is the world's leader in supplying helium.
    The other Pennsylvania witness on today's panel is Dr. Moses Chan, 
the Evan Pugh Professor at The Pennsylvania State University. Dr. Chan 
is a physicist who works with supersolid helium. He is also the 
Associate Director of Penn State's Materials Research Science & 
Engineering Center.
    Helium makes countless children happy when they receive a floating 
balloon, but more importantly it makes MRIs easily accessible to 
medical patients, facilitates semiconductor manufacturers in making 
computer chips and assists scientists in performing research.
    As we know, the statute that authorizes the nation's helium reserve 
expires at the end of 2014. However, Congress needs to act soon to 
ensure a continued stable market for the Nation's helium supply. I am a 
co-sponsor of S. 2374, the Helium Stewardship Act of 2012, which lays 
out a responsible resource management strategy for the Federal Helium 
Reserve.
    I am hopeful that Congress will be able to ensure the continued 
operation of the Federal Helium Reserve so that this important material 
may continue to assist doctors, patients, scientists, manufacturers and 
all Americans. I believe this hearing is an important step in that 
direction. I thank the Chairman and Ranking Member for holding this 
hearing today and look forward to working with my colleagues to pass 
the Helium Stewardship Act.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I will be brief 
as I want to yield my time to Senator Barrasso on this.
    I think we recognize that while the issue of Federal helium 
reserve is an obscure one, the fact that we're here today does 
highlight for us the issue of what happens when we rely on the 
Federal Government to manage both its physical resources and 
financial resources in an efficient manner. Naturally, I'm 
sympathetic to the goal of avoiding a gross price shock across 
the industries that rely on helium, particularly those in 
medical imaging, as you've noted. So I can't help but wonder 
whether the market wouldn't have settled into equilibrium long 
ago had government involvement not affected the price for all 
these years.
    So I'm interested to hear about the bill and from the 
witnesses, who clearly have an interest in it.
    Again, Mr. Chairman, with your blessing, I'd like to yield 
my time to Senator Barrasso to make sure he's got an 
opportunity to make a statement. This is an important bill for 
Wyoming and an important issue for the country.
    So I thank you and with that can yield my time to Senator 
Barrasso.

         STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR 
                          FROM WYOMING

    Senator Barrasso. Thank you, Senator Murkowski.
    Thank you, Mr. Chairman, for your leadership on this 
critical piece of legislation. I think you've outlined it and 
capsulated it very well. I greatly appreciate the time that you 
and your staff have spent working on this bipartisan bill.
    It's an important step forward to ensuring a stable and a 
predictable helium market. In 1996, Congress passed legislation 
which required the Secretary of Interior to sell off the helium 
in what is known as the Federal Helium Reserve. Now the Reserve 
is an underground geological formation which stores crude 
helium. It's located, as the Chairman has said, in Amarillo, 
Texas.
    The Reserve is the one major, long term storage facility in 
the world. It accounts for about 30 percent of the world's 
supply of helium. This supply is essential to manufacturers and 
important technologies such as MRIs, semiconductors, 
microchips, fiber optic cables. It's also critical to the 
Defense Department, to NASA, to our national labs and to the 
larger scientific research community.
    However, it's unclear whether this vital supply of helium 
will be available to sale over the next few years. Loss of this 
supply would cause a severe disruption in the helium market and 
significantly increase costs for American manufacturers. Our 
legislation, the Helium Stewardship Act of 2012, will ensure 
that this supply of helium remains available for sale.
    Specifically it will extend the Secretary's authority to 
sell helium for use in the private sector until the Reserve 
reaches 3 billion cubic feet. I understand that that will take 
approximately 10 to 15 years.
    Our bill will also encourage the exploration and production 
of alternative sources of helium such as those in Wyoming which 
has over 50 percent of the Nation's helium reserves.
    For years the BLM has been selling helium from the Reserve 
at prices below much of the helium sold in the private market 
and because the Federal Helium Reserve accounts for such a 
large portion of the world's helium supply this BLM's below 
market prices are depressing the prices of helium in the 
private market.
    As the National Academy of Science explained in the 2010 
report, ``Market forces that otherwise might encourage the 
development of additional sources of crude helium have lost 
their influence and the incentives are weakened for users of 
refined helium to invest in conservation and reuse of refined 
helium.''
    The National Academy of Sciences also concluded that BLM's 
pricing policies no longer serve the interests of the U.S. 
taxpayers.
    This legislation today will ensure that the American 
taxpayers get a fair return on the sale of helium from the 
Reserve. Specifically the bill will require the Secretary to 
sell helium at prices that approximate the crude helium price 
in the private market. This, in turn, will encourage the 
exploration and production of alternative sources of helium 
such as those in Wyoming as well as the conservation and reuse 
of this valuable resource.
    In conclusion, Mr. Chairman, I'd like to once again thank 
the witnesses for their willingness to be here with us today.
    Thank you, Mr. Chairman.
    Thank you, Senator Murkowski.
    I look forward to the testimony.
    The Chairman. Alright. Thank you very much.
    Why don't I introduce each of the witnesses here? Then we 
will hear your testimony.
    First would be Mr. Timothy Spisak, who is the Deputy 
Assistant Director of Minerals and Realty Management in the 
BLM, in the Department of Interior.
    Next is Dr. Moses Chan, who is the Evan Pugh Professor at 
Pennsylvania State University in University Park, Pennsylvania.
    Tom Rauch, who is the Global Sourcing Manager for Services 
and Aftermarket Solutions in GE's Healthcare.
    Mr. David Joyner, President of Air Liquide Helium America 
in Houston.
    Mr. Walter Nelson, who is Director of Helium Sourcing and 
Supply Chain with Air Products and Chemicals.
    Thank you all very much for being here. We look forward to 
hearing your views.
    If each of you could take 5 or 6 minutes and give us the 
main points that you think we need to understand. We will 
include your full statements in the record as if read. Then 
we'll have some questions.
    Mr. Spisak, why don't you go ahead?

  STATEMENT OF TIMOTHY R. SPISAK, DEPUTY ASSISTANT DIRECTOR, 
  MINERALS AND REALTY MANAGEMENT, BUREAU OF LAND MANAGEMENT, 
                   DEPARTMENT OF THE INTERIOR

    Mr. Spisak. Mr. Chairman and members of the committee, 
thank you for the opportunity to testify on S. 2374, the Helium 
Stewardship Act of 2012. This bill would make various changes 
to the Helium Privatization Act of 1996 including establishing 
a phased approach to drawing down the Federal Helium Reserve.
    As indicated by a National Academies of Sciences report 
published in early 2010, the market for helium has proven more 
volatile than expected over the last 15 years. The current 
law's requirement that the Bureau of Land Management sell off 
nearly all the Federal Helium Reserve by 2015 could pose a 
threat to the availability of this important resource. The 
Department of the Interior supports the helium related 
provisions of the bill and welcomes the opportunity to improve 
the management of this valuable commodity.
    Helium is a critical, non-renewable, natural resource. The 
most common and economical way of capturing helium is by 
stripping it from the natural gas during production. The BLM 
plays a key role in the careful management and stewardship of 
the only significant, long term, storage facility for crude 
helium in the world, known as the Federal Helium Reserve which 
is located near Amarillo, Texas.
    In 1960 Congress granted the Bureau of Mines the authority 
to borrow funds from the U.S. Treasury to purchase helium with 
the expectation that the proceeds from the future sales of 
helium would allow the Bureau of Mines to repay the borrowing. 
However, compound interest and the Federal demand rarely met 
the expectations underlying the repayment terms of the 
Treasury's loan.
    In 1996, Congress passed the Helium Privatization Act which 
required the BLM to sell the vast majority of the stockpile of 
crude helium. Once the Reserve sell off sales began the BLM was 
to make a constant amount of helium available every year at a 
price based on the amount of remaining helium debt and the 
amount of helium in storage.
    Today the BLM operates the Federal Helium Program with a 
primary goal of paying off the helium debt which the agency 
anticipates fully completing in fiscal year 2013 and providing 
the resource to meet public and private needs.
    In 2000, the NAS published its first analysis of the 
impacts of the 1996 act. Its general finding then was that the 
act would not have a material impact on helium users.
    In early 2010, the NAS released a follow up report on the 
BLM's management of the Helium Reserve and concluded that the 
Act's mandated sell off is negatively impacting the needs of 
both current and future users of helium in the United States.
    S. 2374 addresses many of the concerns that the 2010 NAS 
report identified. Most importantly the bill will create a set 
of phased authorities for the BLM's management of the Helium 
Reserve. The Department supports this approach to gradually 
scale back the helium offered through the program.
    The bill stipulates 3 phases to the draw down.
    During the first two phases, the bill would require the 
Secretary to consult with the helium industry to determine the 
quantities, dates and conditions for the sales of helium. The 
Department would like to work with the sponsor and the 
committee on clarifying how this consultation process might 
occur.
    Also under the bill in order to establish a fair market 
price for the crude helium, the Secretary would require all 
entities that are a party to a contract with the Secretary to 
disclose the weighted average price for crude helium and bulk 
helium transactions throughout the year. The Department looks 
forward to discussing this issue further with the sponsor and 
the committee.
    Finally the bill would direct the Department of Energy to 
support research and development activities related to low BTU 
gas separation helium conservation. The Interior defers to DOE 
regarding the provisions of the bill pertaining to DOE research 
and development.
    Thank you for the opportunity to present this testimony on 
S. 2374. I'll be happy to answer any questions that the 
committee may have.
    [The prepared statement of Mr. Spisak follows:]

  Prepared Statement of Timothy R. Spisak, Deputy Assistant Director, 
 Minerals and Realty Management, Bureau of Land Management, Department 
                            of the Interior

    Mr. Chairman and members of the Committee, thank you for the 
opportunity to testify on S. 2374, the Helium Stewardship Act of 2012, 
which makes various changes to the Helium Privatization Act of 1996, 
including establishing a phased approach to drawing down the Federal 
Helium Reserve. As indicated by a National Academies of Science (NAS) 
report published in early 2010, the market for helium has proven more 
volatile than expected over the last 15 years and current law's 
requirement that the Bureau of Land Management (BLM) sell-off nearly 
all of the Federal Helium Reserve by 2015 could pose a threat to the 
availability of this resource for future U.S. scientific, technical, 
biomedical, and national security users of helium. The Department 
supports the helium-related provisions of the bill and welcomes the 
opportunity to improve the management of this valuable commodity.
    S. 2374 also includes a provision that extends for 2 years the 
royalty rate reduction provided for under the Soda Ash Royalty Rate 
Reduction Act of 2006, which expired in October 2011. The Department 
does not support an extension of the royalty rate reduction on soda 
ash, and cannot support this provision of the bill.

                               BACKGROUND

    Helium is a critical, non-renewable natural resource that plays an 
important role in medical imaging, space exploration, military 
reconnaissance, fiber optics manufacturing, and underwater diving. The 
most common and economical way of capturing helium is by stripping it 
from natural gas during gas production. Geologic conditions in Texas, 
Oklahoma, and Kansas make the natural gas in these areas some of the 
most helium-rich in the United States, ranging from 0.5 to 1.5 percent 
of the gas extracted during production. The BLM plays a key role in the 
careful management and stewardship of the only significant long-term 
storage facility for crude helium in the world, known as the Federal 
Helium Reserve.
    Because of helium's potential to lift military reconnaissance 
devices high above battlefields, the Federal government's interest in 
the resource dates back to World War I. Recognizing this key military 
use for helium, the Mineral Leasing Act of 1920 reserved to the Federal 
government all helium produced on Federal lands--a reservation that 
remains in effect today. After World War I, recognition of the 
potential for helium recovery in the Texas Panhandle, Western Oklahoma, 
and Kansas area (collectively, the ``Hugoton'' field) led to the 
development of the Federal helium program focused in that area. In 
1929, the Bureau of Mines built the Amarillo Helium Plant and Cliffside 
Gasfield Facility near Amarillo, Texas, to produce helium-bearing 
natural gas from a naturally occurring geologic field known as the Bush 
Dome Reservoir.
    After World War II, Federal use of helium shifted towards space 
exploration, and in 1960 Congress passed the Helium Amendment Act. This 
Act changed the program's mandate from exclusive government production 
of helium to conservation of the resource by encouraging private 
natural gas producers to sell extracted crude helium to the Federal 
government for storage in the Bush Dome Reservoir. The Act granted the 
Bureau of Mines the authority to borrow funds from the U.S. Treasury to 
purchase the helium, with the expectation that the proceeds from future 
sales of helium would allow the Bureau of Mines to repay the debt. This 
borrowing authority, established by Congress in lieu of a direct 
appropriation, required the Bureau of Mines to repay the loan by 1985. 
Subsequent legislation extended the deadline to 1995.
    Federal demands for helium rarely, if ever, met the expectations 
underlying the terms of the Treasury's loan to the Bureau of Mines. 
When the 1995 deadline to pay off the debt arrived, the $252 million 
the Bureau had spent on privately-produced helium had increased to $1.3 
billion (principal and interest), and the Bureau of Mines appeared to 
have little prospect of ever repaying the debt. In his 1995 State of 
the Union address, President Bill Clinton stated that it was his 
Administration's goal to privatize the Federal helium program.
    Congress subsequently passed the Helium Privatization Act of 1996 
(HPA), which required the BLM (which assumed jurisdiction over the 
program after the termination of the Bureau of Mines) to make available 
for sale the vast majority of the stockpile of crude helium. The 
mandate directed the BLM to begin selling helium as late as 2005, in 
order to avoid market disruption. The BLM was to make a consistent 
amount of helium available every year at a price based on the amount of 
remaining helium debt and the amount of helium in storage. When 
Congress passed the HPA, there was approximately 30.5 billion standard 
cubic feet (scf) of helium in storage in the Bush Dome Reservoir. The 
HPA mandated the BLM to make available for sale all of the helium in 
excess of a 600 million scf permanent reserve.
    Additionally, the HPA required the BLM to cease all helium 
production, refining, and marketing activities to effectively privatize 
the refined helium market in the United States. Finally, the Act 
provided for the NAS to review the impacts of the 1996 Act. The NAS 
published its first study in 2000, and released a follow-up report in 
2010.

                      THE BLM'S HELIUM OPERATIONS

    The BLM currently operates the Federal helium program with a 
primary goal of paying off the ``helium debt.'' To this end, the BLM 
has paid over $1.1 billion to the U.S. Treasury since 1995, a 
substantial step towards eliminating the helium debt, which the HPA 
froze at approximately $1.3 billion. During FY 2011, $210 million was 
paid toward the helium debt from reserve sales. The BLM anticipates 
full repayment of the helium debt in FY 2013. According to the HPA, 
once the helium debt is retired, the Helium Fund (used to fund the 
BLM's helium program operational expenses) would be dissolved and all 
future receipts would be deposited directly into the general fund of 
the U.S. Treasury.
    The BLM's current helium program, with a workforce of 51 full-time 
equivalents (FTE), operates not only the original storage and pipeline 
system, but also a crude helium enrichment unit, owned by private 
industry refiners, that facilitates transmission of helium to private 
helium operations on the BLM's helium pipeline. The BLM is responsible 
for administering helium extracted from Federal resources, including 
management of fees and royalty contracts. These operations are not 
limited to the Hugoton gas field, but also occur in fields in Colorado, 
Wyoming, Utah, and any other state where producers extract helium from 
the Federal mineral estate. Additionally, the BLM is responsible for 
administering the sell-off of crude helium to private refiners. These 
sales make the most significant contributions toward paying off the 
helium debt. The agency also conducts domestic and, to a lesser extent, 
international helium resource evaluation and reserve tracking to 
determine the extent of available helium resources.
    Another major part of BLM's helium program is the ``In-Kind'' 
program, which supplies helium to Federal agencies (e.g., the 
Department of Energy and NASA) for operations and/or research. Before 
the Helium Privatization Act, Congress required Federal agencies to 
purchase their helium supplies from the Bureau of Mines. Under the 
current In-Kind program, Federal agencies purchase all of their refined 
helium from private suppliers who, in turn, are required to purchase an 
equivalent amount of crude helium from the Federal Helium Reserve. In 
2011, Federal agencies purchased $11 million of helium through the In-
Kind program, up slightly from $10.8 million in 2010.

                THE NATIONAL ACADEMY OF SCIENCES REPORTS

    In 2000, the NAS published its first analysis of the impacts of the 
HPA. Its general finding was that the Act would not have an impact on 
helium users. Additionally, the NAS report concluded that because the 
price-setting mechanism was based on the amount of the helium debt, and 
not the market for helium, the government's significantly higher price 
would mean the helium refining industry would buy crude helium from the 
BLM only as a last resort for fulfilling private contracts. However, 
private helium refiners would still be required to purchase crude 
helium from the BLM under the In-Kind program.
    Over the course of the last decade, however, it has become apparent 
that assumptions underlying the 2000 NAS Report were not accurate. 
First, the NAS's assumption that ``[t]he price of helium [would] 
probably remain stable through at least 2010'' has proven faulty. The 
market for helium has seen significant fluctuations on both the demand 
side--which dropped significantly in 2008 after peaking the prior 
year--and on the supply side, which experienced a significant decline 
in private supplies between 2006 and 2008. In the face of this 
volatility, prices for helium rose steadily over the course of the 
decade. By 2008, the market price for helium began to hover near the 
BLM's price, leading to greater withdrawals from the Federal Reserve 
than the 2000 NAS Report anticipated.
    Another market impact that the 2000 NAS Report did not address was 
international supply and demand for helium. According to the U.S. 
Department of Commerce, domestic consumption of helium decreased 2.7 
percent per year from 2000-2007, while exports to the Pacific Rim grew 
6.8 percent annually, exceeding the 5.1 percent growth rate in Europe. 
The international market also experienced supply issues because of 
refining capacity problems at plants in Qatar and Algeria, which would 
normally help supply both Europe and Asia.
    In early 2010, the NAS released a follow-up report on the BLM's 
management of the Helium Reserve. The report, entitled ``Selling the 
Nation's Helium Reserve,'' focused on ``whether the interests of the 
United States have been well served by the [HPA] and, in particular, 
whether selling off the helium reserve has had any adverse effect on 
U.S. scientific, technical, biomedical, and national security users of 
helium.''
    The 2010 NAS report, which identified some shortcomings of the 2000 
report, takes a markedly different tone than the 2000 report. This 
change in approach reflects the volatility of the helium market over 
the last decade. The NAS report analyzes the relationship between 
supply and demand for helium on a domestic and international basis, as 
well as the BLM's management of the Federal Helium Reserve under the 
HPA. The report concludes that the HPA mandated sell-off is negatively 
impacting the needs of both current and future users of helium in the 
United States. This conclusion is the driving force behind a series of 
recommendations in the report directed at the BLM and the United States 
Congress.

              S. 2374, THE HELIUM STEWARDSHIP ACT OF 2012

    S. 2374 addresses many of the concerns that the 2010 NAS report 
identified regarding the Federal government's involvement in the helium 
market. Most importantly, the bill would create a set of phased 
authorities for the BLM's management of the Helium Reserve, 
establishing a ``glide path'' from the sales mandated under the HPA to 
a scenario where 3 billion scf of helium would be reserved solely for 
Federal users. This would accomplish the original goals of the HPA--the 
exit of the Federal government from the broader helium market and the 
paying off of the helium debt--while protecting long-term supply 
interests for the Federal government. The Department supports this 
approach to gradually scale back the Federal helium program.
    The bill stipulates three phases to the drawdown: 1) ``Business as 
Usual;'' 2) ``Maximizing Total Recovery of Helium;'' and 3) ``Access 
for Federal Users.'' The first phase would begin on the bill's date of 
enactment and end upon repayment of the helium debt. During this 
period, the BLM would be required to offer for sale, on an annual 
basis, at least as much helium as was offered for sale during FY 2012. 
The second phase would begin upon repayment of the helium debt and end 
when the volume of recoverable crude helium in the Federal Helium 
Reserve reaches 3 billion scf. Throughout this time, the BLM would 
balance factors involving long-term helium recovery, program 
management, market supply and demand, and demand of Federal users when 
determining the annual quantity of helium to offer for sale. The third 
phase would begin when the volume of recoverable crude helium in the 
Federal Helium Reserve reaches 3 billion scf and presumably last until 
all recoverable helium has been exhausted from the reserve. Once this 
phase begins, only Federal agencies and Federal research grant holders 
would be authorized to purchase helium from the reserve.
    During the first two phases, the bill would require the Secretary 
to consult with the helium industry to determine quantities, dates, and 
conditions for sales of helium. The legislation, however, is silent on 
how this consultation would take place. The Department would like to 
work with the sponsor and the Committee on clarifying how the 
consultation process would occur.
    Also under the bill, in order to establish a fair market price for 
crude helium, the Secretary would require all entities that are party 
to a contract with the Secretary for the acceptance, storage, and 
redelivery of crude helium to disclose the weighted average price for 
all their crude and bulk liquid helium transactions throughout the 
entire year. The legislation provides for the strict confidentiality of 
these numbers. However, while the confidentiality of the individual 
parties would be maintained, the ultimate result would still be a 
published price for crude helium. It has been one of the unintended 
consequences of the Helium Privatization Act that the BLM's published 
price for crude helium evolved into a market benchmark for the global 
price of helium. A key recommendation of the NAS report and the 
position of the Administration is that the drawdown of the Federal 
Helium Reserve should be done in such a way that it encourages market-
based solutions to finding and developing additional helium resources. 
The Department looks forward to discussing this issue further with the 
sponsor and the Committee. The Administration continues to evaluate any 
cost implications of this legislation.
    In addition to provisions relating to the sale of crude helium, the 
bill would require the U.S. Geological Survey (USGS) to complete 
several reports and studies on helium, including national and global 
helium gas resource assessments. The Department would like to work with 
the sponsor and the Committee to address technical details regarding 
the assessments. It would also direct the Department of Energy to 
support research and development activities related to low-Btu gas 
separation and helium conservation. The Department of the Interior 
defers to the Department of Energy regarding the provisions of the bill 
pertaining to Department of Energy research and development.

                       SODA ASH ROYALTY EXTENSION

    S. 2374 also extends for 2 years the royalty rate reduction 
provided for under the Soda Ash Royalty Rate Reduction Act of 2006, 
which expired in October 2011. This would apply an across-the-board 
reduction in the royalty rate on soda ash leases from an average of 5.6 
percent to 2 percent. The Department does not support this provision of 
the bill.
    As mandated by the 2006 Act, the BLM reported to Congress in the 
fall on the impact of the reduction over the previous 5 years, in the 
U.S. Department of the Interior Report to Congress: The Soda Ash 
Royalty Reduction Act of 2006. The report found that the Soda Ash 
Royalty Reduction Act of 2006 resulted in a substantial loss of royalty 
revenues to the Federal Government and the states which exceeded 
Congressional estimates at the time of enactment. The royalty rate 
reduction does not appear to have contributed in a significant way to 
the creation of new jobs within the industry, to increased exports, or 
to a notable increase in capital expenditures to enhance production. In 
addition, the royalty rate reduction appears to have influenced a shift 
of production away from state leases and private lands and onto Federal 
leases.
    The report also found that, with regard to global competitiveness, 
U.S. production has remained stable at around 11 million tons since 
2002, with exports stable at around 5 million tons since 2005. U.S. 
exports continue to account for over 40 percent of total world exports. 
In contrast, China's production has doubled since 2002, from 
approximately 10 million to approximately 20 million tons, while 
Chinese exports remain far below U.S. exports. Since 2002, world-wide 
production has risen from 37 million tons to 48 million tons in 2010.
    Finally, the report found that overall domestic employment has not 
increased since passage of the Act. However, it is not readily apparent 
from the available data whether jobs have been maintained due to the 
royalty rate reduction in the face of the global economic downturn. Any 
analysis of the number of jobs maintained during the royalty reduction 
period is highly uncertain; employment levels in the industry depend on 
a number of factors, such as soda ash market conditions and employee 
productivity.

                               CONCLUSION

    Thank you for the opportunity to present testimony on S. 2374. I 
would be happy to answer any questions the Committee may have.

    The Chairman. Thank you very much.
    Dr. Chan.

