    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

     PAST, PRESENT AND FUTURE OF THE FEDERAL HELIUM PROGRAM; & H.R. 527,
             RESPONSIBLE HELIUM ADMINISTRATION AND STEWARDSHIP ACT

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

                                 OVERSIGHT AND

                              LEGISLATIVE HEARING

                                   before the

                         COMMITTEE ON NATURAL RESOURCES
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                          Thursday, February 14, 2013

                                   __________

                                Serial No. 113-1

                                   __________

           Printed for the use of the Committee on Natural Resources

             Available via the World Wide Web: http://www.fdsys.gov
                                       or
              Committee address: http://naturalresources.house.gov

                                   ----------
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                         COMMITTEE ON NATURAL RESOURCES

                           DOC HASTINGS, WA, Chairman
                EDWARD J. MARKEY, MA, Ranking Democratic Member

    Don Young, AK                        Peter A. DeFazio, OR
    Louie Gohmert, TX                    Eni F. H. Faleomavaega, AS
    Rob Bishop, UT                       Frank Pallone, Jr., NJ
    Doug Lamborn, CO                     Grace F. Napolitano, CA
    Robert J. Wittman, VA                Rush Holt, NJ
    Paul C. Broun, GA                    Raul M. Grijalva, AZ
    John Fleming, LA                     Madeleine Z. Bordallo, GU
    Tom McClintock, CA                   Jim Costa, CA
    Glenn Thompson, PA                   Gregorio Kilili Camacho Sablan,
    Cynthia M. Lummis, WY                    CNMI
    Dan Benishek, MI                     Niki Tsongas, MA
    Jeff Duncan, SC                      Pedro R. Pierluisi, PR
    Scott R. Tipton, CO                  Colleen W. Hanabusa, HI
    Paul A. Gosar, AZ                    Tony Cardenas, CA
    Raul R. Labrador, ID                 Steven A. Horsford, NV
    Steve Southerland, II, FL            Jared Huffman, CA
    Bill Flores, TX                      Raul Ruiz, CA
    Jon Runyan, NJ                       Carol Shea-Porter, NH
    Mark E. Amodei, NV                   Alan S. Lowenthal, CA
    Markwayne Mullin, OK                 Joe Garcia, FL
    Chris Stewart, UT                    Matt Cartwright, PA
    Steve Daines, MT
    Kevin Cramer, ND
    Doug LaMalfa, CA
    Vacancy

                           Todd Young, Chief of Staff
                    Lisa Pittman, Chief Legislative Counsel
                   Jeffrey Duncan, Democratic Staff Director
                    David Watkins, Democratic Chief Counsel

                                    ---------

                                     CONTENTS

                                    ----------
                                                                       Page

    Hearing held on Thursday, February 14, 2013......................     1

    Statement of Members:
        Hastings, Hon. Doc, a Representative in Congress from the
          State of Washington........................................     1
            Prepared statement of....................................     3
        Markey, Hon. Edward J., a Representative in Congress from the
          Commonwealth of Massachusetts..............................     4
            Prepared statement of....................................     5
        Ruiz, Hon. Raul, a Representative in Congress from the State
          of California, Prepared statement of.......................   129

    Statement of Witnesses:
        Aronson, Dr. Samuel, Vice President, APS Physics.............    61
            Prepared statement of....................................    63
        Boersen, Brad, Director, Business Strategy, Optical Fiber and
          Cable, Corning Incorporated................................    46
            Prepared statement of....................................    47
            Response to questions submitted for the record...........    50
        Elmore, Kimberly, Assistant Inspector General for Audits,
          Inspections, and Evaluations, Office of Inspector General,
          U.S. Department of the Interior............................    25
            Prepared statement of....................................    27
            Response to questions submitted for the record...........    28
        Garcia-Diaz, Daniel, Director, National Resources and
          Environment, U.S. Government Accountability Office.........    13
            Prepared statement of....................................    15
            Response to questions submitted for the record...........    24
        Haines, Nicholas, Head of Helium Source Development, Linde
          Global Helium..............................................   103
            Prepared statement of....................................   104
            Response to questions submitted for the record...........   106
        Joyner, David, President, Air Liquide Helium America, Inc....    74
            Prepared statement of....................................    76
        Kaltrider, Scott, Vice President, Business Management and
          Helium, Praxair, Inc.......................................   108
            Prepared statement of....................................   110
            Response to questions submitted for the record...........   113
        Lynch, Kevin, Senior Vice President, Specialty Gases &
          Helium, Matheson Tri-Gas, Inc..............................    83
            Prepared statement of....................................    85
            Response to questions submitted for the record...........    88
        Morgan, Rodney, Vice President of Procurement, Micron
          Technology.................................................    42
            Prepared statement of....................................    43
            Response to questions submitted for the record...........    45
        Nelson, Walter L., Director, Sourcing & Supply Chain, Air
          Products and Chemicals, Inc., Allentown, Pennsylvania......    90
            Prepared statement of....................................    92
            Response to questions submitted for the record...........   100
        Page, Gary W., President, Helium & Balloons Across America...    51
            Prepared statement of....................................    53
            Response to questions submitted for the record...........    59
    ?

