[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
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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
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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.
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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\
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\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.
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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.
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\3\ 2000 Report, page 9.
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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.
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\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.
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\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
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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.
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\1\ This and other MRI use statistics are derived from the
Organization for Economic Cooperation and Development (OECD) Health
Data 2011
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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
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Appendix I
Responses to Additional Questions
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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.*
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* Attachments have been retained in committee files.
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______
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 (-452F or -
269C) 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.