   STATEMENT OF MOSES CHAN, PROFESSOR OF PHYSICS, PENN STATE 
   UNIVERSITY, AND MEMBER, NATIONAL RESEARCH COUNCIL OF THE 
                       NATIONAL ACADEMIES

    Mr. Chan. Good morning.
    Mr. Chairman, Ranking Member Murkowski, Senator Barrasso, I 
appreciate the opportunity to testify before you today. My name 
is Moses Chan. I'm a professor of Physics at Penn State 
University. I'm a member of the National Academy of Sciences.
    I served on the committee that has been mentioned by a 
number of you in the convened part, the National Academy of 
Science and National Research Council, to address a number of 
questions regarding the current law that requires the selling 
off of the Federal Helium Reserve. A report of the study was 
issued in 2010. Here's the report.
    I will speak this morning, however, primarily from my 
perspective as a low temperature scientist. We, as a group, are 
interested in understanding the behavior of materials and 
electronic systems very close to absolute zero. Liquid helium 
provides the means and, in fact, the only means to cool it down 
to such temperature.
    These studies are not as esoteric as they might seem. 
Indeed, I think, everyone in this room has benefited from 
research enabled by liquid helium. This is because much of the 
underlying physics that make things like cell phones, iPads, 
and laptops, possible were discovered and clarified in 
painstaking experiments that carried out under low temperature 
environments.
    Magnetic resonance imaging or MRI is another example of a 
societal benefit that exists only as a result of ground 
breaking experiments carried out at low temperature. Indeed in 
order for MRI devices to work they must have a strong and 
extremely stable magnetic field. As you will hear later on, 
this is accomplished by immersing powerful superconducting 
magnets inside liquid helium.
    These examples I have cited are only a small sample of low 
temperature experiments that have led to benefits to society. 
Ongoing research conducted with the help of liquid helium in 
our Nation's universities, in various government and industrial 
laboratories will, without a doubt, I'm sure, lead to new 
technology that will improve our children and grandchildren's 
lives and contribute to the economic well being of our fellow 
citizens. You noticed I didn't say about our lives because it 
takes some time for the research to reap benefit.
    The scientific community actually uses a very small 
fraction of the helium in the world market. It's estimated to 
be only between two and 3 percent. However because of the 
nature of the experiments, we are extremely vulnerable to any 
interruption in the supply of helium.
    If a shipment of helium, liquid helium, is late by just a 
couple of days and the graduate student is forced to warm up 
the experiment prematurely, weeks or even months of work will 
go down the drain. Since liquid helium is very cold and is 
boiling off all the time, it is not practical and it certainly 
not economical to try to stockpile large amounts of helium in 
anticipation of any late shipments.
    The price of liquid helium is also another important issue 
for us. A typical helium scientist in a university runs, 
typically a very small research group, supported by modest 
research grants from the National Science Foundation, the 
Department of Energy or some other Federal agency. Liquid 
helium may account for up to 40 percent of the total budget of 
the grant. Therefore any substantial hike in the price will 
have a detrimental effect on the helium research community.
    Unfortunately a price hike exceeding, actually for some 
researchers over 100 percent, namely the price rose from 
typical is 3 dollars and fifty cents per liquid liter to more 
than 8 dollars per liquid liter, and an interruption in supply 
lasting for more than a week did happen in 2006 and 2007. The 
interruption and price hike affected, rather widely, the 
research program in at least 40 universities and national 
laboratories. While there have not been any widespread supply 
problem in the years since 2007, the price of liquid helium has 
continued to rise.
    The 2010 NAS/NRC report identified a number of problems 
with aspect with a straight line sell off of the Federal Helium 
Reserve required to take place by 2015. I have included the 
main recommendations of this report in my written testimony.
    I'm extremely heartened to see that the Helium Stewardship 
Act is addressing many of the problems identified in the 
report. But I do want to take this opportunity to highlight the 
recommendations that directly affect the helium research 
community.
    The report recommended that researchers with Federal grants 
be allowed to participate in that existing program or the in-
kind program for government use of liquid helium that will give 
them priority when there is a helium shortage. I'm extremely 
pleased to see that the Stewardship Act responded positively to 
this recommendation.
    The NAS/NRC report also recommended that funding agencies 
help researchers apply helium recycling equipment that brings 
the gas back to liquid that would reduce a long term need of 
helium requirement. Unfortunately it appears that because of 
limited funding, this recommendation has not been implemented 
to any significant degree.
    I thank you for your attention. I will be happy to answer 
any questions.
    [The prepared statement of Mr. Chan follows:]

  Prepared Statement of Moses Chan, Professor of Physics, Penn State 
   University, and Member, National Research Council of the National 
                               Academies

    Good morning, Mr. Chairman, Ranking Member Murkowski, and members 
of the Committee. My name is Moses Chan. I am a Professor of Physics at 
Penn State University and a member of the National Research Council's 
Committee on Understanding the Impact of Selling the Helium Reserve.\1\
---------------------------------------------------------------------------
    \1\ The National Research Council is the operating arm of the 
National Academy of Sciences, the National Academy of Engineering, and 
the Institute of Medicine of the National Academies, chartered by 
Congress in 1863 to advise the government on matters of science and 
technology.
---------------------------------------------------------------------------
    I will be discussing the study prepared by that committee as part 
of testimony on S. 2374, The Helium Stewardship Act of 2012. The study 
was commissioned by the Department of the Interior's Bureau of Land 
Management (BLM) and the principal task of our committee was to 
determine whether the sell-off of the nation's helium reserve as 
prescribed by law has had an adverse effect on the United States' 
scientific, technical, biomedical, and national security users of 
helium. Our committee concluded that the sell-off has had and will 
continue to have adverse effects and we developed a series of 
recommendations to address several outstanding issues with respect to 
the reserve.
    To provide context for those recommendations, I will first give a 
brief overview of our critical helium needs, with a focus on the plight 
of the small research user community, and also discuss those uses where 
substitutes or conservation and recycling are possible. I will follow 
this with a discussion on several matters addressed in the report--
helium supply issues, the federal helium reserve itself, and the sale 
of federally owned helium. My testimony will conclude with a discussion 
of the committee's major recommendations regarding the reserve and its 
management in the future.

                             USES OF HELIUM

    Ready access to affordable helium is critical to many sectors in 
academe, industry and government and the range of those uses is quite 
impressive, enabling research at the coldest of temperatures, weather 
monitoring, surveillance in areas of combat, and optical fiber 
production, among many other applications.
    The diversity in uses for helium arises from its unique physical 
and chemical characteristics--specifically, its stable electronic 
configuration and low atomic mass. Among those unique characteristics 
are the temperatures at which helium undergoes phase transitions 
(liquefies and freezes). Helium has the lowest melting and boiling 
points of any element: It liquefies at 4.2 Kelvin and 1 atmosphere and 
solidifies only at extremely high pressures (25 atmospheres) and low 
temperatures (0.95 Kelvin). These characteristics have led to many 
cryogenic applications for helium; the largest single category of 
applications by percentage of helium consumed. These range from the 
efforts of individuals engaged in small-scale cryogenic research to 
large groups using high-energy accelerators and high-field magnets. All 
rely upon helium to conduct their research and because the federal 
government supports many of these researchers, it has a direct stake in 
their continued success. Cryogenic users also include segments of the 
medical profession, not only for biological research in devices such as 
superconducting quantum interference devices (SQUIDS), but also for 
diagnosis with tools such as magnetic resonance imaging (MRI) devices.
    Helium's ability to remain liquid at extremely low temperatures 
also gives rise to its usage for purging and pressurizing systems and 
as such, helium is a critical component in our nation's space 
exploration and defense efforts. The National Aeronautics and Space 
Administration (NASA) and the Department of Defense (DOD) use 
significant amounts of helium, as it is the only gas that can be used 
to purge and pressurize the tanks and propulsion systems for rockets 
fueled by liquid hydrogen and oxygen.
    Other uses rely on helium's lifting capabilities. As the second 
lightest element, gaseous helium is much lighter than air, causing it 
to be quite buoyant. When combined with helium's chemical inertness--
especially when compared with the highly flammable alternative, 
hydrogen--its buoyancy makes helium an ideal lifting gas. NASA and the 
Department of Energy (DOE) use helium to support weather-related 
missions and various research and development programs funded by these 
agencies, both at government facilities and at universities. DOD also 
must have ready access to helium to operate the balloon-and dirigible-
based surveillance systems needed for national security.
    Other applications draw on other characteristics of helium--its 
relatively high thermal conductivity, low viscosity, and high 
ionization potential--either alone or in combination. These 
applications include welding, providing controlled atmospheres for 
manufacturing operations, and detecting leaks in equipment providing 
vacuum environments to science and industry. Table 1 summarizes the 
principal applications of helium and the share of use in the United 
States.
    Small-Scale Researchers.--Among the events that triggered this 
study were soaring prices and limited supplies that characterized the 
refined helium market in the fall of both 2006 and 2007. The committee, 
composed of individuals from a wide range of professions--economists, 
business people, and scientists--noted that small-scale scientists were 
particularly hard hit by price shocks and interruptions in the supply 
of refined helium during that time. An informal poll conducted by 
committee members of approximately 40 research programs at universities 
and national laboratories that use helium indicated that shortages of 
liquid helium interrupted the helium supply for almost half of these 
programs, with some interruptions lasting for weeks at a time during 
the late summer and fall of both 2006 and 2007. For many of those 
scientists, losing access to helium, even temporarily, can have long-
term negative repercussions for their research.
    In general, the federal grant programs that support these 
researchers simply are not designed to cope with significant pricing 
shifts and other market volatilities experienced here. Grants typically 
are for a two to three year period and for a set amount that does not 
adjust if a principal expense of research such as helium significantly 
increases. Further, the relatively short duration of such grants, with 
no guaranty of renewal, effectively precludes these research programs 
from entering into long-term contracts that might at least partially 
reduce the risk of significant prices increases and shortages.
    Domestic vs. foreign consumption.--The balance between domestic and 
foreign consumption of helium has shifted significantly in the past 15 
years. Until the mid-1990s, substantially all helium production took 
place in the United States. This factor, combined with high shipping 
costs and limited availabilities, meant that until recently, the amount 
of helium consumed abroad was fairly small. In 1990, for example, 70 
percent of worldwide helium consumption was in the United States.
    Since 2000, the demand for helium in the United States has remained 
fairly constant but has grown significantly elsewhere, reducing the 
U.S. share of total consumption. See Figure 1.* Foreign growth has been 
assisted by the opening of several helium-producing facilities outside 
the United States that will be discussed later in this testimony, as 
well as by improved capabilities in the short-term storage and handling 
of refined helium. This period also saw a significant increase in 
industrial applications, principally in semiconductor and optical fiber 
fabrication facilities outside the United States, and the shifting of 
industrial facilities that use helium from the United States to foreign 
countries. By 2007, United States helium consumption had dropped to 
below 50 percent of worldwide demand. Despite a slight downturn in 
overall demand for helium associated with the global recession in 2008-
2009, the committee believed, based on recent trends, that foreign 
demand should continue to increase relative to demand in the United 
States.
---------------------------------------------------------------------------
    * Figures 1-3 have been retained in committee files.
---------------------------------------------------------------------------
    Substitution, Conservation, Recovery.--For some applications, other 
gases can replace helium, but other applications rely critically on 
helium's unique properties and there are no alternatives. Applications 
in the first category, where substitutes for helium might exist, 
include these:

   Lifting.--For these uses, where low density is the only 
        requirement, hydrogen is sometimes substituted if safety 
        concerns can be met.
   Welding.--Here, chemical inertness is the key property. For 
        processes such as gas tungsten arc welding--a critical process 
        applicable to reactive metals such as stainless steel, 
        titanium, aluminum, and others in high-value, high-reliability 
        applications--Europe mostly uses argon, while the United States 
        uses helium.
   Semiconductor and fiber optics manufacturing.--In these 
        applications, high thermal conductivity is the important 
        property. Often, hydrogen may be substituted.

    In the above applications, economics, market conditions, 
availability, safety, and legislation can influence the choice among 
helium and other gases.
    In contrast, other applications require the unique properties of 
helium, typically relying on the extremely low boiling point of liquid 
helium to achieve a desired result. These applications include the 
following:

   Purging/Pressurizing.--Entities such as NASA and DOD must 
        purge and then pressurize liquid hydrogen (LH2) and 
        liquid oxygen (LOX) rocket propulsion systems and 
        fuel tanks that may be at liquid air temperatures or colder. 
        Although gaseous hydrogen might have the right physical 
        properties for use in LOX systems, its reactivity 
        with oxygen precludes its use. Nitrogen is not desirable 
        because nitrogen might contaminate the LOX. In 
        LH2 environments, all gases other than helium and 
        hydrogen would freeze, clogging fuel lines and systems and 
        rendering the rocket engines nonfunctional.
   Superconductivity.--All applications that employ 
        superconducting magnets, including medical magnetic resonance 
        imaging (MRI) machines, high energy accelerators and many high 
        field magnets used in research, rely on the continued 
        availability of helium. Current materials and technologies 
        dictate that only helium can act as the crucial refrigerant to 
        cool these materials below superconducting thresholds.
   Basic research.--Here, no other substance can be used as a 
        refrigerant to achieve temperatures from 4.2 K above absolute 
        zero down to millikelvins.

                            SUPPLY OF HELIUM

    Sources.--Helium is the second-most-abundant element in the 
universe, but its diffusive properties mean that atmospheric helium 
leaks into space, rendering it relatively scarce on Earth. At only 5.2 
parts per million (ppm) in air, it is not economically feasible to 
extract helium from the atmosphere using current technology. Rather, 
the principal source of helium is natural gas fields. Helium nuclei (or 
alpha particles) are produced in the radioactive decay of heavy 
elements such as uranium and thorium, located in Earth's crust. While 
most of these helium atoms find their way to the surface and escape, a 
small fraction are trapped by the same impermeable rock strata that 
trap natural gas. Such natural gas usually consists primarily of 
methane and secondarily of ethane, propane, butane, and other 
hydrocarbons and various other contaminants, including H2S, 
CO2, and He.
    There are three different situations in which helium contained in 
natural gas may be economically recovered:

   Helium may be extracted as a secondary product during the 
        primary process of producing methane and natural gas liquids 
        (NGLs) such as propane, ethane, butane, and benzene.
   For natural gas fields that have sufficient concentrations 
        of helium and other non-fuel gases such as sulfur and 
        CO2 to economically justify their extraction, the 
        gas in those fields may be directly processed for the non-fuel 
        constituents.
   Helium may be extracted during the production of liquefied 
        natural gas (LNG), which consists primarily of liquefied 
        methane.

    For the first two recovery processes, current technology requires 
threshold concentrations of 0.3 percent helium before separation of the 
helium is commercially feasible. For the third process, the helium is 
extracted from the tail gases, the gases that remain after the methane 
has been liquefied. The helium concentration in those tail gases is 
much higher than in the original gas, allowing the economical 
extraction of helium even through the original natural gas might 
contain as little as 0.04 percent helium.
    Figure 2 shows the principal domestic sources of helium. 
Historically, most helium in the United States has been recovered using 
the first method described above, as a byproduct of producing methane 
and natural gas liquids. Almost all of that helium has been produced in 
the mid-continental region around the Hugoton Field. As is described in 
later testimony, this is where the federal helium reserve system is 
located. The Hugoton Field is mature and the production of methane, NGL 
and secondary products such as helium from that field is expected to 
significantly decline over the next several years. In the last few 
decades, helium has been produced in Wyoming using the second method 
described above, where the natural gas is directly processed for its 
helium and other non-fuel content. Potential helium reserves have also 
been explored in the Four Corners area.
    Outside of the United States, only small reserves of the first two 
sources of helium have been exploited and for many years, the rest of 
the world has relied upon the United States as their principal source 
of helium. Recently, the development of large LNG facilities has opened 
up new, potential sources of helium. The principal countries in which 
those facilities are being developed are Algeria, Qatar, and Russia, 
with smaller facilities coming online in Australia. These areas are 
expected to become increasingly more important sources of helium as the 
Hugoton and adjoining fields mature. See Figure 3.
    Supply Chain.--After being refined, helium is transported to end 
users through a fairly complicated supply chain. In the United States, 
the helium typically is liquefied and delivered by refiners either to 
their transfill stations situated throughout the United States or to 
distributors of industrial gases. This transportation is handled using 
expensive domestic tanker trucks or bulk-liquid shipping containers 
standardized according to the International Organization for 
Standardization (ISO), each of which holds approximately 1.0 to 1.4 
million cubic feet (MMcf) of helium. While some of the largest helium 
users contract directly with a refiner for their helium purchases and 
deliveries, most sales to end users are through the retail division of 
a refiner or a distributor. The refiners and distributors then 
repackage the helium, either in its liquid state into dewars--
evacuated, multiwalled containers designed to hold liquid helium--of 
varying sizes or in its gaseous state into pressurized cylinders, tube-
trailers, or other modules as needed by the end users.

                    FEDERAL POLICY REGARDING HELIUM

    Helium has long been the subject of public policy deliberation and 
management, largely because of its many strategic uses and its unusual 
source. Shortly after natural gas fields containing helium were 
discovered at the beginning of the last century, the U.S. government 
recognized helium's potential importance to the nation's interests and 
placed its production and availability from federally owned mineral 
interests under strict governmental control. In the early years, helium 
principally was used for its lifting capability, as a safe alternative 
to highly flammable hydrogen. By the mid-1920s full-scale production 
facilities had been built and were being operated by the federal 
government to support its lighter-than-air aviation programs.
    In the 1960s, helium's strategic value in cold war efforts was 
reflected in policies that resulted in the creation of the federal 
helium reserve. Although much of the infrastructure predates the cold 
war, the Federal Helium Reserve as a program began and currently 
consists of

   The Bush Dome reservoir, a naturally occurring underground 
        structural dome in the Cliffside Field near Amarillo, Texas, 
        where federally owned (and some privately owned) crude helium 
        is stored;
   An extensive helium pipeline system running through Kansas, 
        Oklahoma, and Texas (the Helium Pipeline) that connects crude 
        helium extraction plants with each other, with helium refining 
        facilities, and with the Bush Dome reservoir,
   Various wells, pumps and related equipment used to 
        pressurize the Bush Dome reservoir, to place into and withdraw 
        crude helium from it, and to operate other parts of the helium 
        reserve.

    The 1960s efforts also included inducements for private companies 
to develop helium extraction and refining facilities and to sell crude 
helium to the United States. The program was quite successful, 
resulting in the accumulation of approximately 35 billion cubic feet 
(Bcf) of helium by the mid 1970s. This amount was many times the 600 
(750?) million cubic feet (MMcf) of helium then being consumed 
domestically (annually?) (globally) and so further purchases were 
suspended. The amount of helium maintained in the helium reserve 
remained fairly constant for the next 20 years.
    The latest manifestation of public policy is expressed in the 
Helium Privatization Act of 1996 (1996 Act), which directs that 
substantially all of the helium accumulated as a result of those 
earlier policies be sold off by the year 2015, at prices sufficient to 
repay the federal government for its outlays associated with the helium 
program, plus interest.
    Context of Current Study.--The last section of the 1996 Act called 
for the Secretary of the Interior to commission a study from the 
National Academies to determine whether disposal of federally owned 
helium pursuant to the 1996 Act would have a substantial adverse effect 
on critical interests of the country. The report that followed (2000 
Report) found that because the helium market had been quite stable 
since the 1980s and the price at which federally owned helium must be 
sold under the 1996 Act was significantly higher than the price at 
which privately owned crude helium was then being sold, the sell off of 
the helium would not have a substantial adverse effect on critical 
users. The report predicted that the price of privately owned crude 
would gradually rise to the price at which federally owned helium was 
being offered, and until it reached that level very little federally 
owned helium would be purchased, given the availability of cheaper 
sources.
    While the helium market remained fairly stable for several years 
after issuance of the 2000 Report, that report did not accurately 
predict the market's response to efforts to sell-off federally owned 
helium. In March 2003, when BLM first offered federally owned helium 
for sale, the entire 1.6 Bcf offered for sale was purchased. Rather 
than gradually rising, the prices for privately owned crude helium 
rapidly rose such that by 2007, those prices were on par with and often 
exceeded the legislatively prescribed price for federally owned helium. 
Retail prices for helium commensurably rose, more than doubling between 
2003 and 2008. In addition, during the summer and fall of 2006 and 
2007, the helium market encountered widespread shortfalls, with some of 
the interruptions lasting for weeks at a time.
    The amount of federally owned helium being sold is enormous: at the 
time our report was issued in 2010, it was equivalent to approximately 
one-half of U.S. helium needs and almost one-third of global demand. 
One consequence is that the price of federally owned helium, which is 
set not by current market conditions but by the terms of the 1996 Act, 
dominates, if not actually controls, the price for crude helium 
worldwide.
    Committee Findings, Recommendations.--As mentioned at the beginning 
of this testimony, the principal charge of our committee was to 
determine whether the sell-off of the nation's helium reserve as 
prescribed by law has had an adverse effect on the United States' 
scientific, technical, biomedical, and national security users of 
helium. In response to this charge, the committee determined that 
selling off the helium reserve, as required by the 1996 Act, has 
adversely affected critical users of helium and is not in the best 
interest of U.S. taxpayers or the country. The sell-down of federally 
owned helium, which had originally been purchased to meet the nation's 
critical needs, is coming at a time when demand for helium by critical 
and noncritical users has been significantly increasing, especially in 
foreign markets. If this path continues to be followed, within the next 
ten to fifteen years the United States will become a net importer of 
helium whose principal foreign sources of helium will be in the Middle 
East and Russia.
    In addition, the pricing mandated by the 1996 Act has triggered 
significant increases in the price of crude helium, accompanied by 
equally significant increases in the prices paid by end users. Finally, 
the helium withdrawal schedule mandated by the 1996 Act is not an 
efficient or responsible reservoir management plan. If the reserve 
continues to be so managed, a national, essentially nonrenewable 
resource of increasing importance to research, industry, and national 
security will be dissipated.
    The committee recommends several ways to address the outstanding 
issues. Several of its recommendations respond to the very large impact 
that selling off the reserve has had and is continuing to have on the 
helium market in general, including a recommendation that procedures be 
put in place that open the price of federally owned helium to the 
market.
    Another of the committee's concerns is that the drawdown schedule 
required by the 1996 Act, which dictates that the reserve helium be 
sold on a straight-line basis--the same amount must be sold each year 
until the reserve is substantially gone--is a wasteful way to draw down 
a reservoir. Because it is much more costly and more likely to leave 
significant amounts of helium unrecoverable than alternative drawdown 
scenarios, the committee recommends that this portion of the 1996 Act 
be revisited. In addition, given recent developments in the demand for 
and sources of helium (the principal new sources of helium will be in 
the Middle East and Russia, and if the sell-down continues, the United 
States will become a net importer of helium in the next 10 to 15 
years), the committee recommends that Congress reconsider whether 
selling off substantially all federally owned helium is still in the 
nation's best interest.
    The committee also addresses the needs of small-scale government-
funded researchers who use helium, a group that has been hit 
particularly hard by sharp price rises and shortages that have 
characterized the helium market in recent times. This group was singled 
out mainly because such research is an important public enterprise and 
the funding mechanisms available to the researchers, typically grants 
on 3-year cycles for set amounts, do not allow them to respond to 
short-term fluctuations. These research programs should have some 
protection from the instabilities recently characterizing the helium 
market. Accordingly, the committee recommends that the researchers be 
allowed to participate in an existing program for government users of 
helium that would give them priority when there is a helium shortage. 
It also recommends that funding agencies help such researchers to 
acquire equipment that would reduce their net helium requirements. 
Implementing these recommendations would not subsidize such users nor 
would it require significant additional outlays: Indeed, over time, it 
would lead to the much more efficient use of the federal funds with 
which helium is purchased.
    Because the helium market is rapidly changing and helium is 
critically important to many critical users, the committee includes 
recommendations that would facilitate long-range planning to meet the 
nation's helium needs, including the collection and dissemination of 
needed information and the formation of a standing committee to 
regularly assess whether national needs are being appropriately met. 
The remaining conclusions and recommendations consist of steps to help 
properly manage the helium reserve and protect this important national 
resource. The language of the committee's full recommendations is 
contained in the summary of the report, which is attached to this 
statement.
    Finally, while noting that the question of how critical helium 
users in the United States will be assured a stable supply of helium in 
the future is beyond the scope of its charge, the committee points out 
that several important issues related to this topic remain unanswered. 
How will the large amounts of federally owned helium that remain after 
the mandated sell-off deadline in 2015 be managed after that date? 
Moreover, from a wider perspective, should a strategic helium reserve 
be maintained? These questions need to be answered in the near future, 
well before most federally owned helium is sold.
    This concludes my testimony to the committee. Thank you for the 
opportunity to testify on this important topic. I would be happy to 
elaborate on any of my comments during the question and answer period.

                              ATTACHMENTS



            Summary from Selling the Nation's Helium Reserve

               A REPORT OF THE NATIONAL RESEARCH COUNCIL

    Ready access to affordable helium is critical to many sectors in 
academe, industry and government. Many scientists--from individuals 
engaged in small-scale cryogenic research to large groups using high-
energy accelerators and high-field magnets--rely upon helium to conduct 
their research and because the federal government supports many of 
these researchers, it has a direct stake in their continued success. 
The medical profession also depends on helium, not only for biological 
research in devices such as superconducting quantum interference 
devices (SQUIDS), but also for diagnosis with tools such as magnetic 
resonance imaging (MRI) devices. Industrial applications for helium 
range from specialty welding to providing the environments in which 
semiconductor components and optical fiber are produced. Government 
agencies that require helium include the National Aeronautics and Space 
Administration (NASA) and the Department of Defense (DOD), as only 
helium can be used to purge and pressurize the tanks and propulsion 
systems for NASA and DOD's rockets fueled by liquid hydrogen and 
oxygen. NASA and the Department of Energy (DOE) also use helium to 
support weather-related missions and various research and development 
programs funded by these agencies, both at government facilities and at 
universities. Finally, DOD must have ready access to helium to operate 
the balloon-and dirigible-based surveillance systems needed for 
national security.
    The Federal Helium Reserve, managed by the Bureau of Land 
Management (BLM) of the U.S. Department of the Interior, is the only 
significant long-term storage facility for crude helium in the world 
and currently plays a critical role in satisfying not only our nation's 
helium needs but also the needs of the world. The federally owned crude 
helium now on deposit in the Reserve was purchased by the federal 
government as a strategic resource during the cold war. After the cold 
war, Congress enacted legislation (the Helium Privatization Act of 1996 
referred to hereinafter as the 1996 Act) directing that substantially 
all of the federally owned helium in the Reserve be sold at prices 
sufficient to repay the federal government's outlays for the helium and 
the infrastructure, plus interest. The present report, called for by 
BLM, examines whether BLM's selling of this helium in the manner 
prescribed by law is having an adverse effect on U.S. users of helium 
and, if so, what steps should be taken to mitigate the harm.\2\
---------------------------------------------------------------------------
    \2\ As discussed more fully in the section of Chapter 1 entitled 
``Review of the 2000 Report's Conclusions,'' the 1996 Act called for an 
Academy study to determine if such disposal would have a substantial 
adverse effect on U.S. interests. That study, The Impact of Selling the 
Federal Helium Reserve, published by the NRC in 2000 and referred to 
hereinafter as the 2000 Report, concluded that the 1996 Act would not 
substantially affect matters. While several of that study's findings 
remain valid, it did not correctly predict how the 1996 Act would 
impact prices or how the demand side of the helium market would grow, 
in part a response to the ready availability of helium arising from the 
sell-off of the Helium Reserve pursuant to the 1996 Act. These factors 
have significantly impacted the current market for helium.
---------------------------------------------------------------------------
    This report assesses the current status of the supply and demand 
for helium as well as the operation of the federal helium program. It 
concludes that current efforts to comply with legislative prescriptions 
have had and will continue to have negative impacts on the needs of 
both current and future users of helium in the United States. The sell-
down of federally owned helium, which had originally been purchased to 
meet the nation's critical needs, is coming at a time when demand for 
helium by critical and noncritical users has been significantly 
increasing, especially in foreign markets. If this path continues to be 
followed, within the next ten to fifteen years the United States will 
become a net importer of helium whose principal foreign sources of 
helium will be in the Middle East and Russia. In addition, the pricing 
mandated by the 1996 Act has triggered significant increases in the 
price of crude helium, accompanied by equally significant increases in 
the prices paid by end users. Finally, the helium withdrawal schedule 
mandated by the 1996 Act is not an efficient or responsible reservoir 
management plan. If the reserve continues to be so managed, a national, 
essentially nonrenewable resource of increasing importance to research, 
industry, and national security will be dissipated.