                                                                       Page
    Statement of Witnesses--Continued
        Spisak, Timothy R., Deputy Assistant Director, Minerals and
          Realty Management, Bureau of Land Management, U.S.
          Department of the Interior.................................     7
            Prepared statement of....................................     8
            Response to questions submitted for the record...........    11
        Thoman, Tom, Division President, Gases Production, Airgas,
          Inc........................................................    79
            Prepared statement of....................................    81
            Response to questions submitted for the record...........    82

    Additional materials supplied:
        Gases and Welding Distributors Association (``GAWDA''),
          Statement submitted for the record.........................   127
        List of documents retained in the Committee's official files.   129

                                      (IV)

    OLVERSIGHT HEARING ON ``THE PAST, PRESENT AND FUTURE OF THE
            FEDERAL HELIUM PROGRAM''; AND LEGISLATIVE HEARING ON
            H.R. 527, TO COMPLETE THE PRIVATIZATION OF THE FEDERAL
            HELIUM RESERVE IN A COMPETITIVE MARKET FASHION THAT
            ENSURES STABILITY IN THE HELIUM MARKETS WHILE
            PROTECTING THE INTERESTS OF THE AMERICAN TAXPAYER, AND
            FOR OTHER PURPOSES. ``RESPONSIBLE HELIUM ADMINISTRATION
            AND STEWARDSHIP ACT''
                                  ----------

                          Thursday, February 14, 2013

                         U.S. House of Representatives

                         Committee on Natural Resources

                                Washington, D.C.

                                  ----------

        The Committee met, pursuant to notice, at 10:02 a.m., in
    Room 1324, Longworth House Office Building, Hon. Doc Hastings
    [Chairman of the Committee] presiding.
        Present: Representatives Hastings, Lamborn, Wittman,
    Thompson, Lummis, Tipton, Labrador, Amodei, Mullin, Daines,
    Cramer, LaMalfa; Markey, DeFazio, Holt, Costa, Hanabusa,
    Cardenas, Horsford, Huffman, Ruiz, Lowenthal, Garcia, and
    Cartwright.
        The Chairman. The Committee will come to order, and the
    Chair notes the presence of a quorum, which, under Committee
    Rule 3(e), is 2 Members.
        The Natural Resources Committee is meeting today to hear
    testimony on the past, present, and future of the Federal
    helium program: H.R. 527, ``The Responsible Helium
    Administration and Stewardship Act''. That is what the topic of
    our hearing is today.
        Under Committee Rule 4(f), opening statements are limited
    to the Chairman and the Ranking Member. However, I ask
    unanimous consent that any Member that wishes to have a
    statement in the record have it by the close of business today.
        [No response.]
        The Chairman. And without objection, so ordered.
        I now recognize myself for 5 minutes for an opening
    statement.

        STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF WASHINGTON

        The Chairman. This Valentine's Day, many homes, restaurants
    and stores are decorated with pink and red heart-shaped
    balloons filled with helium. Now, this may be one of the best-
    known uses of this ``higher-than-air'' gas. The reality is that
    helium plays a large role in our daily lives and in our 21st
    century economy. Life-saving MRI machines, high-tech
    manufacturing, and national defense operations are all
    dependent on helium.
        Unfortunately, unless Congress takes swift action, America
    will float off the helium cliff--pun intended--which will
    adversely affect American jobs and our economy. Stopping this
    disaster while simultaneously implementing reforms is the goal
    of today's hearing.
        Since 1996, when Congress passed legislation to privatize
    the Federal helium program, we have been selling the helium in
    the reserve. Unfortunately, over the past half-decade, we have
    been doing so at severely less-than-market prices. This action
    hurts future resource development, it hurts conservation, and
    it hurts investment in research in alternatives, because of the
    depressed price.
        Since the original decision to close the reserve, both the
    use and demand for helium has changed. This has created a
    situation where the reserve's debt, which was a goal of the
    1996 Act, will be paid off sooner than expected, and that is
    expected to be in October of this year, and that will happen
    without having sold off all the helium in the reserve. By law,
    that 1996 law, the reserve will no longer have the authority to
    sell off its remaining helium, which will result in an
    immediate worldwide shortage because currently that reserve
    supplies about 30 percent of the world's helium supply.
        So, I am pleased that, by bipartisan negotiation and a
    focus on market principles, Ranking Member Markey and I have
    developed a bipartisan plan, The Responsible Helium
    Administration and Stewardship Act, which is H.R. 527, to
    address the issues causing this helium crisis.
        First, it recognizes the pivotal role that helium plays in
    our 21st century high-tech economy, and will prevent a helium
    shortage by keeping reserves open until nearly all of the
    helium supply is sold.
        Second, and equally important, the bill will build upon
    reforms made in 1996 and inject free-market principles to get a
    fair return for the American taxpayers. Updates to the program
    must be made to more accurately reflect today's uses and
    demands for helium. New demands for helium have caused the
    market price to rise much higher than the Federal Government's
    pricing formula, and much faster than BLM's ability to track
    market prices.
        Today we will hear updates from the Department of the
    Interior Inspector General and the Government Accounting
    Office, highlighting concerns that the low Federal price means
    that taxpayers aren't getting the best return for this
    resource.
        In addition, current operations by BLM have restricted
    sales to only a few companies through an allotment system that
    appears to be an essential monopoly for Federal helium. The
    cheap price of Federal helium creates disincentives for helium
    users to invest in conservation and in recycling, and it gives
    unfair market advantage to the handful of companies that are
    allowed to purchase the helium. And it can depress exploration
    for new sources of helium.
        So, H.R. 527 will implement a new operating system over the
    next decade that includes semi-annual helium auctions. These
    auctions will inject much-needed competition into the program
    and ensure that taxpayers are getting a fair return. The bill
    also includes important reforms to increase transparency and to
    prevent supply disruptions.
        There are many who believe that the Federal Government
    shouldn't be in the helium business, and I would agree. But we
    are, and we have been since the mid-1920s. So, this bill is
    necessary to protect our economy from severe disruptions
    because helium is so essential to suddenly shut off the valve
    at the reserve. This bill recognizes that reality and builds
    into place critical reforms to sell off the helium in a much
    more responsible manner. This will prevent a potentially
    economically crippling shortage, and will ensure a better deal
    for taxpayers, and it will provide additional time for new
    development of alternative domestic helium resources so our
    country and our economy is prepared when the reserve does
    close.
        So, I look forward to hearing from our three panels of
    witnesses today. And, with that, I will recognize the
    distinguished Ranking Member for his opening remarks.
        [The prepared statement of Mr. Hastings follows:]

              Statement of The Honorable Doc Hastings, Chairman,
                         Committee on Natural Resources

        This Valentine's Day, many homes, restaurants and stores are
    decorated with pink and red heart-shaped balloons filled with helium.
    While this may be one of the best-known uses of this lighter than air
    gas, the reality is that helium plays a large role in our daily lives
    and 21st century economy. Life-saving MRI machines, high-tech
    manufacturing and national defense operations are all dependent on
    helium.
        Unfortunately, unless Congress takes swift action, America will
    float off a helium cliff--which will adversely affect American jobs and
    our economy. Stopping this disaster, while simultaneously implementing
    reforms, is the goal of today's hearing.
        Since 1996, when Congress passed legislation to privatize the
    Federal Helium Program, we have been selling the helium in the Reserve.
    Unfortunately, over the last half decade, we have been doing so at
    severely less than market prices. This action hurts future resource
    development, conservation, and investment in research for alternatives.
        Since the original decision to close the Reserve, both the use and
    demand for helium has changed. This has created a situation where the
    Reserve's debt, which was the goal of the 1996 Act, will be paid off
    sooner than expected (final payment is predicted to be October of this
    year), without having sold off all the helium in the Reserve. By law,
    the Reserve will no longer have the authority to sell off its remaining
    helium, resulting in an immediate world-wide shortage. Currently, the
    Reserve supplies 30 percent of the world's helium supply.
        I'm pleased that through bipartisan negotiation and a focus on
    market principles, Ranking Member Markey and I have developed a
    bipartisan plan, the Responsible Helium Administration and Stewardship
    Act (H.R. 527), to address the issues causing this helium crisis.
        First, it recognizes the pivotal role that helium plays in our 21st
    century, high-tech economy and will prevent a helium shortage by
    keeping the Reserve open until nearly all the helium supply is sold.
        Second, and equally as important, the bill will build upon the
    reforms made in 1996 and inject free-market principals to get a fairer
    return for American taxpayers.
        Updates to the program must be made to more accurately reflect
    today's uses and demands for helium. New demands for helium have caused
    the market price to rise much higher than the federal government's
    pricing formula and much faster than BLM's ability to track market
    prices. Today we will hear updates from the Department of the Interior
    Inspector General and the Government Accountability Office highlighting
    concerns that the low federal price means that taxpayers aren't getting
    the best return for this resource. In addition, current operations by
    BLM have restricted sales to only a few companies through an allotment
    system that appears to be an essential monopoly for federal helium.
        The cheap price of federal helium creates disincentives for helium
    users to invest in conservation and recycling, it gives unfair market
    advantage to the handful of companies that are allowed to purchase
    helium, and it can depress exploration for new sources of helium.
        H.R. 527 will implement a new operating system over the next decade
    that includes semiannual helium auctions. These auctions will inject
    much needed competition into the program and ensure that taxpayers are
    getting a fairer return.
        The bill also includes important reforms to increase transparency
    and prevent supply disruptions.
        There are many who believe that the federal government shouldn't be
    in the helium business, and I would agree. But we are and have been
    since the mid-1990s. So this bill is necessary to protect our economy
    from severe disruptions because helium is too essential to suddenly
    shut off the valve at the Reserve. This bill recognizes that reality
    and builds into place critical reforms to sell off the helium in a more
    responsible manner. This will prevent a potentially economically
    crippling shortage, it will ensure a better deal for taxpayers, and it
    will provide additional time for new development of alternative
    domestic helium resources so our country and economy is prepared when
    the Reserve does close.
        I look forward to hearing from our witnesses about this legislation
    and the need to update and reform the Federal Helium Program.
                                     ______