                      Findings and Recommendations

          SPECIFIC RECOMMENDATIONS FOR IMMEDIATE IMPROVEMENTS

    To address these issues, the committee first lays out three 
specific recommendations for improving the federal helium program: 
changing the methods for pricing the helium being sold, committing more 
resources to managing the physical facilities at the Federal Helium 
Reserve, and providing assistance for small-scale scientists by 
expanding the sales program for government users to include them and 
promoting conservation and reuse by these users.

Pricing Mechanism
    The 1996 Act set minimum selling prices, adjusted for inflation, 
for crude helium held by the BLM such that the sale of that helium at 
those prices would generate sufficient revenue to repay the federal 
government for what it originally spent to purchase the helium and to 
build the supporting infrastructure, plus interest. BLM has elected to 
sell its helium at those minimum prices. At the time of the 1996 Act, 
the minimum selling price was almost double the price being paid for 
privately owned crude helium. A market that had been stable for several 
decades prior to the sell-off of federally owned helium, experiencing 
neither drastic price increases nor shortages of supply,\3\ began to 
change after BLM started to sell its crude helium. Almost immediately, 
privately sourced crude helium prices began to rise, and those prices 
continued to steadily increase so that they now meet or exceed BLM's 
price, and many of the sales contracts for private helium expressly tie 
future selling prices to BLM's price. Thus this legislatively set price 
for federally owned helium is now setting the price for crude helium, 
and there is no assurance that this price has any relationship to the 
current market value of that helium.
---------------------------------------------------------------------------
    \3\ 2000 Report, page 9.
---------------------------------------------------------------------------
    To the extent BLM's price is lower than the price the market would 
otherwise set for crude helium, this pricing mechanism could have 
several negative consequences: (1) it could lead to inaccurate market 
signals, increased consumption, and accelerated depletion of the 
Federal Helium Reserve; (2) it could retard efforts to conserve and 
develop alternative sources of crude helium, (3) it could result in 
transfers of taxpayer assets to private purchasers at below-market 
values--that is, it could amount to a taxpayer-financed subsidy for 
consumption of this scarce publicly owned resource; and (4) sales of 
federally owned crude helium could end up subsidizing exports of 
helium.
    The managers of the Reserve should shift to a market-based pricing 
policy to improve the exploitation of this important national asset. 
The report notes that several mechanisms could be used to implement 
market-based pricing and thereby introduce competition, or the threat 
of it, to the process. However, one complicating factor is that before 
federally owned helium can be used, it must be refined, and the 
refining capacity linked to the Reserve is owned by four companies. The 
committee believes that market-based pricing of crude helium from the 
Reserve will require that purchasers other than those four companies 
have access to refining capacity linked to the Reserve. However, 
additional details on mechanisms to provide access to excess refining 
capacity and to attain the goal of market-based pricing of crude helium 
from the Reserve are beyond the committee's charge.

          Recommendation.--The Bureau of Land Management (BLM) should 
        adopt policies that open its crude helium sales to a broader 
        array of buyers and make the process for establishing the 
        selling price of crude helium from the Federal Helium Reserve 
        more transparent. Such policies are likely to require that BLM 
        negotiate with the companies owning helium refining facilities 
        connected to the helium pipeline the conditions under which 
        unused refining capacity at those facilities will be made 
        available to all buyers of federally owned crude helium, 
        thereby allowing them to process the crude helium they purchase 
        into refined helium for commercial sale.

Management of the Reserve
    An additional aspect of the 1996 Act that has significant--and 
undesirable, in the judgment of this committee--implications for the 
overall management of the Helium Reserve is the Act's requirement that 
the sale of federally owned crude helium is to take place on a 
straight-line basis.\4\ The mandated constant extraction rate conflicts 
with standard practices for the exploitation of this type of reservoir, 
which is that production rates vary over the economic life of a 
deposit, typically declining over time. Declining production rates and 
reservoir pressures delay encroachment of water from nearby aquifers 
and connected reservoirs, and promote the efficient drainage and 
recovery of the resource gas in place.
---------------------------------------------------------------------------
    \4\ The law directs that crude helium from the reserve be offered 
for sale in such amounts as may be necessary to dispose of all helium 
in excess of 600,000,000 cubic feet on a straight-line basis between 
January 1, 2005 and January 1, 2015. Although BLM has offered helium 
for sale in the amounts required by the 1996 Act, not all such helium 
has been purchased and as a consequence significant amounts of 
federally owned helium will remain in the Federal Reserve after January 
1, 2015. This is discussed in more detail in Chapter 5 in the section 
entitled ``Sell-Down of Crude Helium Pursuant to 1996 Act.''

          Recommendation.--The BLM should develop and implement a long-
        term plan that incorporates appropriate technology and 
        operating practices for delivering crude helium from the 
        Reserve in the most cost-effective manner.

Assistance for Small-Scale Researchers
    Among the events that triggered this study were the soaring prices 
and limited supplies that characterized the refined helium market in 
the fall of both 2006 and 2007. The committee, composed of individuals 
from a wide range of professions--economists, business people, and 
scientists--notes that small-scale scientists were particularly hard 
hit by price shocks and interruptions in the supply of refined helium 
during that time. An informal poll conducted by committee members of 
approximately 40 research programs at universities and national 
laboratories that use helium indicated that shortages of liquid helium 
interrupted the helium supply for almost half of these programs, with 
some interruptions lasting for weeks at a time during the late summer 
and fall of both 2006 and 2007. While anecdotal, these poll results 
provide clear indication that this community of users is directly 
impacted by general shortages of helium. For many of those scientists, 
losing access to helium, even temporarily, can have long-term negative 
repercussions for their research.
    In general, the federal grant programs that support these 
researchers simply are not designed to cope with the pricing shifts and 
other market volatilities experienced here. The grants typically are 
for a two to three year period and for a set amount that does not 
adjust if a principal expense of research such as helium significantly 
increases. Further, the relatively short duration of such grants, with 
no guaranty of renewal, effectively precludes these research programs 
from entering into long-term contracts that might at least partially 
reduce the risk of significant prices increases and shortages. Further, 
if BLM were to implement the market-based pricing mechanism recommended 
in this report, the retail price for helium may commensurably increase, 
which will have an even greater negative impact on those helium users.
    These negative impacts could, however, be mitigated at least in 
part through a programmatic and policy change that would allow small 
users being supported by government contracts and grants to participate 
in a program\5\--commonly referred to as the in-kind program--operated 
by BLM for the sale of helium to federal agencies and their contracting 
agents. Under that program, qualified buyers purchase their refined 
helium indirectly from BLM on a cost-plus basis.\6\ Notably, 
participants in the program have priority access to helium in times of 
shortages.\7\ The committee believes that such an expansion of the in-
kind program would eliminate supply concerns and many of the price 
fluctuations that have negatively affected federally funded researchers 
during the past few years. Further, such an extension would be without 
significant cost to the programs supporting these researchers and, 
indeed, should lead to a more efficient use of the federal funds being 
used to purchase helium.
---------------------------------------------------------------------------
    \5\ The in-kind program is discussed in more detail in Chapter 5 in 
the section entitled ```In-Kind' Program of Crude Helium 
Distribution.''
    \6\ As discussed more fully in the section of chapter 5 entitled 
``In-Kind Program of Crude Helium Distribution'' the price is 
negotiated between the supplier and user and includes BLM's cost of 
crude helium plus refining and transportation costs and profits for the 
refiner and distributor.
    \7\ 50 U.S.C.A Section 167d (a);

          Recommendation.--The crude helium in-kind program and its 
        associated customer priorities should be extended by the Bureau 
        of Land Management, in cooperation with the main federal 
        agencies not currently participating in the in-kind program--
        for example, the National Science Foundation, the National 
        Institutes of Health, and the extramural grant programs of the 
        Department of Energy--to research being funded in whole or in 
---------------------------------------------------------------------------
        part by government grants.

    In addition to recommending that these users be allowed to 
participate in the in-kind program, the committee believes that the 
conservation and reuse of helium by these users should be promoted by 
the agencies funding this research. Although adopting such a policy may 
be costly in the short-run, the committee judges that it would save 
money in the long-run and would help to reduce many of the negative 
effects of the price and supply disruptions referred to in the 
preceding discussion.

          Recommendation.--Federal agencies such as the Department of 
        Energy, the National Science Foundation, the National 
        Aeronautics and Space Administration and the Department of 
        Defense, which support research using helium, should help 
        researchers at U.S. universities and national laboratories 
        acquire systems that recycle helium or reduce its consumption, 
        including low-boil-off cryostats, modular liquefaction systems, 
        and gaseous recovery systems.

    The committee notes that because total U.S. research applications 
account for only 2 to 4 percent of all usage of refined helium in the 
United States, the negative effects of supply and price disruptions for 
the U.S. research community not currently participating in the in-kind 
program could be addressed at relatively low cost. Moreover, in the 
judgment of this committee, the benefits for the nation that would 
accrue from minimizing these disruptions would be substantial.

         GENERAL RECOMMENDATIONS FOR MEETING U.S. HELIUM NEEDS

    In addition to the specific recommendations just discussed, the 
committee sets out more general recommendations for how to best meet 
the nation's current and future helium needs. These include 
recommendations for (1) collecting and making available the information 
needed to more effectively manage the Federal Helium Reserve and to 
formulate future helium policy, and (2) initiating strategies to 
develop a more comprehensive long-term program for meeting the nation's 
helium needs.

Collection of Information
    One of the difficulties encountered by this committee and the 
previous NRC committee that issued the 2000 Report was the lack of 
timely and sufficient information to evaluate the supply and demand 
sides of the helium market, especially non-U.S. supply and demand, and 
the operation of the Federal Helium Reserve. Such information is needed 
by those who formulate and carry out U.S. policies on helium in order 
to make good decisions.

          Recommendation.--The Bureau of Land Management (BLM) should 
        acquire, store, and make available to any interested party the 
        data to fill gaps in (1) the modern seismic and geophysical log 
        data for characterization of the Bush Dome reservoir, (2) 
        information on the helium content of gas reservoirs throughout 
        the world, including raw data, methodology, and economic 
        assessment that would allow the classification of reserves 
        contained in specific fields, and (3) trends in world demand. 
        BLM or other agencies with the necessary expertise, such as the 
        U.S. Geological Survey, should develop a forecast over the long 
        term (10-15 years) of all U.S. demand for helium for scientific 
        research and for space and military purposes.
          Recommendation.--Unless expressly prohibited from doing so, 
        Bureau of Land Management should publish its database on the 
        helium concentrations in the more than 21,500 gas samples that 
        have been measured throughout the world and provide its 
        interpretations of gas sample analyses, especially those 
        reflecting likely prospective fields for helium.

Long-Range Planning
    Helium is critically important to many U.S. scientific, industrial, 
and national defense sectors. Further, the helium market is rapidly 
changing, as evidenced by the unforeseen developments on both the 
supply side and demand side of that market since the 2000 Report was 
released. Finally, because the Reserve is so large, steps undertaken in 
connection with it can have unintended consequences, the most pertinent 
being the effect of the pricing mechanism adopted by BLM pursuant to 
the 1996 Act on worldwide prices for helium. These considerations merit 
the development of a more permanent and sustained plan for managing 
this valuable resource.
    In addition, the Federal Helium Reserve is a finite resource and so 
at some point in the future will be depleted. However, the helium needs 
of users in the in-kind program will continue. The BLM and the White 
House Office of Science and Technology Policy (OSTP) should develop a 
strategy to address these important future needs.

          Recommendation.--The Bureau of Land Management should 
        promptly investigate the feasibility of extending the Helium 
        Pipeline to other fields with deposits of commercially 
        available helium as a way of prolonging the productive life of 
        the Helium Reserve and the refining facilities connected to it.
          Recommendation.--The Bureau of Land Management (BLM) should 
        form a standing committee with representation from all sectors 
        of the helium market, including scientific and technological 
        users, to regularly assess whether national needs are being 
        appropriately met, to assist BLM in improving its operation of 
        the Federal Helium Reserve, and to respond to other 
        recommendations in this report.
          Recommendation.--The Bureau of Land Management, in 
        consultation with the Office of Science and Technology Policy 
        and relevant congressional committees, should commission a 
        study to determine the best method of delivering helium to the 
        in-kind program, especially after the functional depletion of 
        the Bush Dome reservoir, recognizing that this will not happen 
        until well after 2015.
          Recommendation.--The congressional committee or committees 
        responsible for the federal helium program should reevaluate 
        the policies behind the portions of the 1996 Act that call for 
        the sale of substantially all federally-owned helium on a 
        straight-line basis. It or they should then decide whether the 
        national interest would be better served by adopting a 
        different sell-down schedule and retaining a portion of the 
        remaining helium as a strategic reserve, making this reserve 
        available to critical users in times of sustained shortages or 
        pursuant to other predetermined priority needs.

Conclusion
    The committee notes that securing a stable and accessible helium 
supply in the future requires addressing several important issues that 
are beyond the scope of this study. For example, the legislative 
framework for the operation of the federal helium program is silent on 
the management of the Federal Helium Reserve after January 1, 2015, the 
mandated date for disposal of substantially all federally owned crude 
helium. What is to be done with the remaining federally owned crude 
helium? How will BLM operations beyond 2015 be financed? Should the 
Reserve, either as a federal or a private entity, as appropriate, 
continue to exist after the BLM debt to the U.S. Treasury has been 
retired? While the committee supports maintaining a strategic reserve, 
addressing these issues requires the involvement of Congress and the 
broader federal science policy establishment because they go well 
beyond the reserve management responsibilities of BLM.

    The Chairman. Thank you very much.
    Mr. Rauch.

 STATEMENT OF TOM RAUCH, GE HEALTHCARE GLOBAL SOURCING MANAGER

    Mr. Rauch. Good morning, Chairman Bingaman, Ranking Member 
Murkowski and members of the committee. It's a privilege to be 
here today to speak to you on this issue.
    My name is Tom Rauch. I'm the Global Sourcing Manager 
within GE Healthcare supply chain. One of the things I'm 
responsible for is the supply of liquid helium used in advanced 
medical imaging.
    GE Healthcare employs 22,000 people across the U.S. We 
employ people in all 50 states. Our broad expertise in advanced 
health care technology enables care providers to deliver better 
care to more people at a lower cost around the world.
    I'm here to share with you the critical importance of 
helium to the medical imaging manufacturing industry, 
healthcare providers with whom we do business, most importantly 
the patients, who may use or will use helium as by nature of 
MRI technology in the future. Over the course of this hearing 
over 8,000 patients will undergo an MRI exam. My grandfather 
could have his stroke diagnosed. A mother could have her breast 
cancer diagnosed in its early stages. An MS patient could learn 
if the disease is advancing.
    I'm also here today to express GE's support for the Helium 
Stewardship Act of 2012. I urge its swift passage. With your 
support we could avoid a situation where one-third of the 
current global supply of helium is cutoff resulting in a 
potentially severe health care access issue.
    MRI is one of the most powerful diagnostic imaging tools in 
use today. It uses a magnetic field and radio frequency to take 
pictures of a person's internal anatomy. MRI technology is a 
relatively young technology. It's only about 30 years old. Its 
clinical applications are continuing to expand.
    It allows physicians to see how organs work in real time. 
MRI is especially effective for imaging soft tissues like the 
brain, spine, liver and kidneys. As Senator Barrasso knows, the 
MRI is a preferred modality for taking detailed images of 
joints. The MRI is also becoming increasingly helpful in new 
areas such as breast, prostate and heart imaging.
    Some quick stats about MRI imaging.
    There's 2,000 jobs at GE Healthcare associated with MRI 
across the country.
    Two hundred and twenty-one U.S. companies provide parts and 
components or services to the MRI business.
    Fasco Factory and other manufacturing supplier jobs, 
healthcare workers, researchers, it's safe to say that hundreds 
of thousands of American jobs associated with MRI.
    GE Healthcare manufactures MRI magnets at our facility in 
Florence, South Carolina. We ship about 1,000 magnets a year to 
sites all over the world. The key component in an MRI system is 
a powerful magnet. It needs to be super cooled to 4.2 Kelvin, 
which is about 452 degrees below zero Fahrenheit.
    A tremendous amount of energy flow through the super 
conducting wire within the magnet. Liquid helium is the only 
element that's feasible for sufficient cooling it. There's 
currently no substitution, as you heard Dr. Chan allude to and 
for image quality keeping a magnet at a constant operating 
temperature is absolutely critical.
    GE Healthcare uses roughly 5 and a half million liters of 
helium at our magnet facility in Florence, South Carolina. In 
it we dedicate another 6 million liters to servicing magnets in 
the field. MRIs in hospitals need to be regularly topped off. 
Over time depending on the age, model, location of the machine, 
we need to service these things in the field for which we rely 
on our partners and helium retailers to service via contract 
for GE.
    As previous witnesses detailed the global helium supply has 
been constrained since mid 2011 and echoes similar situations 
from the recent past. The opportunities are here now for 
policymakers to avoid a supply crisis. Creation demand across 
the industries is fast outpacing the helium supply. This is 
reverberated throughout the healthcare industry where companies 
like GE work daily to protect providers and patients from the 
affects of a shortage.
    The helium supply challenge is currently being managed in 
our installed base by filling MRIs with lesser amounts of 
helium at each service event. Now this is not an ideal solution 
because it calls for more frequent visits and ultimately leads 
to more down time for the equipment and ultimately interrupted 
care to the patient.
    Lack of helium to service in MRI could cause a quench. A 
quench is when there's a rapid boil off of the helium that's 
inside of a magnet. There's no immediate patient safety risk. 
However, the magnet could sustain permanent damage in which 
it's a lengthy refurbishment process in which time care could 
be delayed or interrupted.
    As far as actions that are being taken by GE. We're 
looking--as we look to a future where demand could certainly 
outpace supply, we've invested a million dollars in our 
facility in plant equipment in Florence, South Carolina over 
the past 5 years on things like more effective thermal 
transfer, helium recapturing systems. We also do some recovery 
of liquid helium in the gaseous form and sell it back to our 
partners as gas that can be used in welding.
    We're also working in our global research facility on a 
more efficient magnet design for a long term solution where we 
ultimately are less reliant on liquid helium.
    In conclusion, helium is important for healthcare 
manufacturing, the healthcare economy and most importantly, 
patients. Ensuring a stable supply of helium is a priority of 
the medical imaging industry, the Helium Stewardship Act of 
2012 is a positive and needed step forward.
    Chairman Bingaman and members of the committee, thank you 
again for providing GE Healthcare and the medical imaging 
industry the opportunity to speak on this topic. Thank you.
    [The prepared statement of Mr. Rauch follows:]

 Prepared Statement of Tom Rauch, GE Healthcare Global Sourcing Manager

                              INTRODUCTION

    Chairman Bingaman, Ranking Member Murkowski, and Members of the 
Committee, it is a privilege to be here with you today.
    My name is Tom Rauch, and I am GE Healthcare's Global Sourcing 
Manager for our Services and Aftermarket supply chain, which includes 
the supply of liquid helium used in advanced medical imaging 
technology.
    GE Healthcare employs 22,000 people across the United States, with 
employees in all 50 states. Our broad expertise in medical imaging and 
information technologies, medical diagnostics, patient monitoring, drug 
discovery, biopharmaceuticals and performance solutions services help 
health care providers deliver better care to more people around the 
world at a lower cost.
    I'm here to share with you the critical importance of helium to the 
medical imaging manufacturing industry, the health care providers with 
whom we do business, and by extension, the patients and families in 
communities throughout the country that have used or will use Magnetic 
Resonance Imaging (MRI) technology.
    Over the course of this hearing over 8,000 patients will undergo an 
MRI exam.\1\ A grandfather could have his stroke diagnosed; a mother 
could have her breast cancer diagnosed in its early stages; a multiple 
sclerosis (MS) patient could learn if the disease is advancing, and a 
college athlete could get a second opinion on her torn ACL.
---------------------------------------------------------------------------
    \1\ This and other MRI use statistics are derived from the 
Organization for Economic Cooperation and Development (OECD) Health 
Data 2011
---------------------------------------------------------------------------
    I am also here today to express GE's support for the Helium 
Stewardship Act of 2012 and urge its swift passage. With your support, 
we can avoid a situation where one third of the current global supply 
of helium is cut off, resulting in a potentially severe health care 
access issue

                       MAGNETIC RESONANCE IMAGING

    Magnetic Resonance Imaging, better known as MRI, is one of the most 
powerful diagnostic imaging tools in use today. MRI uses a magnetic 
field and radio frequency to take pictures of a patient's internal 
anatomy.
    MRI technology is only 30 years old, and its clinical applications 
continue to expand. It allows physicians to see how organs are 
functioning in real time. The advantage of MRI over other forms of 
imaging is that it offers optimal contrast resolution between two or 
more areas of anatomy. It is especially effective for imaging soft 
tissues like the brain, spine, liver and kidneys. MRI is used in 
hospitals to help emergency physicians diagnose and characterize stroke 
and identify brain tumors. MRI is often used for the diagnosis and 
monitoring of multiple sclerosis (MS). And, as Sen. Barrasso knows, MRI 
is the preferred modality for detailed views of joints. MRI is becoming 
increasingly helpful in imaging areas like the breast, prostate and 
heart. All that said, MRI has many valuable medical applications and is 
integral to how many physicians practice modern medicine.
    There are roughly 7,800 MRIs in America today. They can be found in 
academic medical centers, community hospitals, surgery centers and 
physician offices in every state. About 75,000 scans are performed on 
patients every day.
    MRI is also a jobs engine. Over 1,900 jobs at GE Healthcare are 
associated with MRI, and MRI accounts for many thousands more jobs in 
the medical imaging manufacturing industry broadly. Two hundred twenty 
one supplier companies provide parts and components to our MRI 
business. Factoring in health care workers and researchers who work 
with and around MRI, it is safe to say that hundreds of thousands of 
American jobs are associated with MRI.

                             HELIUM AND MRI

    GE Healthcare manufactures MRI magnets at our facility in Florence, 
South Carolina. We ship 1,000 MRI magnets a year from Florence all over 
the world.
    The key component in an MRI system is a powerful magnet cooled to 
4.2 kelvin, or 452 below zero Fahrenheit. Tremendous amounts of energy 
flow through the superconducting wire throughout the magnet. Liquid 
helium is the only element that is feasible for sufficiently cooling a 
magnet to the degree where the superconducting properties of the wire 
are realized. These superconducting properties enable the high field 
strength, stable, and uniform magnetic fields that make modern MRI 
systems possible.
    Keeping a magnet at a constant operating temperature is critical. 
Depending on the type of MRI being produced, a machine needs anywhere 
from 4,000-10,000 liters of helium stored in a sealed vacuum system 
surrounding the magnet.
    GE Healthcare uses roughly 5.5 million liters of helium a year at 
our South Carolina production facility. In addition, we dedicate six 
million liters a year servicing our MRI systems at hospitals and other 
sites across the nation. MRIs in hospitals need to be regularly 
replenished with helium in order to maintain a normal operating 
temperature. Depending on the age, model and location of the machine, 
MRIs need to be ``topped off'' with helium at least once per year--not 
unlike topping off the coolant in your car. To do this, GE contracts 
with helium retailers to deliver helium and related service to 
customers.

                   IMPACT OF HELIUM SUPPLY CONSTRAIN

    As previous witnesses have detailed, the global helium supply has 
been constrained since mid-2011. This constraint echoes similar 
situations from the recent past. The opportunity is here now for 
policymakers to avoid a supply crisis and also deal with the underlying 
issues that have led us to this point. Increasing demand across 
industries is fast outpacing the current helium supply. This has 
reverberated throughout the health care industry where companies like 
GE work daily to protect providers and patients from the effects of a 
shortage.
    The helium supply challenge is being managed in the installed base 
by filling MRIs with lesser amounts of helium per service visit. This 
is not an ideal solution, as it means more frequent servicing which 
increases equipment downtime and is ultimately less efficient in 
delivering care to patients.
    If the supply constrain worsened it could be very harmful to 
patient care. If there were no helium available to properly service an 
MRI, a ``quench'', or sudden helium boil off could occur. While there 
is no immediate patient safety risk, a magnet could sustain permanent 
damage and may need to be replaced--an expensive and time consuming 
process. Replacing an MRI often involves a crane, street closures, and 
knocking down ceilings and walls of a care facility. During this time 
patients would not have access to MRI, and needed care is not 
delivered. Patients in need of MRI may be forced to drive long 
distances. MS, breast cancer, and other diagnoses could be delayed, or 
missed altogether, and the health care system would be deprived of one 
of its most valuable tools.

                          ACTIONS TAKEN BY GE

    Increased demand and tightening supply have led GE to invest $1 
million at our facility in South Carolina in an effort to increase 
helium efficiency. These efforts include investments in conservation 
technology and recycling methods to capture escaped gas for re-use. We 
have also jointly invested with our onsite helium industry partner in 
order to achieve a more efficient transfer of helium throughout the 
factory.
    As well, researchers at GE's Global Research Centers are currently 
exploring the feasibility of new magnet designs that minimize the 
amount of helium needed as we look to a near future where the demand 
for helium could fast outpace supply.

                               CONCLUSION

    Helium is a critical element in MRI. It is important for health 
care manufacturing and the health care economy, but it is most 
important for the patients who need access to MRI to diagnose stroke, 
tumors and other diseases.
    As such, ensuring a stable supply of helium is a priority for the 
medical imaging industry. The Helium Stewardship Act of 2012 represents 
a step toward a solution as it allows the U.S. Government to continue 
drawing from helium reserves, while incentivizing more private 
development of helium supply.
    Chairman Bingaman and members of the Committee, thank you again for 
providing GE Healthcare and the medical imaging industry the 
opportunity to speak on this important topic.

    The Chairman. Thank you very much.
    Mr. Joyner.