      STATEMENT OF THE HON. EDWARD J. MARKEY, A REPRESENTATIVE IN
            CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS

        Mr. Markey. Thank you, Mr. Chairman. Helium is not just
    used to fill balloons. It is critical in MRI machines, NASA
    rockets, high-tech manufacturing, and various types of
    research. For many applications, there are simply no
    replacements for helium right now. So the looming national
    crisis for this important gas must not be taken lightly.
        Our Nation's Federal helium reserve supplies nearly half of
    the helium used in the United States, and roughly a third of
    all the helium used globally. And right now there is a growing
    supply shortage. Some helium customers are already having their
    supply contracts canceled or reduced.
        We are now facing two deadlines that could lead to even
    more severe helium supply shortages and price spikes. The first
    will occur later this year, when the Bureau of Land Management,
    which manages the reserve, will finish repaying the Treasury
    for the debt accrued while purchasing this helium stockpile. At
    that point, unless Congress acts, the BLM will no longer have
    the authority to continue operating the reserve and supplying
    this critical source of helium for the United States and for
    the world.
        The second crisis is not as immediate, but potentially more
    severe. At current withdrawal rates, we have only five to seven
    years before the helium in the BLM reserve is largely gone.
    Reviews by the National Academies of Science, the Government
    Accountability Office, and the Interior Department Office of
    Inspector General have all concluded that we are likely
    currently selling our Nation's helium below market price.
        Because the BLM supply comprises such an enormous
    percentage of the global supply, the price set by BLM controls
    the prices paid for helium globally. Artificially low prices
    for BLM helium, therefore, mean less incentive for private
    markets to make investments in new helium supplies, or to
    invest in conservation efficiency or alternatives. And it means
    taxpayers are getting shortchanged.
        We must establish a helium pricing mechanism that sends a
    clear signal to private markets that alternative helium
    supplies are needed before we exhaust the BLM reserves. If we
    continue to float along under business as usual, we risk
    finding ourselves facing even worse supply disruptions or price
    spikes in a few years, when the BLM stockpile is depleted.
        That is why I have partnered with Chairman Hastings and
    Energy and Minerals Subcommittee Ranking Member Rush Holt and
    Representative Bill Flores to introduce bipartisan legislation
    that seeks to address these impending crises. That legislation,
    H.R. 527, will extend the life of the reserve past the end of
    this fiscal year, ensure a fair return to taxpayers on this
    Federally owned helium resource, and widen participation and
    transparency in the helium market.
        These principles are consistent with the recommendations
    made by the National Academies in 2010 to improve the program.
    Whether it is spectrum auctions or helium auctions, open and
    competitive markets are the best way to ensure stability and
    proper return for taxpayers. Helium comes from the Greek word
    ``helios,'' which means sun. And it is time that we shine some
    sunlight on the helium market by creating transparency and
    openness.
        The stakes from this impending national helium crisis for
    America's high-tech economy are very high. A competitive helium
    market can be the stable bridge that shifts America's helium
    reliance from the BLM reserve to private sources. We need to
    create that glide path. But if we fail to act, and float off
    this helium cliff, we may be forced to rely on insecure and
    irregular helium supplies from foreign countries, such as
    Russia, Algeria, or Qatar, and pay dramatically higher prices
    to meet American scientific and industrial needs. We should not
    let that happen.
        This is an issue that should rise above partisanship. And,
    Mr. Chairman, I want to praise you for your leadership on this
    issue. This is something that really is central to our national
    security. And I am looking forward, as all our members are, on
    working on a bipartisan basis to find a solution.
        [The prepared statement of Mr. Markey follows:]

         Statement of The Honorable Edward J. Markey, Ranking Member,
                         Committee on Natural Resources

        Thank you Mr. Chairman.
        Helium is not just used to fill balloons. It is critical in MRI
    machines, NASA rockets, high-tech manufacturing and various types of
    research. For many applications, there are simply no replacements for
    helium right now.
        So the looming national crisis for this important gas must not be
    taken lightly.
        Our nation's Federal Helium Reserve supplies nearly HALF of the
    helium used in the United States and roughly a THIRD of all the helium
    used globally. And right now, there is a growing supply shortage. Some
    helium customers are already having their supply contracts canceled or
    reduced.
        We are now facing two deadlines that could lead to even more severe
    helium supply shortages and price spikes. The first will occur later
    this year when the Bureau of Land Management, which manages the
    Reserve, will finish repaying the Treasury for the debt accrued while
    purchasing this helium stockpile. At that point, unless Congress acts,
    the BLM will no longer have the authority to continue operating the
    Reserve and supplying this critical source of helium for the United
    States and the world.
        The second crisis is not as immediate but potentially more severe.
    At current withdrawal rates, we have only five to seven years before
    the helium in the BLM Reserve is largely gone. Reviews by the National
    Academies of Science, the Government Accountability Office and the
    Interior Department Office of Inspector General have all concluded that
    we are likely currently selling our nation's helium below market price.
        Because the BLM supply comprises such an enormous percentage of the
    global supply, the price set by BLM controls the prices paid for helium
    globally. Artificially low prices for BLM helium therefore mean less
    incentive to private markets to make investments in new helium supplies
    or to invest in conservation, efficiency or alternatives. And it means
    taxpayers are getting short changed.
        We must establish a helium pricing mechanism that sends a clear
    signal to private markets that alternative helium supplies are needed
    before we exhaust the BLM Reserve. If we continue to float along under
    business as usual, we risk finding ourselves facing even worse supply
    disruptions or price spikes in a few years when the BLM stockpile is
    depleted.
        That is why I have partnered with Chairman Hastings, Energy and
    Minerals Subcommittee Ranking Member Rush Holt and Rep. Bill Flores to
    introduce bipartisan legislation that seeks to address these impending
    crises. That legislation, H.R. 527, will extend the life of the reserve
    past the end of this fiscal year, ensure a fair return to taxpayers on
    this federally-owned helium resource, and widen participation and
    transparency in the helium market.
        These principles are consistent with the recommendations made by
    the National Academies in 2010 to improve the program. Whether it is
    spectrum auctions or helium auctions, open and competitive markets are
    the best way to ensure stability and a proper return for taxpayers.
        Helium, comes from the Greek word Helios, which means sun. And it
    is time that we shine some sunlight on the helium market by creating
    transparency and openness.
        The stakes from this impending national helium crisis for America's
    high-tech economy are high. A competitive helium market can be the
    stable bridge that shifts American helium reliance from the BLM Reserve
    to private sources. We need to create that glide path.
        But if we fail to act and float off this ``helium cliff,'' we may
    be forced to rely on insecure and irregular helium supplies from
    foreign countries such as Russia, Algeria, and Qatar and pay
    dramatically higher prices to meet American scientific and industrial
    needs. We should not let that happen.
        This is an issue that should rise above partisanship, and I look
    forward to continue to working with you, Mr. Chairman, and Members on
    both sides of the aisle to move this legislation forward swiftly.
                                     ______

        The Chairman. I thank the gentleman for his statement, and
    I thank the gentleman for the compliment. This is something
    that was brought to our attention and I particularly want to
    thank the staff as they work together to develop this
    legislation.
        We have three panels today, and our first panel is seated.
    And let me introduce them.
        We have Mr. Tim Spisak, who is the Deputy Assistant
    Director of Minerals and Realty Management of the Bureau of
    Land Management within the Department of the Interior. Welcome.
        We have Daniel Garcia-Diaz, National Resources and
    Environment of the U.S. Government Accountability Office.
    Welcome.
        And last, but not least, we have Kimberly Elmore, the
    Assistant Inspector General for Audits, Inspections, and
    Evaluations, with the U.S. Department of the Interior.
        If you have not been a witness here before, let me explain
    the timing lights here. You have 5 minutes. First of all, your
    full statement will appear in the record. And we would ask you
    to summarize and keep your remarks within 5 minutes.
        The green light means that you are doing extremely well in
    your remarks.
        [Laughter.]
        The Chairman. And when the yellow light comes on it means
    that you are down to one minute. And you don't want the red
    light to come on, it just simply means that your time is up.
    But if you can keep your remarks within that 5 minutes, that
    would be very, very helpful, because we do have a long day.
        So, with that, Mr. Spisak, we will start with you. And you
    are recognized for 5 minutes.