   STATEMENT OF DAVID JOYNER, PRESIDENT, AIR LIQUIDE HELIUM 
                          AMERICA, INC

    Mr. Joyner. Chairman Bingaman, Ranking Member Murkowski and 
members of the committee, I appreciate the opportunity to 
testify today on S. 2374, the Helium Stewardship Act of 2012.
    My name is David Joyner. I am the President of Air Liquide 
Helium America. As many of you are aware, American Air Liquide 
is one of the Nation's leading industrial gas companies 
headquartered in Houston, Texas employing over 5,000 workers in 
the United States in more than 200 different locations. Air 
Liquide is focused on technological innovation to help make our 
Nation's manufacturing and industrial sectors more efficient, 
environmentally friendly and productive.
    To that end since 2007, Air Liquide has operated the 
Delaware Research and Technology Center, otherwise known as 
DRTC, which is specifically devoted to developing innovative 
applications for gas products and supporting helium specific 
initiatives as well such as gas recovery and re-liquefaction in 
support of these conservation efforts. We'd like to thank 
Senator Chris Coons for his strong and consistent support of 
technology innovation in Delaware and around the United States. 
A stable supply of helium is crucial both to our customers as 
well as to our research efforts at the DRTC. We're especially 
pleased that 2374 recognizes an area of our research which is 
the advanced membrane technology which could eventually lead to 
breakthroughs in future helium recovery and supply.
    Regarding today's hearing Air Liquide is a major supplier 
of refined helium in the United States and globally to 
customers that range from companies on the cutting edge of the 
electronics industries to health researchers, automotive 
suppliers, laboratories and manufacturing facilities in the 
U.S. and all over the world. Accordingly I commend the hard 
work done by the members of the committee and the committee 
staff to ensure the reliability of the Nation's helium supply.
    For today's hearing I'd like to confine my remarks to two 
issues that we see as important for the committee to consider 
in the current legislation, accessibility and pricing.
    With regards to accessibility currently 94 percent of the 
domestically available crude volumes managed by the BLM Reserve 
is allocated to just 4 companies. The rest of the marketplace 
can then compete for the remaining 6 percent and attempt to 
also negotiate a necessary tolling agreement from one of the 4 
refining companies. Without an agreement for the refiner to 
toll the crude cannot be used by the non-refiner or by an end 
user. So moreover given the worldwide supply demand balance of 
helium, individual market players will not be compelled to 
transfer tolling capacity to other players in the current 
structure.
    So as the National Research Council's 2010 report on the 
BLM Reserve notes, ``Given that the refining of the helium must 
take place at one of the facilities connected to the helium 
pipeline with limited number of potential processors of 
federally owned crude helium place significant restrictions on 
alternatives to the current sale procedures being followed by 
the BLM.'' In reacting to this issue the NRC's report 
recommended that the BLM, adopt policies that open its crude 
helium sales to a broader array of buyers.''
    Air Liquide agrees with this recommendation and believes 
that S. 2374 should increase access to the BLM Reserve for non-
refiners and encourage that refiner's toll an equivalent ratio 
of crude helium on behalf of the buyers. In exchange the 
refiners receive an appropriate tolling fee. Such a solution 
would expand the market, suppliers and benefit both the 
consumers and the Reserve by increased competition and more 
reliable supply chains.
    As to pricing we understand the objective for the BLM to 
obtain accurate market pricing for helium. However, the 
original base pricing of the Federal helium started at below 
market levels as the NAS study suggested. The BLM, at the 
recommendation of that study is now making the sudden and 
unpredictable increases to adjust that base pricing up to 
market levels and incorporate additional fees that are for cost 
and circumstances that are very specific to just the BLM 
reserve operations.
    So unfortunately the inclusion of these BLM specific 
factors into the crude price creates an issue because these 
global sourcing agreements at other sources beyond the BLM 
system use this change in the BLM crude price as a 
representation in their formulas to adjust the change in the 
value of helium and all of these other global sources. So if no 
action is taken to address this issue the result would be a 
distortion in the global market pricing.
    So to prevent this we recommend that the separation of 
these fees, which were cited actually in the recent BLM 
announcement, as an enrichment factor and a conservation factor 
that also contribute to a helium production fund that are 
specific to the BLM Reserve system. To separate those fees from 
the BLM crude helium price so that the wholesale change in the 
pricing mechanism envisioned by the proposed legislation is 
still achieved but by clearing separating these non-market fees 
from the current BLM crude price that have no relation to the 
helium market as a whole. Private companies will still be able 
to adjust existing contracts in accordance with true market 
drivers and avoid what would be artificial increases at these 
other global sources which would then cause undo harm to end 
users as those pricing and costs are passed through.
    So we believe that changes to the legislation discussed 
above are achievable and fully consistent with the intent 
underlined in the bill. I thank the committee for allowing me 
to testify and be happy to answer any questions you have.
    [The prepared statement of Mr. Joyner follows:]

      Prepared Statement of David Joyner, President, Air Liquide 
                          Helium America, Inc.

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to testify today on S. 2374, the Helium Stewardship Act of 
2012. My name is David Joyner and I appear today on behalf of American 
Air Liquide, one of the Nation's leading industrial gas companies. 
Headquartered in Houston, Texas, American Air Liquide has over 5,000 
employees in the United States in more than 200 different locations all 
over the country. For decades, Air Liquide has offered industrial gases 
and related services to the Nation's large industries, manufacturers, 
electronics and healthcare marketplaces. As a company, Air Liquide is 
focused on technological innovation to help make our Nation's 
manufacturing and industrial sectors more efficient, environmentally 
friendly and productive. To that end, since 2007, Air Liquide has 
operated the Delaware Research and Technology Center (DRTC) which 
houses approximately one hundred employees specifically devoted to 
developing innovative applications for gas products in sectors such as 
electronics, healthcare, cosmetics, energy and food, as well as 
supporting helium specific initiatives such as recovery and re-
liquefaction in support of conservation efforts. We would like to thank 
Senator Chris Coons for his strong and consistent support of technology 
innovation in Delaware and around the United States.
    Most relevant to the topic of the Committee's hearing today, Air 
Liquide is a major supplier of refined helium in the United States and 
globally to customers that range from companies on the cutting edge of 
the electronics industry to health researchers, automotive suppliers, 
laboratories and manufacturing facilities all over the world. I have 
been with Air Liquide working in the industrial gas sector for over 
twenty years. For the last two of those years, I have served as the 
President of Air Liquide Helium America, Inc., our helium supply 
company. In this capacity, I have grown to appreciate the importance of 
helium--a non-renewable resource on our planet but one that's utility 
has only grown with the passage of time. I have also gained an in-depth 
understanding of the helium market both globally and domestically.
    A stable supply of helium is crucial both to our customers as well 
as to our own research efforts at DRTC. We are especially pleased that 
S. 2374 recognizes and supports one of these areas of research--
advanced membrane technology--which can eventually lead to 
breakthroughs in future helium recovery and supply.
    As the Committee is aware, the issues surrounding the helium market 
are complex and the uses for helium--whether as part of magnetic 
resonance imaging (MRI), particle physics research, or airbags for the 
automotive sector--are of critical national importance. Accordingly, I 
commend the hard work done by the Members of this Committee and the 
Committee staff to ensure the reliability of our Nation's helium 
supply. For today's hearing, I would like to confine my remarks to two 
issues that we see as important as the Committee considers the current 
legislation: (1) accessibility and (2) pricing.
    With regards to accessibility, currently 94 percent of the 
domestically available crude helium managed by the U.S. Department of 
Interior's Bureau of Land Management (``BLM'') is allocated to just 
four companies. The rest of the marketplace is forced to compete for 
the remaining six percent and attempt to negotiate a reasonable 
agreement from one of the four refining companies--who are also direct 
marketers of helium like the non-refiners--to refine the crude helium 
(i.e. ``toll'') for their use. Without an agreement for the refiner to 
toll, the crude cannot be used by a non-refiner to be sold to an end-
user. Moreover, given the worldwide supply/demand balance of helium, 
individual market players will not be compelled to transfer tolling 
capacity to other players in the current structure.
    As to pricing, because the original base pricing of federal helium 
started at below market levels, the BLM, at the recommendation of the 
National Academy of Sciences (``NAS''), is now making unpredictable 
increases to adjust the base pricing up to market levels and to 
incorporate additional fees for costs that are specific only to the 
operation of the BLM reserve. Unfortunately, over the last several 
years, these increases have often been sudden, significant jumps, 
leading to an irregular domestic pricing mechanism. To complicate 
matters further, helium sourcing agreements beyond the closed BLM 
system reference the BLM crude price as an index for their own pricing 
formulas. This, in effect, drives up the price of helium for all 
consumers not only here in the United States but also around the world 
whenever the BLM crude price is readjusted. This contractual reality 
creates a system in which the global source prices increase in parallel 
with BLM prices and thus perpetually remain higher priced. If no action 
is taken to address this issue, this result would be contrary to the 
objective of triggering increased conservation of the BLM crude. To be 
clear, we understand the objective for the BLM to attain market pricing 
for helium, however, we recommend achieving that objective without 
artificially distorting market driven factors at other sources in the 
U.S. and around the world. This would ultimately result in artificially 
driving other sourcing prices above market pricing which will 
negatively impact consumers.
    With minor tweaks to the current system, Air Liquide believes both 
of these issues can be addressed to the betterment of industry, 
consumers and society. Accordingly, we propose the following solutions 
to the two issues of (1) accessibility and (2) pricing.

               I. ACCESSIBILITY OF THE U.S. HELIUM SUPPLY

    The Federal Helium Reserve was created in 1925. As helium began to 
be recognized as critical to the Nation's defense industry, the United 
States accumulated a large supply of the gas during the height of the 
Cold War. As previously stated, the supply of helium is non-renewable 
and the Federal Helium Reserve, managed by BLM, now produces nearly 50 
percent of the helium in the domestic market and one-third of the 
helium used in the global market, making it a significant player and 
consumer in the world helium market.
    As the Committee is aware, the helium stored at the Federal Helium 
Reserve is ``crude'' helium which must be refined before it is 
transported to end-users. The process of refining helium involves the 
transport of the crude helium from the Federal Helium Reserve through 
the Helium Pipeline--a system that runs through Kansas, Oklahoma, and 
Texas--to one of six refining facilities that are located on the 
pipeline where further purification and liquefaction takes place prior 
to redistribution to consumers. These six refining facilities are owned 
by just four companies. Thus, these four refiners have an almost 
exclusive use of 30 percent of the world's helium supply via the BLM 
reserve. As the National Research Council's 2010 report, Selling the 
Nation's Helium Reserve, (the ``NRC 2010 Report'') notes: ``given that 
refining the helium must take place at one of the facilities connected 
to the Helium Pipeline, the limited number of potential processors of 
federally owned crude helium place significant restrictions on 
alternatives to the current sale procedures being followed by BLM.'' 
These restrictions include the fact that potential private bidders for 
BLM helium--outside of the four companies that own the refineries on 
the Helium Pipeline--are entirely dependent upon the ability to have 
these refiners process the BLM crude helium at a refinery on the Helium 
Pipeline in order to get the gas to end-users in the market. This 
system prevents an open market where outside companies can compete for 
the BLM crude helium for federal user's business as well as open market 
uses.
    The consequences of the situation described above have important 
implications for domestic end-users of helium. Adopting a more market-
based approach was recommended by the NRC 2010 Report which stated the 
following:

          The Bureau of Land Management (BLM) should adopt policies 
        that open its crude helium sales to a broader array of buyers 
        and make the process for establishing the selling price of 
        crude helium from the Federal Helium Reserve more transparent. 
        Such policies are likely to require that BLM negotiate with the 
        companies owning helium refining facilities connected to the 
        Helium Pipeline the conditions under which unused refining 
        capacity at those facilities will be made available to all 
        buyers of federally owned crude helium, thereby allowing them 
        to process the crude helium they purchase into refined helium 
        for commercial sale.

    Utilizing this approach would result in a more accurate and 
transparent helium market and would benefit consumers by increasing the 
number of suppliers competing for the business of federal users and 
open market users. To attain these goals, we would recommend that S. 
2374 include measures to open the Federal Helium Reserve to a wider 
range of buyers and establish policies to ensure greater access to 
crude helium exists within the market. In exchange for a suitable 
tolling fee paid to the refiners, non-refiners would therefore be able 
to buy BLM helium and, through arrangements with existing refiners, be 
able to utilize previously unavailable refining capacity at facilities 
on the Helium Pipeline.
    One solution for increasing access may be to adjust the unusually 
high 94 percent helium allocation referenced earlier to a more 
reasonable distribution between refiners and non-refiners and requiring 
the refiners to toll an equivalent ratio of crude helium on the behalf 
of other buyers. This would allow the existing refiners on the pipeline 
to continue to benefit from their preferred status but would ensure the 
marketplace around them more accurately reacts to changing issues of 
supply and demand. In exchange, the refiners would receive an 
appropriate tolling fee. This solution would expand the number of 
suppliers competing for the business of consumers and federal users, 
meaning a more robust and competitive market place.

    II. IMPLICATIONS OF BLM CRUDE PRICE FOR GLOBAL HELIUM CONTRACTS

    As discussed briefly above, one of the central problems S. 2374 
seeks to address is the current distortion between the price of helium 
sold by the Federal Helium Reserve and the actual price such helium 
would be sold for under normal market conditions. Under the provisions 
of the 1996 Helium Privatization Act, the BLM was directed to sell off 
the helium from the Federal Helium Reserve at a price solely designed 
to pay down the Reserve's existing debt. Clearly, this has had the 
impact of distorting the sales price of BLM helium in comparison to the 
actual market price which is set by domestic and global supply and 
demand. Another impact, resulting from the fact that BLM has 
historically and still today, represents the largest single source of 
helium capacity in the world, is the widespread use of the ``BLM crude 
price'' as a benchmark in private helium sales contracts all over the 
world. To compensate for the artificially low benchmark price, as the 
NRC 2010 Report states, ``[m]any if not all of the contract adjustments 
also include escalation terms that maintain the premium over BLM set in 
the adjusted price terms of the renegotiated crude contracts[.]''
    The importance of this issue is that, while S. 2374 requires the 
Secretary of the Interior to adjust the price of helium from the 
Federal Helium Reserve, an increase in the BLM crude helium price in 
the existing format will trigger the escalation clauses in the sales 
contracts referenced above. The resulting increase in helium prices at 
other sources in the United States and around the world will be passed 
on to end-users who will be unduly harmed as an unintended consequence 
of a well-meaning change to the way BLM sells helium. An example of 
this downstream impact was recently seen when BLM announced an 11 
percent increase for the BLM crude price in 2012 (the price increase in 
2011 was just one percent). A BLM statement explained that the increase 
resulted from new pricing factors such as an ``Enrichment Factor'' and 
a ``Conservation Factor'' designed to encourage industry conservation 
of helium. The legislation indicates that proceeds are to be 
contributed to a Helium Production Fund that will be used to address 
investments required in the BLM infrastructure to maintain the needed 
production rates. Such costs are unique to the BLM source only and not 
relevant to other global sources, however, as a result of the price 
increase from these non-market factors and because the BLM crude price 
is used as a benchmark in helium contracts around the globe, most 
global sources of helium will now see an 11 percent price increase, 
despite the fact that they were already at or above the actual market 
price. The impact of this increase will be non-market driven cost 
increases to end-users in the United States and abroad.
    To prevent this undesirable result, we recommend the separation of 
the ``fees'' cited recently by BLM--i.e. for Enrichment and 
Conservation, as well as the Helium Production Fund--from the BLM crude 
price to reflect the wholesale change in the pricing mechanism 
envisioned by the proposed legislation. By clearly separating the non-
market fees from the current BLM crude price--which has no relation to 
the actual helium market--private companies will be able to adjust 
existing contracts in accordance with true market drivers and avoid the 
artificial increases causing undue harm to end-users. Such a solution 
would allow the BLM to collect the full revenue stream and ensure that 
the federally supported Reserve maintains its ability to operate 
effectively while protecting helium end-users domestically and around 
the world from dramatic and unpredictable swings in price. Consumers of 
the BLM Reserve would still be paying for its continued maintenance, 
operation, and upgrades through this fee structure but would be doing 
so in a way that is directly accountable to the federal government's 
investment. They would also be doing so through a fee system that the 
BLM itself has already begun to establish with its latest price 
increase. Similarly, consumers of other helium sources, both 
domestically and abroad, could be secure in the fact that simple supply 
and demand and business acumen will govern their price, not unrelated 
government actions that are specific to the BLM reserve and not 
relevant to other helium sources.
    Once again, Air Liquide appreciates the Committee's attention to 
this important issue and supports this legislation's ultimate goal of 
ensuring the continuing viability of the Nation's helium supply. We 
believe the changes to the legislation discussed above are achievable 
and fully consistent with the intent underlying the bill. I thank the 
Committee for inviting me to testify, and I would be pleased to answer 
any questions you may have.

    The Chairman. Thank you very much.
    Mr. Nelson.

  STATEMENT OF WALTER L. NELSON, DIRECTOR, HELIUM SOURCING & 
         SUPPLY CHAIN, AIR PRODUCTS AND CHEMICALS, INC.

    Mr. Nelson. Mr. Chairman, Ranking Member Murkowski, Senator 
Barrasso and Senator Risch, I appreciate the opportunity to 
testify before you today. My name is Walter Nelson, Director of 
Helium Sourcing with Air Products based in Allentown, 
Pennsylvania.
    Today I would like to make a very important point. If 
Congress does not act within a year to pass the Stewardship Act 
of 2012, our Nation will suffer a range of adverse 
consequences. Many walks of life which Americans depend on will 
be affected. Knowing they can get an MRI when needed. 
Semiconductor manufacturers and their customers knowing 
computer chips can be made without a glitch.
    The same is true for making fiber optic cable. Scientists 
performing cutting edge research, let alone the colorful 
balloons commonly associated with helium. All of this will be 
disrupted if Congress does not act.
    The statute for mandating the Nation's Helium Reserve 
expires in 2014. But in reality the day of reckoning will come 
in 2013 for reasons that I have explained in my written 
testimony. Without timely action there will be chaos in the 
helium supply in the United States that could cause major 
disruption in people's lives.
    Imagine the impact on global markets if 30 percent of the 
world's oil reserves were off limits. The impact to the economy 
would be catastrophic. To those sectors of the U.S. economy 
that depend on helium, the impact would be equally catastrophic 
if no action is taken.
    The answer is simple. With a few necessary tweaks, we 
believe this bill is the solution to preventing chaos in the 
helium market. Chances are you've heard little or nothing from 
your constituents about helium over the past 15 years. That's a 
good thing. With enacting of this bill the market should 
continue to function effectively and efficiently as it has 
since the creation of the Helium Federal Reserve.
    Air Products is the largest helium refiner in the United 
States. We have collaborated with the U.S. Government from day 
one in developing the equipment necessary to support the 
Federal helium architecture. The BLM's pipeline infrastructure 
today supports industry by connecting the private helium plants 
to the Federal Helium Reserve at Cliffside. Without this 
pipeline system private industry would not be able to 
efficiently process the crude helium in the region. The BLM's 
pipeline system and the private helium plants, together, supply 
approximately two-thirds of the world helium supply.
    The need for legislation arises from the fact that there 
still remains several years worth of recoverable helium in the 
Federal Reserve. However, once the statute expires there will 
be no funding mechanism for the BLM to continue operations. The 
bill would enable the BLM to continue helium production, 
perhaps even through 2020. This provides sufficient time for 
new private helium projects to become operational, replacing 
the helium currently supplied by the government.
    If the bill were enacted as introduced there would be one 
major flaw. But it is one which we believe can be corrected. 
The proposed mechanism for establishing market price for helium 
is overly narrow and will not yield a price the taxpayers would 
consider fair.
    The bill authorizes the Secretary to conduct a confidential 
survey collecting data from private industry in order to 
determine a market price. Air Products supports this approach. 
Our concern is that the language unnecessarily limits the data 
that the Secretary can request.
    I've included specific recommendations in my written 
testimony. We look forward to working with the committee to get 
this right.
    It appears that the key stakeholders in helium support your 
bill, Mr. Chairman. We have heard some issues being raised, 
however. I'd like to address them briefly.
    One claim is that through Federal legislation Congress has 
established an oligopoly that prejudices companies without 
refineries on the BLM pipeline. We consider this to be 
nonsense. Companies with refineries on the pipeline made major 
investments to build these facilities.
    No one guaranteed a return on their investment. These 
companies, including our products, took a risk. There was and 
remains nothing, absolutely nothing, stopping other companies 
from doing the same back then or to this day.
    What we've heard is the absurd suggestion that Congress 
write into law a requirement that refiners relinquish spare 
capacity to process helium for others and set prices. It would 
be as if Hyundai asked Congress to provide in statute that 
General Motors would have to designate a certain percentage of 
its manufacturing capacity to Hyundai such that Hyundai could 
make cars without having to invest in its own plant. I can 
think of nothing more hostile to the bedrock principles of 
capitalism.
    Those companies are in effect asking Congress to turn back 
the hands of time, relieving them of the consequences of their 
decisions not to invest in their own helium refining 
facilities. Congress doesn't do things like this. This is not 
an issue to be worked out. There is no work out of the 
differences between what's fair and unfair.
    We've heard recently a support on a ban on helium exports 
which we now understand that this is off the table. That's a 
good thing because such a ban would violate international trade 
laws and would be misguided trade policy.
    Let me wrap up with the following points.
    Congress got it right in 1960 when they established the 
Federal Helium Reservoir. The system has worked well for 
decades.
    Congress got it right again in 1996 by setting in motion a 
process for selling off the excess helium stored in the 
reservoir. End users have had helium when needed and with 
stable prices.
    We believe that with a few changes recommended enactment of 
the bill would continue this tradition. But let the 1996 act 
expire. Without legislation helium will become a household term 
and not in a good way.
    Doctors and patients needing MRIs will panic.
    Advanced scientific research will stop.
    Semiconductor and fiber optic cable manufacturers will be 
caught short.
    The list goes on and on.
    These problems will unfold by the end of 2013 if there is 
no mechanism in place to continue funding of the BLM's helium 
operations.
    I appreciate the attention to this issue, Mr. Chairman. I 
hope that I have conveyed to the extent in which Congress must 
act or the consequences raised by helium will be real.
    Thank you.
    [The prepared statement of Mr. Nelson follows:]

  Prepared Statement of Walter L. Nelson, Director, Helium Sourcing & 
             Supply Chain, Air Products and Chemicals, Inc.

                              INTRODUCTION

    Mr. Chairman, Ranking Member Murkowski, and members of the 
Committee, I appreciate the opportunity to testify before you today. My 
name is Walter Nelson, Director of Helium Sourcing and Supply Chain, 
with Air Products and Chemicals, based in Allentown, Pennsylvania, and 
one of the world's leading industrial gas companies.
    I am well aware that helium seems like an odd subject for a 
hearing. For the reasons I will explain below, however, many walks of 
life on which Americans depend--knowing they can get an MRI when they 
need one, semiconductor manufacturers (and their customers) knowing 
that computer chips can be made without a hitch, scientists performing 
cutting-edge research, let alone the colorful balloons that we commonly 
associate with helium--will be disrupted if Congress does not act in 
this area. The statute that sets the framework for managing the 
nation's helium reserve expires at the end of 2014, but in fact the day 
of reckoning, under the statute, is likely to come by the end of 2013. 
If it does, there will be chaos in the helium supply in the United 
States that could cause major disruption in people's lives.
    The solution is simple: with a few badly-needed tweaks, we believe 
that S. 2374, the Helium Stewardship Act of 2012, is the solution to 
prevent chaos in the helium market. Chances are you have heard little 
or nothing from constituents about helium over the past 15 years. 
That's a good thing. With enactment of S. 2374, chances are you still 
won't hear anything, a sure sign that the market will continue to 
function efficiently and effectively as it has since the creation of 
the Federal Helium Reserve. If, however, there are major changes in the 
system, and especially if Congress does not enact this extension of our 
tested helium system in the United States relatively soon, constituents 
may indeed start grumbling, and with good reason, reasons I will 
explain in a bit. The solution is straightforward, and does not cut on 
ideological or partisan lines. But time is not our friend here.

          AIR PRODUCTS AND ITS BACKGROUND IN THE HELIUM MARKET

    Air Products, with revenues of roughly $10 billion per year, is an 
American-owned global industrial gas company. The company provides 
hydrogen to oil refineries so they can make clean-burning gasoline, 
hydrogen for fuel cell cars and buses, liquid hydrogen for NASA's space 
launches, oxygen for patients in hospitals and to steel mills for use 
in blast furnaces, nitrogen to the semiconductor industry to make 
computer chips, and helium for blimps and party balloons. In short, its 
core business is helping major industries operate more cleanly and 
efficiently. Air Products has 18,000 employees in 40 countries.
    Air Products maintains the world's largest helium production and 
distribution system. It is THE industry leader in the helium field. The 
Company's equipment processes more than half of the helium extracted 
from the earth globally, and it has pioneered many of the processes 
critical to getting helium from the ground to vital customers, such as 
extraction, production, distribution, and storage technologies used in 
the helium industry today. Air Products has experience second to none 
by virtue of the United States government's selection of Air Products 
to engineer and construct the first helium extraction units when the 
federal government began its helium conservation program in 1959. More 
recently, Air Products designed and constructed the helium enrichment 
plant in 2002 that supplies the Bureau of Land Management's helium 
pipeline system, which continues to operate to this day.
    Air Products decided to build its first helium refining plant over 
30 years ago, and the plant, in Hansford County, Texas, is one of the 
first of its kind in the United States. The plant, designed and built 
by Air Products with proprietary technology, was first operational in 
1982, expanded in 1985, and it continues to operate to this day. Air 
Products subsequently constructed two more helium refining plants 
adjacent to third party natural gas processing plants, both near 
Liberal, Kansas. At the time of completion, the second plant was the 
largest helium refining plant in the world. In 1995, Air Products 
became the first company to design and build a helium refining plant 
that used crude helium that had been extracted during the production of 
liquid natural gas. More recently Air Products, through a joint venture 
with Matheson, constructed a helium refining plant in Wyoming that is 
expected to become operational in 2012.
    In short, Air Products is the most experienced company in the world 
to have designed, built, and operated large commercial helium refining 
plants. That said, there is nothing stopping any company from building 
its own helium refining plants near the Bureau of Land Management's 
pipeline system in the United States, and indeed, several companies 
have done just that.

                      WHERE DOES HELIUM COME FROM?