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

        Mr. Spisak. Mr. Chairman, members of the Committee, thank
    you for the opportunity to testify on a Federal helium program
    and H.R. 527, ``The Responsible Helium Administration and
    Stewardship Act''. The 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 Academy of Sciences report
    published in early 2010, the market for helium has proven more
    volatile than expected over the last 15 years, and the
    requirement under the Privatization Act that the BLM offer to
    sell nearly all of the reserve by 2015 could negatively impact
    the availability of this important resource.
        The Department of the Interior supports the goals of H.R.
    527, and welcomes the opportunity to improve the management of
    this valuable resource.
        Helium is a critical, non-renewable natural resource. The
    most common and economical way of capturing helium is by
    recovering it during natural gas processing. The BLM plays a
    key role in the management and stewardship of the only
    significant long-term storage facility for accrued helium in
    the world, known as the Federal Helium Reserve, which is
    located near Amarillo, Texas.
        In 1929, the U.S. Bureau of Mines built the Amarillo helium
    plant and Cliffside gas field facility to produce a helium-
    bearing natural gas from a naturally occurred geologic field
    known as the Bush Dome Reservoir.
        In 1960, the Congress granted the Bureau of Mines the
    authority to borrow funds from the U.S. Treasury to purchase
    and store 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, the Congress passed the Helium Privatization Act,
    which required the BLM to offer for sale the vast majority of
    the stockpile of crude helium.
        Today the BLM operates the Federal helium program with the
    primary goals of paying off the helium debt, which the agency
    anticipates doing at the beginning of Fiscal Year 2014, and
    providing the resource to meet public and private needs. While
    sales of the crude helium to private helium refineries make the
    most significant contributions toward paying off the helium
    debt, the BLM also manages the in-kind program, which supplies
    helium to Federal agencies and grant holders for operations and
    research through what are known as authorized Federal helium
    suppliers.
        In 2000, the National Academy of Science published its
    first analysis of the impacts of the 1996 Act. Its general
    finding 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. The follow-up
    report concluded that the 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 Congress.
        H.R. 527 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 reserve, establishing a glide path from the
    sales mandated under the Privatization Act. The Department
    generally supports this approach to gradually scale back the
    Federal helium program.
        More specifically, H.R. 527 stipulates 3 phases to the
    drawdown: the finalizing debt payoff; maximizing total recovery
    of helium and increasing returns to the American taxpayer; and,
    finally, the access for Federal users. It also requires that
    the sales of crude helium be conducted at auction and that the
    BLM disclose certain information related to the helium market
    and supply chain.
        The Department looks forward to discussing these issues
    further with the sponsors and the Committee, and we would also
    like to work with the Committee on some technical modifications
    to the bill.
        H.R. 527 would require the Secretary of the Interior to
    complete several reports and studies on helium, some in
    coordination with the Secretary of the Interior.
        Thank you for the opportunity to present testimony on the
    Federal helium program and H.R. 527. The BLM welcomes further
    discussion about the Federal helium program and BLM's role in
    meeting future needs for the country. I would be happy to
    answer any questions the Committee may have.
        [The prepared statement of Mr. Spisak follows:]

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

        Mr. Chairman and members of the Committee, thank you for the
    opportunity to testify on the Federal helium program and H.R. 527, the
    Responsible Helium Administration and Stewardship Act, which would make
    various changes to the Helium Privatization Act of 1996, including
    establishing a phased approach to drawing down the Federal Helium
    Reserve. Because the bill was introduced just one week ago, the
    Department of the Interior has not had time to conduct an in-depth
    analysis, but we appreciate the opportunity to outline our general
    views at this time. As indicated by a National Academy of Sciences
    (NAS) report published in early 2010, the market for helium has proven
    more volatile than expected over the last 15 years and the current
    law's requirement that the Bureau of Land Management (BLM) offer for
    sale nearly all of the 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 goals of H.R. 527 and welcomes the opportunity to improve
    the management of this valuable commodity.
    Background
        Helium is a critical, non-renewable natural resource that plays an
    important role in medical imaging, space exploration, military
    reconnaissance, fiber optics manufacturing, welding and commercial
    diving. According to the NAS, helium's best known property, being
    lighter than air, means ``that every unit of helium that is produced
    and used today will eventually escape the Earth's atmosphere and become
    one less unit available for use tomorrow.''
        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 (Reserve), which supplies
    approximately 42 percent of domestic demand and approximately 35
    percent of global demand for crude helium.
    The Federal Helium Program
        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 toward
    applications related to 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 executing contracts with private natural gas producers to
    purchase extracted crude helium for the Federal government to store 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 BLM's predecessor agency in this area, 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 no later than 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 approximately $1.33 billion to the U.S. Treasury since 1995.
    This constitutes substantial progress toward eliminating the helium
    debt, which the HPA froze at approximately $1.37 billion. During FY
    2012, $180 million was paid toward the helium debt from Reserve sales,
    resulting in an outstanding balance of approximately $44 million at the
    end of the fiscal year.
        According to the HPA, once the helium debt is retired, the Helium
    Production 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 expects to
    generate enough revenue during this fiscal quarter through currently
    authorized helium sales to pay off the debt at the beginning of FY
    2014.
        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 the BLM's helium program is the ``In-Kind''
    program, which supplies helium to Federal agencies (e.g., the
    Department of Energy and the National Aeronautics and Space
    Administration) 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 Reserve. In FY 2012, Federal agencies
    purchased $10.3 million of helium through the In-Kind program.
    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 did not hold. 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 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 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 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 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.
    H.R. 527, Responsible Helium Administration and Stewardship Act
        H.R. 527 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 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 generally supports this approach
    to gradually scale back the Federal helium program.
        The bill stipulates three phases to the drawdown: ``Phase A:
    Finalizing Debt Payoff;'' ``Phase B: Maximizing Total Recovery of
    Helium and Increasing Returns to the American Taxpayer;'' and ``Phase
    C: Access for Federal Users.'' Phase A would begin on the bill's date
    of enactment and end 1 year after the date of enactment. During Phase
    A, the BLM would be required to offer for sale at least as much helium
    as was offered for sale during FY 2012. Phase B would begin immediately
    after Phase A and end when the volume of recoverable crude helium in
    the Reserve reaches 3 billion scf. During Phase B, the BLM would
    balance factors involving the amount of production capable from the
    Reserve, program management, market supply and demand, and demand of
    Federal users when determining the annual quantity of crude helium to
    offer for sale. Phase C would begin when the volume of recoverable
    crude helium in the Reserve reaches 3 billion scf and presumably last
    until all recoverable helium has been exhausted from the Reserve.
    During Phase C, the BLM would be authorized to sell crude helium only
    for use by Federal agencies and Federal grant holders. The Department
    would also like to work with the committee on technical modifications
    to this section of the bill.
        Other significant aspects of H.R. 527 involve requirements that
    sales of crude helium be conducted at auction and that the BLM disclose
    certain information related to the helium market and supply chain. The
    Department and the BLM are committed to ensuring that the public
    receives a fair return on publicly owned energy and related resources.
    The Department and the BLM are also firmly committed to making
    information about how government operates more accessible, and consider
    transparency and open government a high priority. The Department looks
    forward to discussing these issues further with the sponsors and the
    Committee, and the Administration continues to evaluate any cost
    implications of this legislation.
        Finally, the bill also would require the Secretary of the Interior
    to complete several reports and studies on helium. These include global
    and national helium gas resource assessments, and, in coordination with
    the Secretary of Energy, national forecasts and global trends of helium
    demand and an inventory of helium uses in the United States. In
    addition, the bill would direct the Secretary of the Interior and the
    Secretary of Energy to cooperate on any assessments and research
    relating to the extraction and refining of the isotope helium-3, and
    direct the Secretary of the Interior to assess the feasibility of
    establishing a facility to separate the isotope helium-3.
    Conclusion
        Thank you for the opportunity to present testimony on the Federal
    helium program and H.R. 527. The BLM welcomes further discussion about
    the Federal helium program and the BLM's role in meeting future helium
    needs for the country, especially for Federal agencies that depend on
    helium for scientific research, aerospace projects, and defense
    purposes. Since its formal discovery almost 120 years ago, helium has
    proven to be an increasingly important natural resource. The expansion
    of helium-related technology and declining domestic reserves means the
    importance of helium as a strategic resource is likely to increase. The
    BLM continues to serve the country by effectively managing the Reserve,
    and working with natural gas producers to efficiently extract helium
    from natural gas. I would be happy to answer any questions the
    Committee may have.
                                     ______