    Growing up, we never had to think about helium. It is at the party 
store if we want balloons. We see the helium-filled blimps at sporting 
events. Supplying helium, however, is anything but child's play. On 
earth helium is found in natural gas, and in only a few spots on the 
planet does helium exist in high enough concentrations to make it 
worthwhile to separate it from the natural gas.
    There are no naturally-occurring underground reservoirs of pure 
helium. Helium is a rare gas and it only forms in locations where the 
radioactive decay of uranium occurs with the formation of natural gas. 
Not all natural gas fields contain helium. The largest natural gas 
fields that are known to contain helium, other than in the United 
States, are in Algeria, Qatar, Iran and Russia.
    Air Products' role, like that of other industrial gas companies who 
are helium refiners, is to purchase crude helium both from the federal 
government and from energy companies that are extracting helium from 
natural gas. These helium refiners purify (clean up and remove 
contaminants), liquefy (cool to minus 452 degrees Fahrenheit so that 
the gas takes liquid form) and then transport and sell helium into the 
global retail market. Once helium is extracted, purified, and 
liquefied, it has a short shelf life of only 45 days before it begins 
to warm up and turn back into a gas, so Air Products has developed 
transportation technologies necessary to transport the liquid helium 
from the refining plant to market. Gardner Cryogenics, a subsidiary 
company of Air Products, has designed and constructed most of the 
liquid helium transportation and storage equipment used by the industry 
today.
    For Air Products and every other industrial gas company in the 
United States, the Bureau of Land Management's pipeline and storage 
system are an integral part of this global supply chain and 
infrastructure. Disrupt the Bureau of Land Management's pipeline, and 
it would be as if two-thirds of the world's supply of oil was instantly 
pulled off the market--chaos would ensue, and the price would 
skyrocket.

   THE HISTORY OF CONGRESS'S ROLE IN ASSURING SENSIBLE MANAGEMENT OF 
                            HELIUM SUPPLIES

    Helium was first discovered in the United States in 1904 in Dexter, 
Kansas, in a natural gas deposit. The recognition of the significance 
of helium to the national defense and for research and medical purposes 
prompted Congress to pass the Helium Conservation Act of 1925. The 
first recovery and purification plant in the United States was located 
in Fort Worth, Texas, and produced helium in the 1920's, after which 
the Fort Worth plant was replaced in 1929 by a new plant located near 
Amarillo, Texas. From 1929 until 1960, the federal government was the 
only domestic producer of helium. The majority of the helium originally 
produced was used to support the Navy's rigid airship program, the 
precursor to today's blimps. During World War II, some helium was used 
in the Manhattan Project. Helium, in short, was vital to national 
defense.
    After World War II, Congress advanced the cause of helium 
conservation through the Helium Act Amendments of 1960. Under the 
provisions of this law, the federal government contracted with five 
private operators who constructed nine crude helium recovery plants to 
extract helium from the natural gas that they were processing. Notably, 
Air Products constructed all nine of the original helium extraction 
units, a testament to the company's leadership in the field. The 
federal government then purchased all of the helium that was extracted 
and stored it in the Bush Dome, a geological structure within the 
Cliffside natural gas field located north of Amarillo, Texas. In 1973, 
after helium was stockpiled for 10 years in the Bush Dome, Congress 
decided that the United States government had enough helium in storage, 
and it canceled the extraction contracts.
    In the early 1980's, private industry began to construct helium 
refining plants along BLM's pipeline, a 420 mile crude helium pipeline 
system that extends from northern Texas through the panhandle of 
Oklahoma and into Kansas, to produce high-purity gaseous and liquid 
helium from both private and federal crude helium supply. Between 1982 
and 2000, private industry constructed six helium refining plants at 
different locations along BLM's pipeline system. In addition, these 
private companies began entering into storage contracts with the BLM to 
store helium in the Bush Dome, creating what became known as the BLM 
pipeline system, a system of helium operations unique to the United 
States where a series of helium extraction and refining plants are 
connected to a man-made helium reservoir by a very long interconnecting 
pipeline.
    The federal government has had a long history of involvement in the 
helium industry, because of the perception that helium was a precious 
resource that should not be squandered. Under the Helium Conservation 
Act of 1925, the Bureau of Mines took over production of helium for 
military use. Under the Helium Act of 1937, the Bureau of Mines began 
to sell helium to private users for medical purposes, for diving, and 
other specialty uses. Under the Helium Acts Amendments of 1960, the 
Bureau of Mines was required to purchase helium from private industry 
under long term contracts (22 years long) at prices set by the United 
States government. One hundred percent of the helium purchased by the 
government was put into storage at the Bush Dome.
    In 1973, the federal helium purchase contracts were terminated 
early because the federal government had accumulated more than enough 
helium for strategic uses as well as accumulating nearly one billion 
dollars of debt over the ten year conservation period to recover and 
store the helium. And most recently, under the Helium Privatization Act 
of 1996, BLM was directed to shut down and close the government-
operated helium refining plant near Amarillo, Texas, and to offer for 
sale the 29+ billion cubic feet of crude helium stored in the Federal 
Helium Reserve to private industry. Congress also directed that BLM's 
helium reserves were to be offered for sale over a 15 year period to 
pay off the one billion dollar debt to the United States Treasury that 
was accumulated over 10 years during the helium conservation program.
    The activities of BLM under the 1996 Act were also to be subject to 
review by the National Academy of Sciences. In 2000, NAS determined 
that BLM could sell off all the helium, except for 600,000 cubic feet 
to be left in the Federal Helium Reserve, without negatively impacting 
the helium market or national security. More recently, NAS issued a 
report in 2010 that included recommendations to the Secretary of 
Interior for improved management of the Federal Helium Reserve. The 
Academy's recommendations largely form the basis for S.2374 today.
   the federal helium reserve is essential to a stable helium market
    BLM today operates as a natural gas producer at the Cliffside 
field, where it extracts natural gas from wells, separates the gas, and 
then sells the natural gas and helium to private industry. BLM produces 
approximately two billion cubic feet of crude helium annually, which is 
about 30 percent of the worldwide supply. The BLM system consists of 
the Bush Dome, an underground storage reservoir where the United States 
government stockpiled helium during the conservation period and into 
which companies that have refined helium can deposit the helium until 
it is used; together with 25 natural gas wells that are used to extract 
natural gas from the ground and a gathering system of pipes which 
connects all the wells together; a helium enrichment plant to process 
the gas; and a 420 mile crude helium pipeline system that extends from 
northern Texas across the panhandle of Oklahoma and into Kansas.
    The crude helium enrichment plant is operated by the BLM, but the 
plant is owned by an entity called the Cliffside Refiners Limited 
Partnership (CRLP), a partnership made up of helium refiners that owned 
facilities on the BLM pipeline in 2000. The CRLP partners include Air 
Products, Praxair, Linde (formerly the British Oxygen Company), and 
Colorado Industrial Gas (formerly owned by El Paso Energy and soon to 
be acquired by Kinder Morgan). The CRLP was formed in July 2000 as a 
way to allow the federal government to fulfill the requirements of the 
Helium Privatization Act of 1996. The CRLP invested over $26 million at 
the Cliffside field to fund design and construction of the crude helium 
enrichment plant. BLM operates the CRLP-owned plant today, enabling the 
sale of government helium and natural gas (methane, in this case) to 
private industry. The CRLP companies were honored for excellence by the 
Secretary of Interior in 2004.
    The BLM pipeline infrastructure today supports private industry by 
connecting eight private crude helium extraction plants and six private 
liquid helium refining plants to the BLM's reservoir at Cliffside. 
Without this pipeline system, private industry would not be able to 
efficiently deliver crude helium from the extraction plants to the 
helium refining plants in the region. The BLM pipeline system and the 
private industry helium plants together supply approximately two-thirds 
of the worldwide helium supply.

     SIZE OF THE GLOBAL HELIUM MARKET AND THE UNITED STATES' SHARE

    The global helium market is estimated to be in excess of six 
billion cubic feet per year, with growth forecast in the range of three 
to five percent per year. The best estimates are that the United States 
has the largest demand, at 40 percent, followed by Asia with 26 
percent, Europe at 22 percent, and the rest of world at 12 percent. The 
price of helium in the market is a function of many variables. Using 
BLM's posted price for crude helium of $84.00 per thousand standard 
cubic feet for 2013, the market value of the worldwide crude helium 
produced would be in excess of $500 million per year.
    Over 75 percent of the world's helium supply currently comes from 
the United States. Two-thirds of the worldwide supply uses the BLM 
pipeline system and 30 percent originates from the Federal Helium 
Reserve. The Helium Privatization Act of 1996 expires statutorily at 
the end of 2014, at which time there will be harsh repercussions on the 
global economy and on our way of life if there is no successor statute.

            HELIUM IS ESSENTIAL IN MANY VITAL WALKS OF LIFE

    Helium has certain properties that make it essential to modern life 
in many respects. It is lighter than air, which is why it is used not 
just in balloons and blimps but in other applications such as military 
communications and surveillance and lifting applications where cranes 
are impractical. Because it is such a small element, it is used in leak 
detection. Liquid helium is the coldest substance on earth so it is 
used to keep the electrical coils in magnetic imaging machines cold, as 
well as for special scientific research. Other properties of helium 
make it ideal for cooling fiber optics and specialized electronics.
    Imagine what would happen to modern medicine if MRIs were not 
readily available. Helium is used in garden variety welding, so imagine 
a trip to the auto repair shop or any large manufacturer without the 
ability of workers to engage in welding. Without access to helium, 
manufacturers of fiber optic cable would not be able to use existing 
processes for making the cable that is the foundation of modern 
communications capacity. Semiconductor manufacturers would not be able 
to function without helium.
    The BLM pipeline system supports approximately two-thirds of the 
world's supply, and allowing that system to expire by failing to enact 
successor legislation to the Helium Privatization Act of 1996 would 
produce a country without ready access to MRIs, the ability to 
manufacture semiconductors or fiber optic cable, or much or anything 
else that requires welding, among other highly essential processes, let 
alone more frivolous uses such as party balloons.

             MAINTAINING INDEPENDENCE FROM FOREIGN SOURCES

    In any conversation about energy, much is made of the need for the 
U.S. to be energy self-sufficient to the extent possible. That is true 
in connection with rare earth metals and other essential elements to 
maintaining our commerce and our standard of living. Helium is no 
different. Our country is blessed with helium, and we should be 
thankful that Congresses almost a century ago had the foresight to make 
sure that such an essential element was not frittered away.
    If the BLM system was off limits to helium refiners because the 
governing statute was allowed to expire, the U.S. would not only face 
the calamity of a chaotic market, but also would be dependent on helium 
imports from foreign countries. No Congress would purposely make a 
decision that such dependency was a wise course of action, yet failing 
to enact a successor to the current helium statute would have exactly 
those implications.

               ENACTMENT OF S. 2374 BY 2013 IS ESSENTIAL

    S. 2374, the Helium Stewardship Act of 2012, would preserve a 
system that has accomplished important objectives: assuring supply to 
essential uses of helium, preserving a BLM system that has many moving 
parts that need to work as a whole, and at stable prices. We see no 
reason to tinker with the essential functioning of the BLM system. We 
have a couple recommended changes that we discuss below, but overall we 
believe that the status quo has worked just fine for the taxpayer and 
for the economy. But we don't have time to spare, and here's why.
    The Helium Privatization Act of 1996 directed BLM to cease pure 
helium production and to sell off the helium remaining in the 
reservoir. The Act expires at the end of 2014. The best available 
modeling predicts that there will still be 10-12 billion cubic feet of 
recoverable helium remaining in the reservoir at the end of 2014. At 
current production rates of about two billion cubic feet per year, the 
reservoir could continue to produce helium for five to six more years.
    This same modeling, however, has determined that the reservoir 
production rates will decline to approximately one billion cubic feet 
per year after 2014. As a result, the usable life of the reservoir will 
be extended to 2018 or perhaps even 2020. This is sufficient time for 
new planned helium projects to become operational, replacing the lost 
Federal Reserve helium, but unless there is a successor statute to the 
expiring Helium Privatization Act of 1996, the BLM system will not be 
able to continue operations beyond December 31, 2014. To repeat: unless 
BLM has the authority to continue to operate the federal reservoir--
which it won't if there is no successor statue--all of the helium that 
remains in the reserve will be inaccessible. That means that 30 percent 
of the worldwide supply will be essentially locked up, causing prices 
to skyrocket, some users with no ability to access helium, and chaos in 
the economic sectors that now rely on helium.
    In fact, though, the time pressure is even worse. Under the 
statute, once BLM pays off the one billion dollar debt accumulated by 
the federal government during the helium conservation period, pursuant 
to the Helium Privatization Act of 1996 the self-funded United States 
Treasury account will be closed and BLM could then only continue 
operations with appropriated funds. Otherwise, there will be no funding 
mechanism to allow BLM to operate the federal reservoir or the 420 mile 
pipeline that acts as a vital supply chain for private industry. When 
the 1996 Act was written, Congress projected that the reservoir would 
be depleted by the end of 2014, when the Act expires. Helium was 
removed from the reservoir at rates lower than those projected at the 
time, however, which is why there remains helium to be managed and a 
successor statute necessary. Thus, the various walks of life that would 
come to a halt without helium would be affected not upon the expiration 
of the Helium Privatization Act of 1996 on December 31, 2014, but when 
there is no funding mechanism beyond 2013.

 AN IMPORTANT CHANGE IS NECESSARY IN S. 2374 FOR ESTABLISHING A MARKET 
                            PRICE FOR HELIUM

    If S. 2374 were enacted as introduced, there would be one major and 
perhaps fatal flaw, but it is one which we believe can be easily 
corrected. As introduced, we believe the mechanism for establishing a 
market price for helium is overly narrow, and will not yield a price 
that taxpayers would consider fair.
    Air Products advocates the introduction of a market based pricing 
mechanism for the crude helium sold by BLM. On page eight of S. 2374, 
the Secretary of Interior is given authority to conduct a confidential 
survey and to collect data from private industry, which would be used 
in conjunction with federal helium royalty data, in order to help 
determine market pricing. Air Products supports this approach. Our 
concern with the language on page eight, however, is that the 
``inclusions'' and ``exclusions'' stated for the survey are very 
prescriptive and unnecessarily limit what data the Department of 
Interior can request from industry, which will lead to incomplete 
information being used to determine the market price. In our opinion, 
these restrictions should be removed from the legislative language to 
allow all the helium market data to be collected; however, guidance 
must be established for the Department of Interior and BLM to ensure 
the market-based price methodology is sound and fair.
    We strongly recommend that Congress make clear that the Department 
of Interior must follow specific principles when using the confidential 
survey data to establish the market price. First, the pricing 
considered must be for volumes of helium that are similar in size to 
those volumes currently offered for sale by the Secretary. Helium 
purchases of small volumes (those less than 75 million cubic feet per 
year) will attract spot pricing, which may be higher and therefore will 
distort the survey data. Second, the pricing considered must be limited 
to sourcing transactions where the helium is being purchased for the 
first time. Any prices for re-sale or wholesale helium in secondary or 
tertiary transactions must not be considered because these prices will 
include profit, which will also distort the survey data. Third, BLM has 
been publicly posting its crude helium price for over 15 years, and 
many of the helium sourcing contracts today are indexed directly or 
indirectly to BLM's posted price for crude helium. S. 2374 currently 
excludes from the survey any pricing data that is indexed to the posted 
crude helium price. This will severely limit the Secretary's access to 
information that is absolutely necessary to establish a market price. 
The confidential survey data must be comprehensive enough to 
characterize all pricing escalation indexes, including any index or 
reference to the BLM's posted price for conservation helium.
    Clear guidance must be provided to the Department of Interior on 
which companies must be included in the survey, when the survey must be 
conducted, what data must be submitted, how the data must be 
classified, how the data should be interpreted, what the qualifications 
of the individuals to analyze the data must be, how confidentiality 
will be maintained, how to address non-compliance, and how to audit or 
validate the data to ensure falsification does not occur. Including all 
these requirements in the legislation is impractical. Instead, we 
recommend that the ``inclusions'' and ``exclusions'' section should be 
simplified and these details be incorporated into the Committee report 
and in all other reports accompanying this legislation. We look forward 
to working with the Committee to refine this important point.

  ANSWERING POSSIBLE OBJECTIONS TO THE HELIUM STEWARDSHIP ACT OF 2012

The government serves an essential role
    At a time when the federal government is looking to have the 
private sector take on functions previously handled by government, 
there could be some who might ask why a federal reservoir should exist 
at all. Why not just turn it all over to the private sector?
    That was exactly the thinking of Congress in 1996, and the 
consequence was the Helium Privatization Act of 1996, which reflected 
Congress's support for privatization to the extent possible. Getting 
the government out of the helium business altogether, however, is no 
more possible today than it was in 1996. The 1996 statute directed BLM 
to cease pure helium production and marketing. This resulted in the 
closure of the United States helium production plant that previously 
sold helium directly into the private sector market. BLM was also 
directed to offer for sale the approximately 29+ billion cubic feet of 
crude helium that had been stored in the reservoir. This sale, however, 
could not happen overnight. The helium in the reservoir is mixed with 
natural gas, and it is a complex operation to manage the geologic 
dynamics of the reservoir as the gas is being extracted from the 
ground. If the valve was simply left wide open to deplete the entire 
supply at once, valuable helium would be stranded in the ground and 
never recovered.
    Today, the federal government retains ownership and management of 
the reservoir, the production wells, the gathering system, and the 420 
mile pipeline distribution system. The helium enrichment unit and 
pipeline compressor stations are owned by private industry, but they 
are operated by employees of BLM under contract to the CRLP, the 
consortium of private companies that refine the helium. In our opinion, 
BLM is the only entity that can oversee the drawdown of this strategic 
asset to the benefit of the government and private industry. Turning 
over BLM's functions to one or more private companies simply is not 
feasible.

Legislation should not mandate allocations of helium
    Some have been heard to argue that BLM has set up what is 
essentially an oligopoly, and that others wishing to buy helium should 
simply be allowed to buy from the helium refiners for a fee set by 
statute. The answer is that any party can negotiate to buy helium from 
a refiner, but Congress should not insert itself into the middle of 
commercial transactions. Commercial arrangements are entered into all 
the time that allow those without helium refineries to buy agreed-upon 
quantities of helium from those that do have refineries. These are 
referred to as tolling arrangements. But surely it is not the role of 
Congress to pass statutes that force refiners to sell at a set price, 
or to force refiners to share their refining capacity with companies 
that chose not to build their own refinery.
    The refiners made enormous investments at the time they built 
refineries on the BLM pipeline. Several industrial gas companies chose 
not to make such an investment. Those industrial gas companies that 
chose not to make similar investments presumably made what to them were 
sound business decisions, and spent their capital elsewhere. For 
Congress in 2012 to give those companies the ability to force the 
refiners to sell at a set price would be totally un-American and 
contrary to the basic principles of capitalism. Nothing in S. 2374 
stands in the way of any company entering into a tolling arrangement at 
a mutually agreed-upon price.
    The 1996 Act did not impose restrictions on who could purchase 
helium from the federal government. Any third party company that wanted 
to enter the helium refining business and purchase helium from the 
federal government could have made investments as early as 1996, and 
could do so to this very day and into the future. Surely, it is not the 
role of Congress to turn back the hands of time and allow companies 
that opted not to make such investments to enjoy the benefits accruing 
to those who did.
    Neither the 1996 Act nor S. 2374 imposes any restrictions on who 
can purchase helium from the federal government. Instead, the 
Department of Interior, under Administrations of both parties, limits 
the sale of helium from the federal reservoir to what it calls 
``qualified buyers''--an entity that must have the ability to receive 
and process the crude helium sold by the government. Any company can 
enter the helium refining business with the requisite commitment of its 
resources. BLM's interest in selling to qualified buyers is to prevent 
companies from stockpiling crude helium. BLM determined that helium 
refiners were in the best position to process the crude helium, which 
requires purification and liquefaction prior to being introduced into 
the helium wholesale or retail market.
    Interestingly, BLM initially offered 90 percent of the helium in 
the reservoir to the refiners and left 10 percent as unallocated, to be 
purchased by companies that were not refiners. But there was very 
little demand for the unallocated portion. Since BLM's desire was not 
to sit on unnecessarily large quantities of helium in the reservoir, 
BLM raised the allocated amount to 94 percent. Any suggestion that this 
level poses an obstacle to any company wishing to purchase helium for 
its customers simply does not comport with the facts. S. 2374 does not 
set the allocation level; BLM does, and for reasons that benefit the 
U.S. taxpayer and the users of helium.

Banning exports of helium is contrary to free trade policy and likely 
        illegal
    Finally, some have suggested that there should be a ban on the 
export of helium. The United States currently supplies approximately 75 
percent of the world's supply of helium. This helium goes into a global 
market. For instance, a company manufacturing magnetic imaging machines 
in the U.S. that supplies them globally requires helium to be shipped 
from the U.S. to wherever the equipment is placed in service abroad.
    Banning the export of helium would not only appear to offend 
various trade laws and treaties, but it would invite foreign 
governments to forbid the export of precious materials that U.S. 
manufacturers need in their production processes. Enacting export 
restrictions makes no more sense here than it does in connection with 
other commodities that are in commerce throughout the world. Indeed it 
is likely that we will eventually be importing helium, so to ban 
exports now only invites retaliation.

       CONCLUSION: THE TIME FOR CONGRESS TO ACT ON HELIUM IS NOW

    Congress got it right when it established the federal helium 
reservoir and the surrounding infrastructure managed by BLM. The system 
has worked well for decades. Congress got it right yet again in the 
Helium Privatization Act of 1996 when it set in motion a process for 
selling off the helium previously captured in the federal reservoir. 
End users have had helium when they need it, and price and access have 
been stable. The public does not think much about helium--aside from 
party balloons and blimps--because the system has worked so well.
    We believe that with the few changes we recommend to S. 2374, 
enactment of the Helium Stewardship Act of 2012 would continue this 
tradition of a system that works so well that hardly anyone even knows 
it exists. But let the 1996 Act expire without enactment of S. 2374, 
and helium will be a household term, and not in a good way. Doctors and 
patients needing MRIs will panic. Semiconductor manufacturers, the 
nation's leading exporters, will be caught short. And the list will go 
on. These problems will unfold by the end of 2013 if there is no 
mechanism in place to fund BLM's helium operations, and BLM will indeed 
be out of business regarding its management of the Cliffside reservoir 
unless Congress acts.
    Air Products appreciates the opportunity to share its expertise 
with the Committee, and looks forward to working with the Senators and 
staff to make sure a bill is crafted that will spare the country 
needless problems. We will do whatever we can to see to it that this 
issue is addressed by Congress before catastrophe strikes.