     Response to questions submitted for the record by Timothy R. Spisak,
     Deputy Assistant Director, Minerals and Realty Management, Bureau of
                Land Management, U.S. Department of the Interior

    Questions from Rep. Markey
     When was the last time that the refining capacity of the refiners
            connected to the BLM Federal Helium Reserve was collected? When
            was the last time that information was made public?
        The BLM last conducted a survey of the plant refining capacities of
    the companies (i.e., the refiners) that are connected to the BLM
    Federal Helium Reserve in June 2008. The total refining capacity of all
    the refiners on the helium conservation pipeline was published at that
    time.
     Have there been significant changes in that refining capacity since
            that time?
        There have been no significant changes in plant capacities since
    the 2008 survey.
     Is the BLM aware of all of the changes made to the refining capacity
            of refineries connected to the BLM helium reserve? If so,
            please detail the current refining capacity, by refinery, of
            each of the four refiners connected to the pipeline. If not,
            please detail why not.
        Yes, the BLM is aware of changes to the plant refining capacities
    of each refiner. However, the refining capacities for individual plants
    are not made available to the public because the information is
    proprietary. The total capacity for all the plants owned by the four
    refiners along the helium conservation pipeline is approximately 4.05
    bcf. Although the refining capacities of individual plants are not
    available to the public, the ratio of total capacity per company (some
    of whom own multiple plants) is public knowledge because the BLM sells
    open market helium based on those percentages. The percentages of total
    capacity per company are as follows: Air Products, 36 percent; Praxair,
    34 percent; Linde, 26 percent; and Keyes, 4 percent.
     Some have argued that moving to a competitive auction system would
            create supply uncertainty in helium markets. But as you note in
            your testimony, haven't helium supplies and markets been
            ``uncertain'' over the last 15 years?
        In recent years, there has been some uncertainty in helium markets.
    This has been caused primarily by increasing demand from international
    markets coupled with a global helium supply shortage. For example,
    countries such as Qatar and Algeria, which normally meet the demand for
    Europe and Asia, are currently experiencing refining capacity problems.
    Questions from Rep. Hanabusa
     What is the cost of separating crude helium from natural gas deposits?
        The BLM does not have cost information regarding the separation of
    crude helium from natural gas. The cost of separating crude helium from
    natural gas varies depending on the technology used to produce the gas,
    the concentration of the helium contained within the natural gas, and
    the deposit size. In general, the cost increases as (i) the
    concentration of the helium decreases, (ii) geologic conditions, such
    as extremely low or high gas-field pressure, present a challenge to
    ensuring the resource is extracted in a diligent and prudent manner,
    and (iii) unwanted constituents, such as H2S and
    CO2, are entrained within and must be removed from the gas
    before it may be sold to market.
     Have advances in the natural gas extraction process and/or the crude
            helium separation process led to increased volumes of helium
            being collected?
        Advances in the natural gas extraction process, such as hydraulic
    fracturing, have not led to increases in helium extraction because
    those deposits have extremely low helium concentrations, generally 0.05
    percent or less. However, if natural gas liquids containing helium were
    to be produced from natural gas fields in large enough quantities, it
    is possible that helium extraction plants might be constructed as part
    of the natural gas extraction and refining process. This is the type of
    helium extraction currently used in Algeria and Qatar.
        Advances in membrane technology, which is a technology that uses
    pressure to separate helium from the mixture of gases originally
    produced from a natural gas well, have yielded small increases in
    helium extraction.
     In collecting natural gas through the fracking process, do the
            compounds in the fracking fluid create any kind of chemical
            reaction that can alter the helium deposits or affect the
            helium separation process?
        Because helium is an inert gas, it does not react with any known
    chemical or compound.
    Questions from Rep. Lowenthal
     Since passage of the 1996 Helium Privatization Act directed the
    Interior Department to sell crude helium from the Federal Helium
    Reserve using a statutory pricing scheme, what is your best estimate of
    the aggregate to-date revenue lost due to sales of helium at prices
    below what a free market sale would have commanded? For this estimate,
    please distinguish between revenue lost based on sales to the private
    sector and sales to Federal Agencies (thru in-kind sales).