    The Chairman. OK. Thank you all very much.
    Let me start with a few questions to Mr. Spisak first.
    If we were to not reauthorize this reserve and Congress 
just let the current law expire what happens to the remaining 
helium?
    Mr. Spisak. Once the debt is paid off and the provisions of 
the Privatization Act is as we sell off the Helium Reserve and 
make payments. Once the debt is paid off, the Helium Fund, 
which is the revolving fund that holds the revenues from the 
program and allows for the program to run, would be dissolved. 
Any receipts from the program would go directly to the 
Treasury.
    So the program would have to compete directly for 
appropriations within the appropriations process and get 
separate appropriations for it. Without appropriations it would 
be like if a typical appropriation doesn't get passed and you 
go through a government shutdown. You'd have a similar type of 
operation where you'd have to shut down the wells and the plant 
and safe anything until such time that appropriations were made 
available to operate.
    The Chairman. So unless Congress came along and 
specifically appropriated money for this purpose then you'd 
just shut it all down?
    Mr. Spisak. Correct. The difficulty with that is that the 
operations have generally set expenditures, but it can vary 
quite dramatically depending on operations of vessels or plant 
equipment needed to be changed. It would be very hard to 
predict a smooth appropriation from year to year.
    The Chairman. How does the BLM determine the amount of 
helium to sell in any particular year and who the sales are to 
or how this is allocated if someone wants to buy more helium 
than they have historically purchased? Are they able to do 
that?
    Who are the sales to or how is this allocated--if someone 
wants to buy more helium than they have historically purchased 
are they able to do that?
    What's the situation?
    Mr. Spisak. First any Federal demands whether directly 
through Federal agencies or researchers have what we call an in 
kind sales. They can purchase as much as needed.
    But after that, as part of the Privatization Act we were to 
start no later than 2005 to offer for sale helium from the 
Reserve on a straight line basis. That started in actually 
2003. We determined at that time making allowances for how much 
in kind sales we would expect through 2015. We divided the 
remaining amount by 12 and came up with 2.1 billion cubic feet 
of helium.
    So since 2003 we've been offering 2.1 billion cubic feet 
for the Reserve sell down portion of the Privatization Act.
    The Chairman. How do you determine who to sell that to?
    Mr. Spisak. Generally we've been offering it in an 
allocated and unallocated. We came up with that methodology 
because we recognized that there was more installed refining 
capacity along the government's crude helium pipeline than the 
2.1 bcf that we'd be offering for sale. So we wanted to ensure 
that the lion's share of the helium that was being offered was 
going to be there to be able to meet that capacity.
    Then the remaining 10 percent was then offered for anybody 
else that might be interested in it. Generally speaking of the 
2.1 Bcf or the allocated sales has been taken up most of the 
helium sold. There's been very little unallocated companies 
coming in to buy the unallocated amount.
    Over the last several years that ratio was adjusted up to 
94 percent.
    The Chairman. Let me ask about the pricing of the helium 
that you folks sell. How is that occurring and what's the 
explanation for this price increase that has occurred here?
    I guess in 2010 there was a 15 percent price increase. 
Could you explain that?
    Mr. Spisak. Sure. It was basically when we first started 
pricing the helium, the crude helium was quite a bit higher 
than the private market for helium. That was back in 2003 and 
there about.
    Through various shortages over the years the private price 
for crude helium exceeded that. We generally have been raising 
the price for the crude helium at a CPI level. When we 
reinitiated having a National Academy's study the program in 
2010, they recommended that we charge something closer to a 
market price.
    In that first year (post 2010 NAS Study) we looked at a 
NASA that had both sales of Federal in kind helium and non-in 
kind helium. They told us they had about a $10 differential 
between the two. So in that year we added $10 to our open 
market price.
    Last year we adjusted by consumer price index. But we still 
weren't satisfied that we were able to get enough information 
to accurately determine what the market price was. So what we 
did was we monetized on a per mcf basis costs associated with 
the plant efficiency and other factors. Those were those couple 
add-ons that we've added to the price this year.
    What we believe is this process will be a more repeatable, 
transparent process of price calculation that folks can see 
going forward. But we certainly recognize the process that 
could be passed in the Stewardship Act may have an impact on 
that process.
    The Chairman. Alright. That uses my time.
    Senator Barrasso.
    Senator Barrasso. Thank you very much.
    Just to follow a little bit with that, Mr. Spisak. I 
understand it's going to take a number of years for the Reserve 
to reach this 3 billion cubic foot. What's your assessment on 
when that might be? A decade or what are your thoughts?
    Mr. Spisak. We have done a quick look at it based on the 
timing of getting this legislation. We would expect the phase B 
or the second phase to be probably take us to about the year 
2020. Because the first phase would be another 2.1 bcf, that 
would be next fiscal year.
    We'd expect to maybe scale down in a couple years into 
offering about maybe 1 bcf. That would get us to about 2020. 
Then the phase 3 or the Federal demands only maybe to 2030.
    Senator Barrasso. There are a couple of private refineries, 
I think 6 private refineries, connected to the Reserve. Could 
you just give us a little explanation as to when those were 
built, under what circumstances and if there are legal 
obstacles for other companies to build new refineries?
    Mr. Spisak. I saw some of the other folk's testimony. I 
think they startup in various years generally with their crude 
helium extraction plans. But the refiners I think started in 
the 1970s and 1980s. Most of the plants were built during that 
time. There has been some expansion on capacity over the years.
    We don't have any prohibition against new companies coming 
in. But there is a recognition that we've already 
oversubscribed in the amount of capacity associated with the 
pipeline.
    Senator Barrasso. Great.
    Dr. Chan, as a low temperature scientist and in your 
testimony, your written testimony, you referred a little bit to 
the liquefied natural gas issue as well and wonder what your 
anticipation is in terms of LNG, export facilities proposed, 
you know, to be built here in the United States with our 
significant capacity for liquefied natural gas and is that 
going to serve as a new source of helium?
    Mr. Chan. Let me see if I understand what you're saying.
    As you probably know that there are new supply coming 
online from Algiers and Qatar. The reason is that although 
they're among helium in their well. They are quite a bit lower 
than what the U.S. have in the Panhandle area. But they've 
become economically viable because they have to liquefy the 
natural gas in order to ship it to the residents.
    In so doing then gas with even 0.1 percent of helium will 
be economically competitive. So it is my understanding that 
they will start, in fact they have started shipping, selling 
helium. So therefore, I guess it is reason--maybe it may happen 
in another 10 years or so that the U.S. becomes a net importer 
of helium.
    Senator Barrasso. But not for another decade, OK.
    Mr. Chan. Not for----
    Senator Barrasso. Great. Thank you.
    Mr. Chan. Probably at least.
    Senator Barrasso. Thanks.
    Mr. Chan. So therefore keeping the Helium Reserve operating 
will have a very stabilizing effect for the strategic use, for 
NASA, for defense.
    Senator Barrasso. Great.
    Mr. Chan. For scientific research.
    Senator Barrasso. Thank you.
    Mr. Rauch, as you mentioned my career in orthopedic surgery 
we had an MRI in a facility in our medical group. It was a GE 
product. It worked very well. We know the importance of helium.
    You're not the only company that makes this. But you talked 
about, what, 20,000 jobs in the health component. So it's a 
jobs issue. It's also a patient care issue.
    I don't know if you wanted to elaborate a little bit about 
that?
    Mr. Rauch. Yes. Depending on where you live access can be 
an issue. I mean, Wyoming for an example. The population isn't 
centralized in a lot of big cities. So it may take you a month, 
maybe 3 weeks, to get in for a scheduled MRI.
    If the service event couldn't happen because of a helium 
interruption or if the installation of a new magnet couldn't 
happen because of a delayed delivery patient care has to be 
rescheduled. Maybe another 3 to 4 weeks before you get in to--
for maybe a needed scan and diagnosis then would be missed.
    Senator Barrasso. I think GE has a program working on 
helium efficiency, also conservation efforts. Could you explain 
a little bit about that?
    Mr. Rauch. Yes. It's really on two fronts. So we use about 
equally as much in the field as we do in our production, about 
5 and a half in production, 6 million in the field, liters, 
liquid liters.
    So there's a bigger opportunity for efficiency in our 
factory than there is in the field. The field builds are done 
by technicians with small containers, 500 liter doers.
    In the factory we've invested money in recapturing 
equipment where as we vent liquid which turns into gas. We 
recapture it and warm it back up, recompress it. Actually sell 
it back to our partner onsite so they can sell it as welding 
gas.
    We also are looking into re-liquification. We have also 
spent significant money in piping and more thermally efficient 
transfer. Also pre-cooling magnets with liquid nitrogen, so 
that it's already down at lower temperatures to be more 
efficient when we fill it with helium the first time.
    Senator Barrasso. Thank you, Mr. Chairman. My time is 
expired.
    The Chairman. Let me ask a few more questions of Mr. 
Spisak.
    Are there currently supplies going into the Reserve?
    Mr. Spisak. Generally now, specifically the Reserve, the 
gas field, is all flowing out. There are still some sources 
within the Kansas Hugoton Oklahoma Panhandle fields that are 
producing crude helium, but they're generally being refined by 
the refining capacity along the pipeline. So the crude helium 
never makes it into storage in the field.
    So generally everything is coming out of the field going 
north.
    The Chairman. The decision then to eliminate the Reserve 
which is what Congress, I guess, determined to do, sell off the 
Reserve. That's a decision you think makes good sense?
    Mr. Spisak. Generally speaking the infrastructure that's 
there, the Reserve, the pipeline, the connectivity to the 
different plants allows helium that's produced from natural gas 
that doesn't drive the natural gas production. The natural gas 
production is driven by other factors so the associated helium 
produced, having the infrastructure there, allows for the 
helium to be stored in an efficient manner for use tomorrow, 
next week or next year. Not having the Reserve or the pipeline 
will change the complexity of how the industry functions going 
forward.
    But there was a large stockpile that we're selling off. 
It's meeting demands both private and Federal. I think that's 
meeting that need.
    The Chairman. But I guess I'm just looking forward 20 years 
it's wise for us not to have a reserve. Is it in your view or 
should we plan to have a reserve for the indefinite future to 
meet our various needs?
    Mr. Spisak. I think having that infrastructure there is 
something that does provide value. The level of the Reserve and 
at what level you would keep it, I think, is for other folks to 
determine, the people demanding it and how much is appropriate 
for the government to keep in a stockpile.
    The Chairman. Tell me about tolling. Can you explain how 
the tolling works? Tolling fees?
    Mr. Spisak. I can tell you what I understand and then some 
others might want to chime in. But generally you have companies 
that have the refining capacity. Somebody that does not have an 
actual refinery along the pipeline, they will pay a fee to have 
their helium, their crude helium, refined and then delivered at 
their specification.
    The Chairman. But this is not anything the BLM takes or is 
in involved in?
    Mr. Spisak. That's correct. We are not involved in that. 
We're aware of the arrangements. But it's between private and 
private.
    We do keep up with the storage of the crude helium and 
generally the transfers will be made between the companies. 
They tell us to make a transfer and we make that transfer. But 
we may or may not know the reason for the transfer or the 
particulars behind what's going on between the companies.
    The Chairman. Mr. Nelson, your company is involved in the 
tolling business. Could you explain how it works?
    Mr. Nelson. Certainly, Senator Bingaman.
    Air Products has tolled for competitors in the past. The 
process of tolling is whereby government crude helium is 
brought through the BLM pipeline system into one of our 
refining plants, purified, liquefied and then delivered to a 
customer who has purchased the liquid helium.
    Today we are not tolling. There's a tightness in the 
supply/demand situation. We currently don't have any excess 
capacity to toll. So today there is no tolling taking place.
    But again, we would toll if we had capacity. It would be a 
commercial negotiation that would take place between one of our 
competitors that wanted to toll and use the facilities that we 
have available. It's really a commercial negotiation. There's 
nothing in the legislation that prevents that discussion from 
taking place.
    Mr. Joyner. Mr. Chairman.
    The Chairman. Mr. Joyner, did you have a comment?
    Mr. Joyner. Yes, thank you. If I could just add to that and 
maybe expand on Mr. Spisak's earlier comments.
    The fact that the crude system from the BLM can only supply 
50 percent of the capacity, of the refining capacity, that's 
already on the pipeline. Do there is no more ability for 
another refinery to come in because there's already too much 
capacity on that system to process the crude that the BLM 
infrastructure is able to supply. As Mr. Spisak mentioned, 
these refineries were built in the 1980s, I think prior to this 
1996 Privatization Act, because they were refining crude from 
private extractors.
    So the 1996 Act was an infrastructure from the government, 
the government's reserve, that then was offered up going to 
these refineries which again, already more capacity on the line 
than the BLM could supply. So for another player to come in at 
this stage what both with the rules in place with the 
allocation and just the infrastructure limits, it would be 
prohibitive to build another refinery at this stage.
    So I think going back to NAS recommendations that this 
refining capacity be opened up to the other players in the 
market, you know, has merit for consideration for the 
committee.
    The Chairman. Senator Barrasso, did you have additional 
questions?
    Senator Barrasso. No, thank you, Mr. Chairman.
    The Chairman. Thank you all very much. I think it's been 
useful. We will try to see what we can do to move ahead with 
the legislation.
    Thank you very much.
    That will conclude our hearing.
    [Whereupon, at 10:30 a.m. the hearing was adjourned.]


                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

   Responses of Timothy R. Spisak to Questions From Senator Barrasso

    Question 1. When did the Bureau of Land Management (BLM) stop 
accumulating crude helium? How much Federally-owned crude helium is 
currently in the Federal Helium Reserve?
    Answer. The Federal government stopped accumulating helium in 1973 
when the Federal helium program was still under the management of the 
Bureau of Mines. As of the beginning of FY 2012, there is a total of 
16.18 billion standard cubic feet (scf) of Federally-owned helium in 
the Reserve. Of this total, 13.73 billion scf is conservation helium 
and 2.44 billion scf is in the native natural gas. Additionally, there 
is 1.15 billion scf of privately-owned helium in the Reserve.
    Question 2. S. 2374 would extend the Secretary of the Interior's 
authority to sell Federally-owned crude helium from the Federal Helium 
Reserve for use in the private sector until the Reserve reaches 3 
billion cubic feet. At that point, the Secretary would only be 
authorized to sell Federally-owned crude helium from the Reserve for 
use by Federal users.

          A. When will the Reserve reach 3 billion cubic feet?
          B. How long will 3 billion cubic feet meet the demand of 
        Federal users as defined under S. 2374?

    Answer. A. If S. 2374 were enacted, the BLM estimates that the 
Reserve would reach 3 billion scf in approximately 2021.
    Answer. B. If S. 2374 were enacted, the BLM estimates that the 3 
billion scf remaining in the Reserve would meet the demand of Federal 
users until approximately 2029.
    Question 3. I understand that there are six private helium 
refineries connected to the Federal Helium Reserve. These refineries 
process the crude helium drawn from the Reserve.

          A. Can you explain when these refineries were built and under 
        what circumstances?
          B. Are there any legal obstacles for other private entities 
        to build new refineries connected to the Reserve? If so, what 
        are those legal obstacles?

    Answer. A. The six private helium refineries connected to the 
Reserve have always been private plants built and operated by the 
helium industry. The list below includes the year each plant was built, 
the name of the original company that built it, and the name of the 
company that currently owns and operates it.


            Year Built                        Original Company                        Current Company

1965                               Otis                                    Linde
1968                               Jayhawk                                 Praxair
1979                               Bushton                                 Praxair
1982                               Sherhan                                 Air Products
1991                               National                                Air Products
1995                               Keyes                                   DCP Midstream


    Answer. B. The BLM is not aware of any legal obstacles that would 
prohibit other private entities from building new refineries connected 
to the Reserve.
    Question 4. In your written testimony, you state that BLM 
anticipates full repayment of the helium debt in Fiscal Year 2013. You 
explain that the Helium Fund would then be dissolved and all future 
receipts would be deposited directly into the General Fund.

          A. Once the helium debt is paid off, what are the impacts on 
        the operation of the Reserve?
          B. Will the Secretary be able to sell crude helium from the 
        Reserve after the helium debt is paid off?

    Answer. A. Once the helium debt is paid off and the Helium 
Production Fund is terminated, the BLM would have to undertake an 
orderly shutdown of the Reserve unless there is discretionary funding 
appropriated for crude helium sales and Reserve operations.
    Answer. B. Current law (50 USC '167d) provides indefinite authority 
for the Secretary to sell crude helium. However, current law (50 USC 
'167d(e)(2)(A)) also terminates the Helium Production Fund upon 
repayment of the helium debt. Therefore, any continued crude helium 
sales and Reserve operations would have to be paid for with 
discretionary funding.
    Question 5. In August of 2008, the Department of the Interior's 
Inspector General (IG) issued a report entitled, ``Immediate Action 
Needed to Stop the Inappropriate Use of Cooperative Agreements in BLM's 
Helium Program.'' What steps, if any, has BLM taken to address the 
concerns raised and the recommendations made in the IG's report? Please 
submit as part of the hearing record BLM's formal response(s) to the 
IG's report.
    Answer. On August 19, 2008, the Department of the Interior, Office 
of the Inspector General (OIG) issued a report entitled ``Immediate 
Action Needed to Stop the Inappropriate Use of Cooperative Agreements 
in BLM's Helium Program.'' The BLM responded to this report with 
official memoranda dated September 19, 2008, and May 9, 2009, which are 
attached.*
    On July 6, 2010, the Department of the Interior informed the OIG 
that the BLM had taken the necessary steps required to warrant closure 
of the recommendations contained in the 2008 OIG report, and that the 
Department of the Interior considered the report closed. The closure 
request memo and supporting documentation, which outline the rationale 
for the closure, are attached.*
---------------------------------------------------------------------------
    * Attachments have been retained in committee files.
---------------------------------------------------------------------------
                                 ______
                                 
       Responses of Tom Rauch to Questions From Senator Bingaman

    Question 1. Where does GE get the Helium it needs?
    Answer. We contract with Helium retailers around the world; our 
largest suppliers are Air Products and Praxair. These suppliers sell us 
bulk Helium as well as provide value added services for us such as 
filling magnets at hospital sites.
    Question 2. What are the causes of the global Helium supply 
disruption in the past ten years?
    Answer. Growth of demand outpacing growth of supply has been the 
root cause. A few key industry drivers are electronic component usage 
due to propagation of mobile/handheld devices, fiber optics due to 
growth in infrastructure build out in emerging markets, and MRI demand 
as emerging markets demand has grown as the technology has become more 
affordable.
    Question 3. How have each of your businesses or livelihoods been 
impacted by these shortages?
    Answer. We have been closely managing supply and in doing so have 
incurred extra cost burden as a result of a less efficient supply 
chain. We have bid on foreign surplus ``spot market'' Helium at 
significant cost premiums, and have had periods of idle capacity in our 
plant awaiting Helium deliveries.
    Question 4. Are you concerned about price increases as a result of 
this legislation?
    Answer. GE is always concerned with potential price increases for 
essential elements within the supply chain. Our priority however, 
remains ensuring access to helium both for the manufacturing and 
servicing of MRIs and the long-term sustainability of the global supply 
of helium.
    Question 5. What will happen if Congress fails to reauthorize the 
Federal Helium Reserve?
    Answer. If Congress fails to act, one-third of the global supply of 
helium will be removed from the marketplace overnight. This would 
likely result in steep price increases and a severe shortage of helium.
    Question 6. What conservation and recycling technologies are 
available to conserve Helium? How affective are they? Who has access to 
them?
    Answer. Our biggest opportunity to conserve is during magnet 
production; we have been able to reduce consumption on a per unit basis 
by 5% per year for the past 5 years. GE has invested heavily in the 
technology and engineering know how, and services from outside 
suppliers in areas of thermal transfer, Nitrogen pre-cooling, and 
gaseous recapture in order to make this possible. We have approached 
the helium situation with a mindset that every molecule counts.
    Question 7. Will this Legislation help to stimulate production of 
helium by private natural gas producers so that reliable domestic 
supplies are available once the Federal Helium Reserve is depleted?
    Answer. GE is hopeful that this legislation will put in place 
mechanisms that would lead to greater private sector development of 
helium resources.

        Response of Tom Rauch to Question From Senator Murkowski

    Question 1. Dr. Chan's testimony mentioned the technological 
advantages of concentrating helium during the liquefaction of natural 
gas, and how several Middle Eastern countries were developing such LNG 
projects and could potentially become helium exporters.
    Would the LNG projects currently being developed and planned 
domestically also be able to produce and refine helium?
    Answer. Theoretically, yes. However, specialized equipment is 
needed to cool the LNG, siphon off the Helium, separate the other 
gasses off, then re-liquify it.
    Question 1a. If these domestic LNG facilities would be able to 
produce helium, what quantities might be available? Would this be 
sufficient for current and projected domestic use?
    Answer. It is hard to say; it depends on the size of LNG reserve 
and the concentration of Helium molecules contained within.
    Question 1b. What capital investments and infrastructure build-out 
would be required to connect these domestic LNG facilities (which are 
typically on the coast at port locations to facilitate LNG exports) 
with current distribution lines to helium consumers? Can helium be 
easily transported by sea?
    Answer. To put any new investment in context, the largest Helium 
infrastructure investment to date is the Qatar II plant. This was a 
$500 million dollar joint venture between Qatar Petroleum, Royal Dutch 
Shell, and Exxon Mobil.
    Yes, Helium can be transported by sea in bulk when it is in a 
liquid state.
    Question 1c. What sort of timeline would you anticipate for the 
availability of the LNG-derived helium supplies described above?
    Answer. Based on the timeline of Qatar II plant, I would estimate 
2-3 years from capital expenditure to production.
    Question 1d. Do you believe that LNG-derived helium is going to be 
the major source of helium in the future? Or do you believe traditional 
extraction methods and/or conservation will be more important to supply 
security?
    Answer. LNG based gas will certainly play a big role in the future, 
but short term and sustained conservation efforts by all users is also 
needed.

       Responses of Tom Rauch to Questions From Senator Barrasso

    Question 1. In your written testimony, you discuss the importance 
of helium to Magnetic Resonance Imaging or MRI technology. You explain 
that helium is essential to cool the magnets used in MRI scanners. You 
go on to say that: ``If the [helium] supply constrain worsened it could 
be very harmful to patient care.'' Would you please elaborate on the 
impacts of a helium shortage to patient care?
    Answer. If a helium shortage reached the point at which MRI 
manufacturers and equipment servicers were not able to meet the needs 
of health care providers and patients, a health care access issue could 
arise. Hospitals that have ordered new MRIs would have to wait longer 
to install equipment, potentially forcing patients to seek care 
elsewhere, delay care, or forgo care. Existing MRIs would need to be 
serviced more frequently, causing disruption in patient care. If an 
existing MRI magnet runs out of helium, a magnet ``quench'' will occur, 
causing significant system down time during which patients at that care 
facility would not have access to scans. All of these scenarios could 
mean patients having to travel farther to access MRI and longer wait 
times for critical care. MRI patients currently face wait times longer 
than most other imaging modalities as it is.
    Question 2. In your written testimony, you explain that GE 
Healthcare produces magnets for MRI scanners in South Carolina. You 
state that GE ``uses roughly 5.5 million liters of helium a year at 
[its] South Carolina production facility.'' What would be the impacts 
on the South Carolina production facility if the Federal Helium Reserve 
was taken offline?
    Answer. There are currently 375 employees and roughly 100 
contractors working at our manufacturing facility in Florence, SC. The 
major output of the plant is MRI magnets along with a few other MRI 
components. If the BLM Helium were suddenly unavailable in the 
marketplace, GE and presumably every other MRI manufacturer would 
likely not be able to meet a significant portion of the health care 
system demand.
    Question 3. In your written testimony, you mention that GE 
Healthcare has ``invest[ed] $1 million at [its] facility in South 
Carolina in an effort to increase helium efficiency.'' You explain that 
``researchers at GE's Global Research Centers are currently exploring 
the feasibility of new magnet designs that minimize the amount of 
helium needed.'' Would you please elaborate on GE's helium efficiency 
and conservation efforts?
    Answer. Our biggest opportunity to conserve is during magnet 
production; we have been able to reduce consumption on a per unit basis 
by 5% per year for the past 5 years. GE has invested heavily in the 
technology and engineering know how, and services from outside 
suppliers in areas of thermal transfer, Nitrogen pre-cooling, and 
gaseous recapture in order to make this possible. We have approached 
the helium situation with a mindset that every molecule counts.
    At our Global Research Center, our GE scientists are working on 
proprietary designs that significantly reduce the amount of Helium 
needed to cool and operate magnet, as well as researching the use of 
alternative superconducting materials to niobium-titanium wire and 
which may operate at warmer temps. These are long-term solutions, and 
will not be commercially available any time soon.
                                 ______
                                 
    Responses of Walter L. Nelson to Questions From Senator Bingaman

    Question 1. What will happen if Congress fails to reauthorize the 
Federal Helium Reserve?
    Answer. The BLM operations in Amarillo, TX will close shop and all 
helium production by the BLM will stop on 31 December 2014, or 
potentially as early as 1 October 2013 when then federal debt has been 
repaid and there is no funding mechanism to support BLM operations at 
Cliffside. As a result, 30% of the world's helium supply will be taken 
off the market, resulting in chaos for those industries that depend on 
helium.
    Question 2. Will this Legislation help to stimulate production of 
helium by private natural gas producers so that reliable domestic 
supplies are available once the Federal Helium Reserve is depleted?
    Answer. The legislation may have an indirect effect on the 
stimulation of helium production. As described in my written testimony, 
helium is a small part of the equation when determining if a natural 
gas project proceeds or not. The ``energy play'' project must stand on 
its own. With increasing pricing on helium and additional time to 
develop the new projects, new sources can be brought on line.
    Question 3. What infrastructure improvements at the reserve are 
required to optimize continued responsible extraction of Helium for 
distribution and use? Would S. 2374 enable those improvements?
    Answer. Yes. S2374 authorizes the use of funds from the Helium 
Production Fund for capital improvements, upgrades and maintenance 
necessary to continue and optimize the extraction of helium from the 
reservoir.

   Continued maintenance of the 25 wells and the gas gathering 
        system
   Addition of compression equipment, which is necessary before 
        2014, to offset the declining pressure in the reservoir
   Addition of processing equipment by 2016 to handle the 
        changing raw gas composition
   Construction of new equipment by 2016 to handle lower flow 
        rates in the outer years

    Question 4. What are the causes of the global Helium supply 
disruption in the past ten years?
    Answer. The global helium supply system has been operating with 
utilization rates greater than 95%. Any disruption in natural gas 
supply, caused by coincident planned or unplanned outages at natural 
gas plants, will result in helium supply disruptions.
    What caused the helium shortage in 2006-2007? Industry experienced 
an unprecedented period of planned and unplanned outages which created 
a shortfall in supply. In addition, new helium production capacity 
failed to materialize as expected to match modest growth.
    What caused the current helium shortage in 2011-2012? The same 
story again this time but with slightly different actors. The industry 
experienced a series of planned and unplanned outages and the start-up 
of new natural gas projects have been delayed.
    Question 5. How have each of your businesses or livelihoods been 
impacted by these shortages?
    Answer. In 2007, Air Products was able to manage through the crisis 
by working closely with our customers to conserve helium, while 
limiting our supply exclusively to customers under contract. In 2012, 
Air Products was not able to supply our entire customer demand, which 
required us to declare Force Majeure and to allocate customers. These 
shortages have resulted in lost market share, revenue and profit.
    Question 6. For non-federal reserve helium, how is that price 
determined?
    Answer. Market bid or commercial negotiation.
    Response of Walter L. Nelson to Question From Senator Murkowski
    Question 1. Dr. Chan's testimony mentioned the technological 
advantages of concentrating helium during the liquefaction of natural 
gas, and how several Middle Eastern countries were developing such LNG 
projects and could potentially become helium exporters.
    Would the LNG projects currently being developed and planned 
domestically also be able to produce and refine helium?
    Answer. Dr. Chan is absolutely correct. The equipment and processes 
used to liquefy natural gas can result in the concentration of helium 
molecules in the plant making helium extraction possible. If the 
natural gas feeding the LNG plant contains at least 300 parts per 
million (0.003%) of helium and the LNG plant is sufficiently large, it 
may be economically feasible to extract and refine the helium.
    Question 1a. If these domestic LNG facilities would be able to 
produce helium, what quantities might be available? Would this be 
sufficient for current and projected domestic use?
    Answer. There are a handful of domestic LNG projects in various 
stages of development in the United States, however we're not aware of 
any projects that are currently approved and on the books. The projects 
under consideration are called ``conversion projects'' where LNG 
liquefying equipment would be added to existing LNG receiving 
terminals. These terminals would become ``bi-directional'', capable of 
both receiving LNG as well as producing LNG for export. In the US there 
are currently 3 receiving terminals on the east coast and 11 receiving 
terminals in the gulf coast that could be amenable to LNG conversion 
and subsequent helium extraction. Unfortunately, these bi-directional 
LNG terminals will most likely process unconventional oil and gas or 
shale gas from geological structures that typically do not include 
helium. Not all natural gas contains helium.
    Question 1b. What capital investments and infrastructure build-out 
would be required to connect these domestic LNG facilities (which are 
typically on the coast at port locations to facilitate LNG exports) 
with current distribution lines to helium consumers? Can helium be 
easily transported by sea?
    Answer. The interstate natural gas pipeline infrastructure to/from 
these LNG terminals is already in place. Commercial contracts and 
incentives would be necessary to encourage the diversion of helium 
bearing natural gas specifically to the LNG terminals that had helium 
extraction capabilities. Depending on the size of the LNG facility, 
adding helium extraction could cost $20 to $30 million dollars. Again, 
depending on the plant size, a new helium refining plant could cost in 
excess of $100 million dollars.
    The standard method to recover helium from LNG incorporates 
liquefaction of the Helium adjacent to the LNG facility. In this form 
the helium can be transported anywhere to meet customer needs.
    Question 1c. What sort of timeline would you anticipate for the 
availability of the LNG-derived helium supplies described above?
    Answer. There are a number of major new LNG-derived sources of 
helium which will likely be developed internationally. These include 
new projects in Australia, Qatar, Russia and Indonesia.
    As stated earlier, there are currently no approved domestic 
projects on the books, so we predict that helium sourced from domestic 
LNG is probably at least 10 years into the future.
    Question 1d. Do you believe that LNG-derived helium is going to be 
the major source of helium in the future? Or do you believe traditional 
extraction methods and/or conservation will be more important to supply 
security?
    Answer. In the United States, the next largest source of helium 
will most probably come from the Riley Ridge WY or St. Johns NM fields 
where private industry is extracting both the natural gas as well as 
CO2 which is used for enhanced oil recovery for depleting 
oil fields. We are not forecasting LNG technology to deliver large 
volumes of helium in the United States.
    Outside the United States, LNG-derived helium is becoming very 
prevalent. We expect to see continued development of LNG-derived helium 
in geographic locations where the natural gas feeding large LNG plants 
contains helium in concentrations greater than 0.003%. Examples include 
Algeria, Qatar, Australia, Russia and Indonesia.
                                 ______
                                 
      Responses of David Joyner to Questions From Senator Bingaman

    Question 1. What will happen if Congress fails to reauthorize the 
Federal Helium Reserve?
    Answer. Mr. Chairman, the Bureau of Land Management's (``BLM'') 
Federal Helium Reserve currently supplies approximately 30 percent of 
the world's supply of helium. If the Federal Helium Reserve is not 
reauthorized, this helium will be eliminated from the marketplace 
causing a shortage of supply against consumer demand. Although other 
sources of helium are being developed around the world that will reduce 
the dependence upon the Federal Reserve, the output of these sources 
will not likely be adequate to fully offset the loss of supply from the 
Federal Reserve over time. This will inevitably cause shortages and 
have a downstream price impact on end-users such as medical facilities, 
research laboratories, and various manufacturing sectors.
    Question 2. Will this Legislation help to stimulate production of 
helium by private natural gas producers so that reliable domestic 
supplies are available once the Federal Helium Reserve is depleted?
    Answer. The Legislation will have a limited effect on the 
development of new sources of helium. The helium industry is already 
pursuing new sources of helium with the decline in rates of the Federal 
Helium Reserve and the decline in rates of the private Hugoton 
reserves, as well as the imminent depletion of the Federal Reserve. 
Despite this, the establishment of a more accurate market price for 
helium from the Federal Reserve will likely encourage the extraction of 
helium from other sources. It should be noted, however, that these 
alternate sources take years to develop and maintaining the continued 
supply of helium from the Federal Helium Reserve is important to allow 
time for these reserves to be developed.
    Question 3. Did Air Liquide consider building a refinery on the 
pipeline after the 1996 legislation was passed? Did Air Liquide take 
any steps to ensure access to the reserve after the sell-off was 
initiated? What steps are you taking now to ensure your supply in the 
long-term after the reserve has been depleted?
    Answer. It is important to note that, while the existing refineries 
took advantage of some government infrastructure, they were not 
constructed for the purpose of having exclusive future access to the 
Federal Helium Reserve. Most, if not all, were constructed prior to 
1996 and were mainly justifiable based on purchasing helium from 
private producers as helium was extracted from natural gas production 
on a real time basis.
    At the time the 1996 legislation was passed, private helium 
extraction rates were declining. Thus, when the 1996 legislation 
directed the BLM to sell off the helium from the Federal Helium 
Reserve, the companies with existing refineries on the Federal helium 
pipeline were in a windfall position enabling them to draw federal 
helium in addition to private helium without investment in the existing 
refineries. Conversely, non-refiners, such as Air Liquide, were in a 
heavily disadvantaged position against the refiners who already had 
refineries operating on the pipeline. Indeed, based on the current BLM 
allocation system, companies with existing refineries on the Federal 
helium pipeline are allocated 94 percent of the BLM helium available 
for sale while nonrefiners are allocated six percent. Additionally, in 
order to access that six percent, nonrefiners must rely upon the 
refiners (who are also their competitors in the helium market) for 
tolling (i.e. refining), particularly due to the fact that the BLM 
infrastructure is not capable of supplying any crude helium to an 
additional refinery. This fact is supported by the most recent 
invitation for offers issued by BLM which states: ``the Crude Helium 
Refiners have refining capacity roughly double what can be supplied 
through the Annual Conservation Helium Sales. Although there are other 
crude helium supplies available to the Crude Helium Refiners, these 
supplies are declining each year.'' In other words, the pipeline cannot 
support further refining capacity and the existing refineries, put in 
place to take advantage of private crude helium supplies, are now being 
subsidized from the government's Federal Helium Reserve to offset the 
reductions from the private resources.
    This closed system is a bad deal for non-refiners and a bad deal 
for end users who do not benefit from fair and open market competition. 
As the National Research Council's 2010 report on the Federal Helium 
Reserve noted, ``[t]hese market distortions have encouraged the 
extraction of crude helium from the [Federal Helium Reserve] and the 
exploitation for private profit of this reserve by a small number of 
firms having refineries connected to the publicly financed pipeline.''
    As stated above, there is a difference between six percent of BLM 
crude helium being allocated for non-refiners and the ability of non-
refiners to utilize the allocation. Regardless of the percentage 
allocated for non-refiners, the allocation is useless, absent a 
guaranteed method for non-refiners to toll (i.e. refine) the helium. To 
enable the access of Air Liquide, to the six percent of the Federal 
Helium Reserve allocation set aside for non-refiners, Air Liquide has 
pursued tolling agreements with the refiners. Despite these efforts, 
only limited quantities on short term arrangements have been allowed by 
the refiners who have kept availability to the Federal Helium Reserve 
very limited. In this respect, it is crucial to understand that 
refining is only one step in the helium processing chain toward a 
completed product that can be sold to an end user. By not allowing 
access to this part of the chain (i.e. essentially blocking access to 
the Federal Helium Reserve), distortions are created in the helium 
market that ultimately cost end users.
    The consequences of the situation described above have important 
implications for domestic end-users of helium. Adopting a more market-
based approach was recommended by the National Research Council's 2010 
Report on the Federal Helium Reserve which stated the following:

          The Bureau of Land Management (BLM) should adopt policies 
        that open its crude helium sales to a broader array of buyers 
        and make the process for establishing the selling price of 
        crude helium from the Federal Helium Reserve more transparent. 
        Such policies are likely to require that BLM negotiate with the 
        companies owning helium refining facilities connected to the 
        Helium Pipeline the conditions under which unused refining 
        capacity at those facilities will be made available to all 
        buyers of federally owned crude helium, thereby allowing them 
        to process the crude helium they purchase into refined helium 
        for commercial sale.

    Utilizing this approach would result in a more accurate and 
transparent helium market and would benefit consumers by increasing the 
number of suppliers competing for the business of federal users and 
open market users. To attain these goals, Air Liquide would recommend 
that S. 2374 include measures to open the Federal Helium Reserve to a 
wider range of buyers and establish policies to ensure greater access 
to crude helium exists within the market. In exchange for a suitable 
tolling fee paid to the refiners, nonrefiners would therefore be able 
to buy BLM helium and, through arrangements with existing refiners, be 
able to utilize previously unavailable refining capacity at facilities 
on the Federal Helium Pipeline.
    To address one of the criticisms leveled during the May 10, 2012 
hearing, this proposal is not at all tantamount to the Federal 
government passing a statute requiring one car company to provide 
manufacturing space for a competing car company so that the competitor 
did not have to take on the expense of building its own facility. The 
analogy is fatally flawed because unlike the parts required for the 
manufacturing of motor vehicles, the United States government--
taxpayers--own the crude helium in the Federal Helium Reserve, as well 
as the infrastructure to supply the helium which is not adequate to 
supply additional refineries. The Federal Helium Reserve is a critical 
government resource intended for the benefit of the entire country. As 
the National Research Center 2010 report noted, non-refiners are at a 
distinct disadvantage under the current system and this federal 
resource was not intended as a profit center for three private 
companies. In the auto industry, manufacturers compete against each 
other on an even playing field in a market governed by supply and 
demand. The public should expect no less from the management of the 
Federal Helium Reserve.
    On the question of ensuring a stable supply of helium, Air Liquide 
has obtained a position in projects that may be developed in the United 
States. Such projects are largely dependent upon gas producer project 
development. Additionally, Air Liquide is also developing a large 
foreign helium source that will greatly reduce the need to export 
helium from the Federal Reserve. In this manner, Air Liquide's 
investment constitutes a major contribution towards conserving the 
Federal Helium Reserve.
    Question 4. What are the causes of the global Helium supply 
disruption in the past ten years?
    Answer. The helium market is complex and it is therefore difficult 
to link the recent disruption in the global helium market to a finite 
list of factors. It has been well documented that the global supply 
disruption in 2006 and 2007 was largely due to a loss of production 
capacity in the market. Importantly, as helium production is largely 
the result of natural gas production, many factors relating to the 
global market are outside the control of helium suppliers. For example, 
due to its relationship with helium extraction, demand for liquid 
natural gas (``LNG'') demand drives LNG production rates and, 
consequently, helium production rates. Planned and unplanned downtime 
at these LNG or natural gas production sites causes helium shortages. 
An additional factor relates to the nature of helium, which is 
difficult to store. Helium is stored in specially designed containers 
developed to keep the product at cold temperatures (approximately -450 
degrees) to avoid helium product losses. As the temperature of the 
helium unavoidably increases, the pressure rises as well. When the 
pressure reaches design limits, safety valves vent helium gas to reduce 
the pressure. These containers can only store the helium for 30 to 45 
days before high losses are incurred. For these reasons, producers and 
suppliers have limited ability to store gaseous and liquid helium which 
reduces the ability for suppliers to maintain adequate supply during 
source interruptions. Thus, supply is only available to support demand 
for shorter term production curtailments.
    Question 5. How have each of your businesses or livelihoods been 
impacted by these shortages?
    Answer. As a company, Air Liquide is focused on technological 
innovation to help make our Nation's manufacturing and industrial 
sectors more efficient, environmentally friendly and productive. To 
that end, since 2007, Air Liquide has operated the Delaware Research 
and Technology Center (``DRTC'') which houses approximately one hundred 
employees specifically devoted to developing innovative applications 
for gas products in sectors such as electronics, healthcare, cosmetics, 
energy and food, as well as supporting helium specific initiatives such 
as recovery and re-liquefaction in support of conservation efforts. A 
long-term shortage of helium would jeopardize several research 
initiatives being undertaken at DRTC.
    In addition to our own initiatives, Air Liquide is a major helium 
supplier. End users served by Air Liquide include medical facilities, 
research laboratories, and high-end electronics manufacturers. Any 
helium shortage impacts our ability to meet the needs of our customers.
    Question 6. For non-federal reserve helium, how is that price 
determined?
    Answer. Outside of the BLM pricing system, helium sources are 
priced according to commercially negotiated contracts in which all 
players compete on a level playing field. Once an initial base price is 
set, annual adjustments in price are typically based upon changes to 
the BLM crude helium price. In almost all non-BLM global helium 
sources, a gas producer owns and operates the helium refinery, thus the 
refined liquid helium is sold. This sets up a competitive situation 
where all companies have equal opportunity to negotiate for the refined 
helium. At the end of each contract term, a competitive situation 
exists that again opens the helium capacity up for equal access. This 
allows the open market drivers to set a new base market price.
    As the Committee is aware, the current pricing system for BLM 
helium has historically been tied to paying down the debt of the 
Federal Helium Reserve. In addition, the BLM has more recently tied 
price increases to BLM-specific factors such as ``Conservation'' and 
``Enrichment'', as well as contributions to the Helium Production Fund. 
Consideration of these non-market factors has made the BLM price 
inherently unpredictable and certainly unrelated to the actual market 
price for crude helium. Air Liquide remains concerned with the pricing 
system set forth in the proposed legislation since it will continue to 
allow BLM-specific factors to influence the BLM crude helium price. As 
global helium contracts are often indexed to the BLM crude helium 
price, these changes will distort the global market and force helium 
costs upward.
    To prevent this undesirable result, Air Liquide recommends the 
separation of the ``fees'' cited recently by the BLM--i.e. for 
Enrichment and Conservation, as well one time step changes to adjust 
value from historical practices--from the BLM crude price to reflect 
the wholesale change in the pricing mechanism envisioned by the 
proposed legislation. By clearly separating the non-market fees from 
the current BLM crude price--which has no relation to the actual value 
of helium in the market--private companies will be able to adjust 
existing contracts in accordance with true market drivers and avoid the 
artificial increases causing undue harm to end-users. Such a solution 
would allow the BLM to collect the full revenue stream and ensure that 
the federally supported Federal Reserve maintains its ability to 
operate effectively for several years to come while protecting helium 
end-users domestically and around the world from dramatic and 
unpredictable swings in price. Consumers of the BLM Reserve would still 
be paying for its continued maintenance, operation, and upgrades 
through this fee structure but would be doing so in a way that is 
directly accountable to the federal government's investment. They would 
also be doing so through a fee system that the BLM itself has already 
begun to establish with its latest price increase. Similarly, consumers 
of other helium sources, both domestically and abroad, could be secure 
in the fact that simple supply and demand and business acumen will 
govern their price, not unrelated government actions that are specific 
to the BLM reserve and not relevant to other helium sources.

      Response of David Joyner to Question From Senator Murkowski

    Question 1. Dr. Chan's testimony mentioned the technological 
advantages of concentrating helium during the liquefaction of natural 
gas, and how several Middle Eastern countries were developing such LNG 
projects and could potentially become helium exporters. Would the LNG 
projects currently being developed and planned domestically also be 
able to produce and refine helium?
    Answer. To date, we have not received data sufficient for Air 
Liquide to evaluate the helium content in the projects discussed above. 
While helium can be extracted from LNG projects, helium does not always 
exist in natural gas production or helium content could be at levels 
too low to extract. The proposed legislation provides for the BLM to 
quantify all helium reserves and Air Liquide believes that attention 
should also focus on analyzing the helium content of these LNG 
projects.
    Question 1a. If these domestic LNG facilities would be able to 
produce helium, what quantities might be available? Would this be 
sufficient for current and projected domestic use?
    Answer. Without an appropriate gas analysis, the helium content of 
these projects cannot be confirmed. As a frame of reference, an LNG 
facility that would produce 400 MMscf/day of gross gas, and if the gas 
had an ssumed helium content of 0.3%, a helium extraction/liquefaction 
refinery could produce as much as 0.4 BCF per year. The annual domestic 
demand is currently estimated at approximately 2 BCF per year.
    Question 1b. What capital investments and infrastructure build-out 
would be required to connect these domestic LNG facilities (which are 
typically on the coast at port locations to facilitate LNG exports) 
with current distribution lines to helium consumers? Can helium be 
easily transported by sea?
    Answer. After appropriate analysis indicating a supply of helium, 
the main requirement would be land necessary to build a helium 
extraction/liquefaction facility right at the LNG terminals. This is 
the case since the crude helium could not be economically transported 
to any existing helium plants. Once the facilities were constructed, 
the crude helium would be liquefied and transported in specialized ISO 
Containers to various Transfill operations around the United States for 
distribution to customers.
    Question 1c. What sort of timeline would you anticipate for the 
availability of the LNGderived helium supplies described above?
    Answer. It is inherently difficult to estimate a timeline for 
large-scale projects like LNG terminals which are dependent on both 
economic and regulatory factors. Various LNG projects in the early 
developmental stage are projected to have on-stream dates in 2017 and 
beyond. Should viable quantities of helium exist, such helium could be 
developed concurrently.
    Question 1d. Do you believe that LNG-derived helium is going to be 
the major source of helium in the future? Or do you believe traditional 
extraction methods and/or conservation will be more important to supply 
security?
    Answer. Given the current demand for helium to support research, 
manufacturing, and other important sectors, Air Liquide believes that 
all avenues of helium production should be explored and, if viable, 
extracted. Although LNG-derived helium represents the largest 
individual sources of helium and are essential to meeting end user 
requirements, continued development of traditional extraction sources 
will enhance the reliability of the supply chain even though they are 
typically much smaller capacities.

       Response of David Joyner to Question From Senator Barrasso

    Question 1. I recognize that access to helium refining capacity at 
the Federal Helium Reserve is a high priority for you and other 
companies that distribute helium.

          A. Can you help the Committee understand why Air Liquide has 
        not invested in building refining capacity at the Reserve in 
        the past?
          B. Are there legal or any other obstacles to building 
        additional refining capacity at the Reserve now? If so, what 
        are those obstacles?

    Answer. A. It is important to note that, while the existing 
refineries took advantage of some government infrastructure, they were 
not constructed for the purpose of having exclusive future access to 
the Federal Helium Reserve. Most, if not all, were constructed prior to 
1996 and were mainly justifiable based on purchasing helium from 
private producers as helium was extracted from natural gas production 
on a real time basis.
    At the time the 1996 legislation was passed, private helium 
extraction rates were declining. Thus, when the 1996 legislation 
directed the BLM to sell off the helium from the Federal Helium 
Reserve, the companies with existing refineries on the Federal helium 
pipeline were in a windfall position enabling them to draw federal 
helium in addition to private helium without investment in the existing 
refineries. Conversely, non-refiners, such as Air Liquide, were in a 
heavily disadvantaged position against the refiners who already had 
refineries operating on the pipeline. Indeed, based on the current BLM 
allocation system, companies with existing refineries on the Federal 
helium pipeline are allocated 94 percent of the BLM helium available 
for sale while non-refiners are allocated six percent. Additionally, in 
order to access that six percent, non-refiners must rely upon the 
refiners (who are also their competitors in the helium market) for 
tolling (i.e. refining), particularly due to the fact that the BLM 
infrastructure is not capable of supplying any crude helium to an 
additional refinery. This fact is supported by the most recent 
invitation for offers issued by BLM which states: ``the Crude Helium 
Refiners have refining capacity roughly double what can be supplied 
through the Annual Conservation Helium Sales. Although there are other 
crude helium supplies available to the Crude Helium Refiners, these 
supplies are declining each year.'' In other words, the pipeline cannot 
support further refining capacity and the existing refineries, put in 
place to take advantage of private crude helium supplies, are now being 
subsidized from the government's Federal Helium Reserve to offset the 
reductions from the private resources.
    The consequences of the situation described above have important 
implications for domestic end-users of helium. Adopting a more market-
based approach was recommended by the National Research Council's 2010 
Report on the Federal Helium Reserve which stated the following:

          The Bureau of Land Management (BLM) should adopt policies 
        that open its crude helium sales to a broader array of buyers 
        and make the process for establishing the selling price of 
        crude helium from the Federal Helium Reserve more transparent. 
        Such policies are likely to require that BLM negotiate with the 
        companies owning helium refining facilities connected to the 
        Helium Pipeline the conditions under which unused refining 
        capacity at those facilities will be made available to all 
        buyers of federally owned crude helium, thereby allowing them 
        to process the crude helium they purchase into refined helium 
        for commercial sale.

    Utilizing this approach would result in a more accurate and 
transparent helium market and would benefit consumers by increasing the 
number of suppliers competing for the business of federal users and 
open market users. To attain these goals, we would recommend that S. 
2374 include measures to open the Federal Helium Reserve to a wider 
range of buyers and establish policies to ensure greater access to 
crude helium exists within the market. In exchange for a suitable 
tolling fee paid to the refiners, non-refiners would therefore be able 
to buy BLM helium and, through arrangements with existing refiners, be 
able to utilize previously unavailable refining capacity at facilities 
on the Helium Pipeline.
    To address one of the criticisms leveled during the May 10, 2012 
hearing, this proposal is not at all tantamount to the Federal 
government passing a statute requiring one car company to provide 
manufacturing space for a competing car company so that the competitor 
did not have to take on the expense of building its own facility. The 
analogy is fatally flawed because unlike the parts required for the 
manufacturing of motor vehicles, the United States government--
taxpayers--own the crude helium in the Federal Helium Reserve, as well 
as the infrastructure to supply the helium which is not adequate to 
supply additional refineries. The Federal Helium Reserve is a critical 
government resource intended for the benefit of the entire country. As 
the National Research Center 2010 report noted, non-refiners are at a 
distinct disadvantage under the current system and this federal 
resource was not intended as a profit center for three private 
companies. In the auto industry, manufacturers compete against each 
other on an even playing field in a market governed by supply and 
demand. The public should expect no less from the management of the 
Federal Helium Reserve.
    Answer. B. As BLM Deputy Assistant Director for Minerals and Realty 
Management Timothy Spisak testified before the Committee on May 10, 
2012, the amount of capacity of the Federal Helium pipeline is already 
oversubscribed. Accordingly, the capacity does not currently exist to 
justify any investment in a new refinery connected to the Federal 
Helium Reserve.
                                 ______
                                 
       Responses of Moses Chan to Questions From Senator Bingaman

    Question 1. What will happen if Congress fails to reauthorize the 
Federal Helium Reserve?
    Answer. The NRC committee believed that there could be uncertainty 
in supply and abrupt price hike in both the U.S. and world helium 
market if Congress failed to reauthorize the federal helium resserve.
    Question 2. What are the causes of the global Helium supply 
disruption in the past ten years?
    Answer. The committee was familiar with the occurrence of several 
disruptions in 2006-2007. It is my recollection that those supply 
disruptions were the result of nearly simultaneous maintenance efforts 
with respect to the helium enrichment unit at the federal helium 
reserve that took it out of service and a shutdown of the Wyoming site.
    Question 3. How have each of your businesses or livelihoods been 
impacted by these shortages?
    Answer. For scientific research using liquid helium, the shortages 
meant premature termination of a number of experiments. This means that 
the completion of some experiments carried out in government and 
industrial labs, as well as research sponsored by agencies such as DOE, 
NSF and DARPA, was delayed. These delays also had severe impact on the 
career of some graduate students and young scientists.
    Question 4. Are you concerned about price increases as a result of 
this legislation?
    Answer. Yes, since the costs of liquid helium often is a 
significant portion of the total expenses of the research grants in 
many laboratories.
    Question 5. Are there any substitutes for Helium?
    Answer. For the research scientist using helium in cryogenic 
research, there is no substitute.
    Question 6. What conservation and recycling technologies are 
available to conserve Helium? How affective are they? Who has access to 
them?
    Answer. Equipment to recycle boiled off helium gas back into liquid 
form exists. The cost of a larger system, including installation, 
ranges from $1,000,000 (which would liquefy about 20 liters per hour) 
to $2,000,000. A smaller unit that can liquefy about 20 liters a day 
will cost about $160,000. These can cut down the usage of helium by 
90%.
    It is also possible to acquire an attachment for a cryostat (for 
example, a dilution refrigerator) that automatically recycles helium 
gas back into its liquid form. The costs of these unites are about 
$150,000 and can cut down the usage of helium by nearly 100%.
    Access is limited by their costs and the availability of funding. 
This is not considered to be a high priority, given limited budgets.
    Question 7. Is the world going to run out of Helium? Other than 
stockpiling, what else can we be doing to gain access to additional 
supplies?
    Answer. Information provided to the NRC committee indicated that 
there is roughly a 60 year supply, based upon known reserves of natural 
gas in which helium can be commercially separated. There might be other 
sources of natural gas where the amount of helium present is less than 
the 0.3% threshold at which it typically has been considered 
economically feasible to extract it from the gas. To extract helium 
from such sources will be more costly.
    Question 8. Will this Legislation help to stimulate production of 
helium by private natural gas producers so that reliable domestic 
supplies are available once the Federal Helium Reserve is depleted?
    Answer. Probably.

      Responses of Moses Chan to Questions From Senator Murkowski

    Question 1. Your written testimony mentioned the prospect of the 
United States becoming a helium importer, due in large part to the 
development of natural gas liquefaction facilities in several Middle 
Eastern countries and the relative ease of extracting and concentrating 
helium when preparing LNG. However, there are currently several large 
LNG projects at varying levels of planning and completion in North 
America.
    Answer. Since LNG involves liquefaction of the natural gas, the 
further step of extracting helium from the `tail' gases--what is left-
over after liquefying the natural gas--would be much cheaper than 
extracting it from the natural gas itself. So, it possibly would be 
economically feasible to extract helium from those sources. However, I 
do not know whether the natural gas in the LNG projects under 
consideration in North America has even the low concentrations of 
helium needed to make this extraction feasible or whether any companies 
are considering building the additional facilities needed to extract 
the helium from those tail gases.
    Question 2. Would these facilities also be able to efficiently 
refine helium and provide domestic sources of the gas?
    Answer. Please see above.
    Question 3. Your testimony mentioned the technological advantages 
of concentrating helium during the liquefaction of natural gas, and how 
several Middle Eastern countries were developing such LNG projects and 
could potentially become helium exporters.
    Would the LNG projects currently being developed and planned 
domestically also be able to produce and refine helium?
    Answer. Please see answer to No 1.
    Question 3a. If these domestic LNG facilities would be able to 
produce helium, what quantities might be available? Would this be 
sufficient for current and projected domestic use?
    Answer. I have no knowledge about the helium content of those 
reserves.
    Question 3b. What capital investments and infrastructure build-out 
would be required to connect these domestic LNG facilities (which are 
typically on the coast at port locations to facilitate LNG exports) 
with current distribution lines to helium consumers? Can helium be 
easily transported by sea?
    Answer. This is beyond my expertise; I don't know the costs. As for 
transportation of helium by sea, that currently is taking place in 
liquid form, in refrigerated containers.
    Question 3c. What sort of timeline would you anticipate for the 
availability of the LNG-derived helium supplies described above?
    Answer. I do not know.
    Question 3d. Do you believe that LNG-derived helium is going to be 
the major source of helium in the future? Or do you believe traditional 
extraction methods and/or conservation will be more important to supply 
security?
    Answer. This mainly is an economic and geologic question and is 
beyond my expertise.


                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

                                                       May 7, 2012.

Hon. Jeff Bingaman,
Chairman, Senate Committee on Energy and Natural Resources, 304 Dirksen 
        Senate Office Building, Washington, DC.
Hon. Lisa Murkowski,
Ranking Member, Senate Committee on Energy and Natural Resources, 304 
        Dirksen Senate Office Building, Washington, DC.
    Dear Chairman Bingaman and Ranking Member Murkowski: As a broad 
coalition of industrial, scientific and medical industry stakeholders, 
we are writing to express our support for the Helium Stewardship Act of 
2012 (S.2374) introduced by Senators Bingaman, Barrasso, Wyden, and 
Enzi. Helium is a critical element used in numerous applications in our 
medical, industrial and scientific communities. This legislation is 
urgently needed to continue administering our federal helium program to 
maintain a reliable domestic supply and minimize market disruptions. 
Hundreds of thousands of jobs depend on reliable access to and stable 
pricing for helium.
    Helium plays a vital role in a wide array of products in the 
industrial manufacturing, commercial, medical and government markets. 
Key uses include MRI scanners, semiconductors, fiber optic cable, space 
exploration, scientific research and welding. It is a non-renewable 
resource that naturally occurs in only a few places globally, and any 
reduction in supply could dramatically impact our markets and the 
availability of these and other important products and services. It is 
therefore imperative that a stable domestic resource of helium is 
sustained to keep our markets operating smoothly.
    U.S. entities acquire much of their helium from the Federal Helium 
Reserve at the Bush Dome just outside of Amarillo, Texas. While 
operations stretch back to the 1960s, the Helium Privatization Act of 
1996 was the last time that Congress considered this issue. When this 
statute expires in 2014, a significant portion of current global supply 
will no longer be accessible. In practical terms, this will happen 
sometime in 2013 when operating funds are projected to cease if action 
is not taken to reauthorize the Reserve.
    The result of inaction will be to take 30% of the world's supply 
off the market, causing enormous dislocations in the affected 
industries and ripple effects beyond them--patients forced to travel 
long distances to find working MRIs, semiconductor manufacturers and 
other industrial and commercial businesses uncertain where they will 
turn for essential helium, creating new dependencies on unstable 
foreign sources. Essential scientific research could suffer major 
adverse impacts.
    The Helium Stewardship Act of 2012 will authorize the continued 
management of the Reserve to ensure maximum helium recovery and value 
to the US Treasury and taxpayers. It does not authorize or require any 
new appropriations. Instead, it keeps the federal helium program 
revenue positive through continued crude helium sales from the federal 
stockpile. It would create certainty and stability in the helium 
markets for all stakeholders, federal and private alike.
    In closing, we'd again like to reiterate our strong support. The 
Helium Stewardship Act will protect our economy and national security 
from unpredictable supply sources across the globe. It will ensure that 
a safe supply of domestic helium is available for many years to come.
            Sincerely,
                    Right Scan Right Time; Air Products; America 
                            College of Radiology; APS Physics; 
                            Freescale; GE; FlobalFoundries; IBM; 
                            International Balloon Association; Intel; 
                            The Linde Group; Materials Research 
                            Society; Matheson Gas; Medical Imaging & 
                            Technology Alliance; Micron; NEMA; ON 
                            Semiconductor; Praxair; Samsung Austin 
                            Semiconductor; Semiconductor Industry 
                            Association; Siemens; and Texas 
                            Instruments.
                                 ______
                                 
                       Statement of Matheson Gas*
---------------------------------------------------------------------------
    * Slides provided with this statement have been retained in 
committee files.
---------------------------------------------------------------------------
Summary of Matheson's Position
   Matheson supports passage of the Helium Stewardship Act of 
        2012 (S.2374), subject to certain revisions to the language 
        related to the calculation of the market price for crude helium 
        (CHE).
   As a ``non-refiner'', the most important issue addressed by 
        S.2374 is the requirement that ``Sales of crude helium by the 
        Secretary shall be at prices. . .that approximate the crude 
        helium price in the private market''.
   The sale of CHE from the Federal stockpile at market prices 
        is fair to the taxpayer and will facilitate fair competition 
        between refiners, who have nearly exclusive access to the 
        Federal stockpile and non-refiners, who have very limited 
        access to the Federal reserve.
   Matheson's contention is that S.2374 must provide sufficient 
        guidelines to ensure that the rule making process results in a 
        reasonable calculation of market price.

    --The intent of the S.2374 should be further clarified in the 
            accompanying Committee Report

   The methodology prescribed in Section 6(d)(2) of S.2374 has 
        technical flaws that would result in an over-estimation of the 
        market price, creating a windfall for the energy companies who 
        produce crude or refined liquid helium as well as an 
        unwarranted step change in the cost incurred by helium 
        consumers.
   Matheson believes that the language in S.2374 can be 
        corrected by fairly minor modifications to the existing 
        language.

CHE Market Price
    Definition of ``Market Price'': Market Price is the price at which 
buyers and sellers are currently willing to enter into arm's length 
transactions
    Key elements of a sound calculation of Market Price:

    --Simple - As simple as possible
    --Objective - Not overly dependent on human judgment
    --Repeatable - Different people using the same data would come up 
            with very similar results
    --Based on readily accessible data
    --Based on current/recent data - Pricing data from older 
            transactions is irrelevant to a calculation of market price
    --Includes enough data points to avoid distortion by unusual/
            outlier transactions
    --Based on comparable transactions
    --Not overly susceptible to manipulation
    --Allows for ``expert'' review to ensure reasonability

Issue: Number Of Data Points vs Comparable Transactions
   Unfortunately, there are not enough CHE purchase and sale 
        transactions (Level 1 Transactions) to provide enough data 
        points for a valid calculation of the market price of CHE.
   It is necessary to compromise on the ``comparability of 
        transactions'' to ensure the availability of a sufficient 
        number of data points for the calculation of market price.
   To increase the number of data points, it is necessary to 
        move further down the Helium Value Chain (see Chart on next 
        slide).

    --The next step down the Helium Value Chain is bulk liquid helium 
            (LHE) sourcing transactions (Level 2 Transactions)
    --The next step down the Helium Value Chain is bulk LHe resale/
            wholesale transactions (Level 3 Transactions)

   To the extent that Level 2 and Level 3 transactions are 
        utilized in the calculation of market price, adjustments are 
        necessary to improve the comparability of Level 2/3 
        transactions with CHE purchase/sale (Level 1) transactions.
   Without these adjustments, you will not have an ``apples to 
        apples'' comparison of data points and will not have a 
        technically sound calculation
   The inclusion of end user transactions (Level 4) in the 
        calculation of market price would make the calculation overly 
        complicated, would add greatly to the administrative burden 
        associated with data gathering and would increase the 
        likelihood of an inaccurate calculation
Helium Value Chain*
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
What Are The Problems With The Calculation Of Market Price Described In 
        S.2374? (1 of 2)
                           matheson issue #1
   Earlier drafts of the bill (SIL11195) only included large 
        ``sourcing'' transactions in the calculation of market price 
        for CHE

    --Refiners' ``wholesale/resale'' transactions were specifically 
            excluded from the calculation
    --Small sourcing transactions (<75 MMCF/yr) were also excluded

   S.2374 includes wholesale/resale transactions for the sale 
        of bulk LHE in quantities >20 MMCF/yr in the calculation, as 
        well as sourcing transactions <75 MMCF/yr, but >20 MMCF/yr
   Since Refiners' sales of bulk LHE and small sourcing 
        transactions include an extra layer of profit, they are 
        inherently at higher prices than ``sourcing'' transactions
   Including these distributor level transactions in the 
        calculation of market price on the same basis as large sourcing 
        transactions would be the equivalent of mixing ``apples and 
        oranges''

    --Would result in an over-estimate of the market price of CHE and a 
            significant step change in the market price of helium for 
            end users
    --Would also result in a windfall for natural gas processors

What Are The Problems With The Calculation Of Market Price Described In 
        S.2374? (2 of 2)
                           matheson issue #2
   It is not necessary to exclude transactions indexed to the 
        BLM posted price for CHE.
   Matheson believes that this exclusion was added to the draft 
        in error.
   The intent of the language is that only prices in new 
        transactions or newly renegotiated transactions would be 
        included in the Secretary's survey.
   Prices adjusted periodically via indexation to the BLM's 
        posted price or any other index do not represent new market 
        prices and should be excluded from the Secretary's survey.
   For transactions where pricing is indexed to the BLM's 
        posted price, the initial negotiated price should be included 
        in the survey, while subsequent prices adjusted via indexation 
        to the BLM posted price should be excluded from the survey.
                           matheson issue #3
   Helium royalty data is a reflection of average sales prices 
        rather than current market price and should be excluded from 
        the Secretary's survey.

Recommended Revisions To S.2374
   Prices for wholesale/resale transactions and small sourcing 
        transactions will need to be reduced to remove the extra layer 
        of profit associated with those transactions and to enable a 
        proper ``apples to apples'' comparison in the calculation of 
        market price.

    --Matheson recommends the insertion of a new Section 6(d)(2)(C):

           ``in consultation with the helium industry, the 
        additional layer of profit derived from agreements for the 
        resale of liquid helium or the sale of liquid helium in lesser 
        than normal quantities for sourcing transactions.''

   Matheson recommends the deletion of Section 6(d)(2)(B) which 
        suggests that the Secretary should consider royalties from the 
        sale of helium from Federal land in his determination of the 
        market price. [Section 6(d)(2)(C) becomes Section 6(d)(2)(B)]
   Matheson recommends the deletion of Section 6(d)(4)(C)(ii).
   Matheson recommends that all references to ``sourcing'' 
        transactions be changed to ``sourcing and wholesale'' 
        transactions.

Other Issues--Access To The Reserve/Tolling
   Matheson is disappointed that S.2374 does not address the 
        issue of third-party tolling by the Refiners
   Unless the Refiners are required to provide tolling services 
        to non-refiners, the Federal stockpile and government helium 
        business are essentially reserved for the Refiners
   Setting aside a modest percentage of Refiners' capacity for 
        third-party tolling would increase the number of suppliers who 
        would be able to compete for government business
   Matheson is willing to set this issue aside in the interest 
        of getting a bill passed, provided that the bill includes 
        guidelines for a sound calculation of market price
                                 ______
                                 
    Statement of Jane Hoffman, Global Director, Helium & Rare Gases 
                              Praxair, Inc

    Praxair, Inc. is an American multinational and the largest 
industrial gas company in North and South America and one of the 
largest worldwide. Praxair is headquartered in Danbury, Connecticut and 
its primary research and development facility is located in Tonawanda, 
New York. Praxair employs approximately 10,000 people in more than 500 
facilities across the United States. The company manufactures, sells, 
and distributes atmospheric, process, and specialty gases. Praxair 
products, services, and technologies bring productivity and 
environmental benefits to a wide range of industries including 
aerospace, chemicals, food and beverage, electronics, healthcare, 
manufacturing, metals among others. With respect to helium, Praxair 
purchases crude helium from energy companies and the U.S. government 
and sells refined helium into the global retail market.
    Praxair appreciates the opportunity to add to the discussion 
regarding the Helium Stewardship Act of 2012. The Helium Stewardship 
Act is necessary legislation to prevent a profound disruption in the 
global helium market, which will severely impact consumers, scientists, 
and employers.
    My written testimony is based on my thirty-four year career with 
Praxair, the majority of which has been spent working in all aspect of 
the helium business, including operations, global supply chain, 
sourcing or product management.

   I. THE HELIUM STEWARDSHIP ACT MUST BE PASSED NOW TO ENSURE PROPER 
               MANAGEMENT OF THE NATIONAL HELIUM RESERVE

    The Helium Privatization Act of 1996 expires on December 31, 2014. 
When the Privatization Act was enacted it was envisioned that the 
helium reserves would be sold off by the date of expiration. However, 
sufficient helium currently remains in the reserves such that the U.S. 
Bureau of Land Management (BLM) is able to continue to sell helium for 
several years post 2014.
    The Act needs to be extended to ensure that the BLM can continue to 
operate the helium storage facility and sell helium to meet the needs 
of industry and the scientific community. While the amount of helium in 
the reserve is declining, modeling of the reservoir predict that 10-12 
billion ft3 of recoverable crude helium will remain when the 
Privatization Act expires. This amount is sufficient volume to operate 
the system until sometime around 2020. The Act needs to be extended 
now. Uncertainty surrounding extension of the Act will lead to a 
winding down of operations, discontinuation of infrastructure 
improvements, minimal maintenance programs, and volatile supplies and 
pricing scenarios here and abroad.
    The Helium Stewardship Act achieves three important goals. First, 
the Act reauthorizes the Federal Helium Reserve to ensure ongoing 
operations without federally appropriated funds. Second, it establishes 
an improved market-based pricing mechanism for the sale of helium from 
the Reserve. Third, it creates a larger Strategic Reserve for users of 
helium in critical defense, space, and scientific applications. The Act 
is broadly supported by refiners and end-users. See, Industry Support 
Letter to Senate Committee on Energy & Natural. Resources Chairman Jeff 
Bingaman and Ranking Member Lisa Murkowski, May 7, 2012 (Attachment 
A).*
---------------------------------------------------------------------------
    * See letter dated May 7, 2012, at the beginning of Appendix II.
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                      II. THE GLOBAL HELIUM MARKET

    Helium is a chemical element that is formed by the radioactive 
decay of heavy elements in the earth's crust and is found in certain 
natural gas fields where both gases formed together and are capped by 
impermeable rock. Helium concentrations in natural gas are very low (<1 
%) and only a few natural gas formations hold helium in economically 
recoverable quantities. Today, it is relied upon by industrial, 
governmental, and academic researchers. It is used in the manufacturing 
of semiconductors and fiber optics as well as the operation of MRIs. It 
is used as a carrier gas for oxygen in synthetic breathing mixtures, 
brings lift to balloons, and is utilized in many other applications. 
End users, our customers, seek an adequate, reliable and consistent 
supply of helium and proper administration of the National Helium 
Reserve is an imperative to their commercial and academic needs.
    As discussed in greater detail below, the BLM pipeline and storage 
system play an integral role in the global helium supply chain and 
infrastructure. The Helium Stewardship Act of 2012 is necessary to 
ensure continued BLM operations and infrastructure improvements to 
prevent significant disruptions in the global helium market.
    Currently, six sources provide approximately 75-percent of the 
global helium supply. Approximately 30-percent of the global supply is 
produced in the U.S. by the BLM at its Cliffside Reservoir operation 
with another 30-percent being extracted from current U.S. natural gas 
production. The remaining sources, which make up the majority of global 
helium production, are located in Australia, Russia, Qatar, and 
Algeria.
    As previously indicated, helium is a critical component in a 
variety of industrial, academic, and governmental applications. Our 
customers include, but are not limited to:

   Electronics: Helium creates environments necessary for 
        manufacturing semiconducting devices.
   Fiber Optics: Gaseous helium is a critical consumable for 
        producing the optical fibers in telecommunications cables.
   Medical: Liquid helium's low boiling point (-452F or -
        269C) makes it ideal for cooling the MRI magnets that create 
        the magnetic field medical professionals need to develop 
        detailed images of body tissue that can eliminate exploratory 
        surgery and biopsies.
   Metals: As a result of its high arc temperature, high heat 
        transfer, and inertness helium makes it possible for 
        metallurgists to extract, smelt, and refine a variety of 
        advanced materials, such as niobium, tantalum, titanium, and 
        zirconium. In addition, welders use helium for welding 
        materials with greater heat conductivity, such as aluminum and 
        magnesium alloys.
   Aerospace: Helium plays a critical role in helping aerospace 
        companies as well as the U.S. Government launch satellites and 
        shuttles, As a result of its low solubility, low boiling point, 
        and inertness, helium is vital for purging and pressurizing the 
        liquid hydrogen fuel systems of rockets and spacecraft.
   Atmospheric Plasma: As a result of its inertness and high 
        thermal conductivity, helium is used in the formation of low 
        temperature atmospheric plasma. Plasma is used to modify 
        chemical groups on surfaces, add coatings to materials, and 
        clean surfaces for the aluminum, automotive, electronics, 
        packaging, steel, printing, and textile industries.
   Aerostat / Balloons: Helium provides the lift to items such 
        as simple party balloons as well as sophisticated aircraft and 
        aerostats carrying weather forecasting instruments, television 
        equipment and radar stations to communications relays.
   Diving: Commercial and research divers rely on gaseous 
        helium as a carrier gas for oxygen in synthetic breathing 
        mixtures.

    The demand for helium has increased sharply out of the recession 
driven primarily by the increased demand in electronics, fiber optic 
manufacturing, and MRIs. Annual helium demand is now expected to grow 
at rates of 3-percent to 5-percent per annum. Much of the demand growth 
has been in the developing economies, but fiber optic manufacturing in 
the U.S., which remains the second largest producer, has been strong. 
Additionally, much of the end-market demand for electronics remains in 
the U.S. This is a natural part of an economy beginning to recover and 
should be expected. It should also be noted that much of the helium 
exported is used by U.S.-based end market companies in their operations 
in the developing economies through joint-ventures or affiliated 
companies.
    There currently exists a helium supply-demand imbalance. This 
imbalance, however, is temporary and is not a result of the world 
running out of helium. It is rather a result of multiple outages and 
operating reductions across the helium supply chain due to a confluence 
of events. This ranges from an extended outage due to unplanned 
maintenance at one of the world's largest private helium facilities in 
the United States to a dispute over the feedstock price and refinery 
ownership at another plant in Russia which resulted in the elimination 
of shipments for almost a year. In addition, production at the BLM has 
become less robust as the amount of helium in storage declines and the 
natural pressure of the storage field decreases. New helium projects, 
in the United States and abroad, are coming online slower than 
anticipated since they are connected to larger natural gas projects 
which have been impacted by economic, geopolitical or environmental 
factors unrelated to the demand for helium.
    As stated above, it is important to understand that the world is 
not running out of helium. Significant resources exist around the world 
ensuring sufficient helium to meet anticipated demand for many years to 
come. To put it in perspective, the proven helium reserves known today 
are sufficient to meet today's helium production for over 100 years.
    To continue to satisfy growing demand, the helium industry will 
need to develop these known reserves so that helium is available when 
needed. This is, of course, an ongoing process and while the industry 
wishes it could occur sooner, new production is anticipated as early as 
later this year. For example, two industrial gas companies will bring a 
helium plant on line in Wyoming and a much larger helium plant will 
start up next year in Qatar. The plant in Qatar--Qatar II as it is 
commonly called in the industry--will be the largest unit of its kind 
in the world and will represent 20-percent of today's industry 
capacity. This additional capacity will go a long way to eliminating 
the current supply-demand imbalance. The operation of this plant is a 
partnership between RasGas and QatarGas, with out-take dedicated to Air 
Liquide, a French industrial gas company who will be entitled to 50% of 
the helium volumes produced by the new unit with the other 50% split 
between German and Japanese helium companies. Assuming the plant 
reaches full operation as planned, there will be excess capacity in the 
system. Since it is anticipated that helium produced at this location 
will be primarily used to serve the Asian and European markets, exports 
of domestic helium purchased from the BLM to international end users 
and distributors will likely be reduced.
    The U.S. remains the only country with storage capacity to allow 
for minimal disruptions should one of the large offshore plants have 
operational issues. This function of the BLM, the fly-wheel effect, has 
been of significant importance and must be sustained.

 III. THE FEDERAL GOVERNMENT HAS HISTORICALLY PLAYED AN IMPORTANT ROLE 

  in the helium market and will continue to do so during privatization
    The Federal Helium Program was created in 1925 in order to 
guarantee the availability of helium for the purpose of national 
defense, specifically aircraft buoyancy. As a result, the United States 
Government constructed a helium extraction and purification plant 
outside of Amarillo, Texas that began operations in 1929. As the demand 
for helium increased, Congress responded by passing amendments to the 
Helium Program and in 1960, incentives were created to encourage 
private natural gas producers to separate crude helium from natural gas 
and sell it to the government. The majority of the crude helium 
purchased by the government was injected into the Federal Helium 
Reserve.
    The 1960 amendments also required the government to set prices on 
the refined helium it sold for federal use directly or through the 602 
distributor program to enable it to cover the Helium Program's costs 
and repay its debts. Federal reserves at that time were not sold for 
private use.
    In 1973, the Federal government cancelled crude contracts with 
private extractors, thus ending the buildup of the reserve volumes. 
This action gave rise to the development of the private sector in 
purchasing, refining and marketing these crude volumes from private 
extractors. The BLM pipeline and storage system was available for a fee 
for private companies to store or inventory excess helium. This private 
storage was used by refiners to even the supply to their plants during 
times when extractor plants were not in operation.
    In the 1990s, the private demand for helium became significantly 
greater than government demand because of advances in research, 
technology and medicine. In 1996, Congress passed the Helium 
Privatization Act which directed the BLM to shutdown federal helium 
refining operations and dismantle the facility by 1999. It also called 
for the sale of crude helium reserves to begin in the year 2005 and to 
be concluded by December 31, 2014. The Act provided minimum selling 
prices, adjusted for inflation, for crude helium so that adequate 
revenue was generated to repay the government's investment in the 
Reserve and the construction costs of the related infrastructure.
    While the Privatization Act envisioned the reserves to be sold by 
2015, this has not yet occurred. Rather, reserves continue to exist 
such that the BLM can continue to sell helium for several more years.

  IV. DOMESTIC REFINERS, DISTRIBUTORS & END USERS HAVE ACCESS TO THE 
   NATIONAL HELIUM RESERVE THROUGH A VARIETY OF MECHANISMS INCLUDING 
         ALLOCATED AND NON-ALLOCATED SALES & TOLLING AGREEMENTS

    The BLM operates as a natural gas producer at the Cliffside 
Reservoir, outside of Amarillo Texas, and produces 2 billion 
ft3/year of crude helium, which currently accounts for 
approximately 30-percent of the global supply. The BLM system consists 
of: the Bush Dome, an underground storage reservoir; a helium 
enrichment plant, which is a joint-venture between Air Products, Inc., 
El Paso, Linde Industrial Gases US, and Praxair, Inc.; and 420 miles of 
pipeline delivering helium to crude helium extraction plants and liquid 
helium refining plants in Texas, Oklahoma, and Kansas. Each of these 
companies made significant capital investment along the pipeline system 
as well as private extractors to develop the nation's helium 
capabilities.
    Pursuant to the Helium Privatization Act, the BLM annually offers 
for sale a portion of the crude helium stored at the Reserve. The 
annual sales are managed in a manner intended to prevent helium market 
disruptions from occurring to end users; shortages of crude helium to 
refiners; and an oversupply of crude helium on the market for crude 
helium extractors. Each year, the BLM publishes an Invitation for Offer 
(IFO) which details the volume of helium available and the sale price.
    The IFO also identifies the parties who are qualified to submit a 
purchase request for the crude helium. These include entities who: (1) 
operate helium purification plants within the U.S.; (2) operate crude 
helium extraction plants within the U.S.; (3) are wholesalers of pure 
helium; (4) purchase helium for resale within the U.S.; (5) are 
consumers of pure helium for resale within the U.S.; or (6) have a 
``tolling agreements'' with a helium refiner.
    The sales are conducted in two phases----Allocated Sales and Non-
Allocated Sales. An Allocated Sale is that portion of the annual sale 
volume that is set aside for purchase by the crude helium refiners--
entities with capabilities of refining crude helium, have connection 
points on the crude helium pipeline, and valid Helium Storage Contracts 
as of the date of the sale. The most recent IFO (October 2011-September 
2012) provided that the helium available for the Allocated Sale phase 
would be 94-percent of the total volume sold. A Non-Allocated Sale is 
that portion of the annual sale volume that is offered to all remaining 
qualified buyers. Any portion of the sales volume not nominated in the 
Allocated Sales are offered as additional Non-Allocated Sales.
    The Secretary is tasked with offering for sale at such time and 
quantities to meet the requirements of the 1996 Act with minimal market 
disruption. Crude helium sold during the allocated portion of the sale 
is intended for current consumption. By prioritizing volume to crude 
helium refiners, it ensures that refined product will be delivered to 
the retail market in real time. If this was not the case, there would 
be nothing to prevent a non-refiner from purchasing a large portion of 
the reserves and then holding the crude helium to manipulate the market 
price by creating shortages.
    As a result of the refiners' respective capital investment 
decisions to construct helium refining plants connected to BLM 
operations as well as purchasing crude from private extractors, they 
are able to purchase crude helium in the Allocated Sale phase. This 
crude helium is refined and sold into the retail market through sales 
to distributors as well as sales directly to end users. It is important 
to note that the refiners on the BLM system have refining capacity 
roughly double what can be supplied through the government's annual 
sale. Accordingly, the refiners have and currently do enter into 
``tolling agreements'' with qualified buyers who do not have refining 
capability. Under these privately negotiated tolling agreements, 
refiners agree to refine the crude helium owned by others. As Federal 
users of helium have first call on pipeline capacity, there is an 
incentive for refiners to enter into tolling agreements with Federal 
In-Kind suppliers allowing for non-refiners to equally participate in 
providing helium to Federal agencies and programs. The only regulatory 
restriction is that they hold a valid In-Kind sales contract with the 
BLM. Companies holding such contracts are listed on the BLM website as 
Authorized Federal Helium Suppliers and include non-refiners as well as 
distributors.
    Records of crude sales, which are publicly available, show that 
some private non-refining companies have not taken full advantage of 
the access and opportunity to purchase from the Federal Reserve. To be 
clear, tolling agreements with non-refining companies are in place and 
have been for much of the last decade. Praxair has such agreements in 
place while others may not. Further, some companies have established 
informal tolling arrangements, creating a backup system to ensure that 
customers receive the helium supply they rely upon. Finally, Praxair 
has the capacity to meet existing tolling agreements.
    It is also evident from public records of private inventories that 
non-refiners may have taken advantage of these tolling arrangements 
with one or more refiners on the system to toll this crude into refined 
product for market. Such arrangements provide these non-refiners with 
access to helium refining capacity through commercial means.

     V. WHILE THE HELIUM MARKET FUNCTIONS LIKE ANY GLOBALLY TRADED 
 COMMODITY, ITS PRICE IS STRONGLY INFLUENCED BY THE FEDERAL GOVERNMENT

    The price of crude helium produced by the Federal Helium Reserve is 
not established by traditional market conditions, but rather by the 
terms of the Helium Privatization Act. Since federally produced etude 
helium represents such a significant proportion of the global helium 
supply, the pricing of federal crude helium strongly influences the 
price for crude helium worldwide. In addition, many private sales 
contracts for helium tie future sales prices to the price of federally 
produced crude helium.
    Consumers and customers have raised concerns about price increases 
since the 2008-2009 global economic downturn prompting calls for 
increased production and supply and limits on trade. As discussed 
above, the US government plays the most significant role in setting 
price and additional supplies coming online in both the United States 
and abroad will have a stabilizing impact on price and supply. 
Artificial government interventions, like limiting trade or driving 
down base pricing present unworkable policy choices.

   VI. PROPER ADMINISTRATION OF THE NATIONAL HELIUM RESERVE REQUIRES 
         CONGRESS TO ACT NOW TO PASS THE HELIUM STEWARDSHIP ACT

    Failure to extend BLM operations and provide a funding mechanism to 
support continued operations and necessary infrastructure improvements 
will result in a greater than 30-percent reduction in global helium 
supply overnight including private crude which moves within the system. 
Inaction and/or mismanagement of the Helium Program will result in 
significant supply-chain disruptions that will adversely affect our 
quality of life. For this reason, Praxair strongly supports the Helium 
Stewardship Act as drafted and respectfully requests that the Act be 
promptly and favorably reported out of Committee.

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