        The unique characteristics of the helium market, including major
    fluctuations in domestic and international demand and global supply
    shortages, make it very difficult to determine the true market price
    for crude helium in the years since 1996. In addition, because the
    Federal Helium Reserve supplies approximately 42 percent of domestic
    demand and approximately 35 percent of global demand for crude helium,
    the price of Federal helium has effectively become the benchmark market
    price.
        From the time of the BLM's first sale in 2003 until 2008, more
    crude helium was offered for sale than was sold. This would indicate
    that in those years, the price to purchase crude helium from the
    Federal Helium Reserve (then the statutory minimum) exceeded the price
    to purchase crude helium from private sources. In 2009 and 2010, the
    BLM sold all of the crude helium offered for sale, but there were no
    indications of market shortages or scarcity. This would indicate that
    in those years, the price to purchase crude helium from the Federal
    Helium Reserve (also the statutory minimum) approximated the price to
    purchase crude helium from private sources.
        Since 2011, the BLM has continued to sell all of the crude helium
    offered for sale, but has significantly increased the price it charges
    non-Federal purchasers. During FY 2013, the open-market price is
    $84.00/mcf, up from $64.75/mcf in 2010. The BLM is currently working
    with the Department's Office of Mineral Evaluation, as recommended by
    the Office of the Inspector General, to develop a new pricing formula
    to ascertain the open market value of crude helium. The BLM expects to
    implement the new formula in FY 2014.
     What is your best estimate of the aggregate value of the remaining
            helium in the Federal Helium Reserve? Please base your estimate
            on projected market prices assuming sales from the Reserve are
            sold at auctions as envisioned by H.R. 527 (until 3 billion
            cubic feet remain). Please also distinguish between the value
            of helium sold to the private sector and the value of helium
            sold to Federal Agencies as projected based on a constant 161
            million cubic feet annual Federal Agency consumption rate of
            reserve helium at the prevailing auction price.
        Between 2014 and 2019, after which no further open market sales are
    anticipated under current draw-down projections, the BLM estimates
    total cumulative helium sales would generate gross receipts of around
    $630 million. Of this amount, the BLM estimates that Federal in-kind
    sales would generate gross receipts of around $80 million at a sales
    rate of 200 million cubic feet. At a constant sales rate of 161 million
    cubic feet, Federal in-kind sales are estimated to generate around $65
    million between 2014 and 2019.
                                     ______

        The Chairman. Thank you very much, Mr. Spisak. And
    obviously, if there are technical changes, we look forward to
    that. This is always the start of the process, so I appreciate
    your testimony.
        Mr. Spisak. Absolutely.
        The Chairman. Next we will recognize Mr. Garcia-Diaz for 5
    minutes. And, Mr. Garcia-Diaz, you are recognized.

     STATEMENT OF DANIEL GARCIA-DIAZ, DIRECTOR, NATIONAL RESOURCES
         AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

        Mr. Garcia-Diaz. Thank you. Chairman Hastings, Ranking
    Member Markey, and members of the Committee, I am pleased to be
    here today to discuss the Bureau of Land Management's Federal
    helium program.
        As you know, the Federal Government has been extensively
    involved in the production, storage, and use of helium since
    the early part of the 20th century. With the Helium
    Privatization Act of 1996, the goals of the helium program were
    significantly changed, including having the Federal Government
    reduce the size of the reserve, pay down the program's debt,
    and exit the refined helium production business. The current
    program managed by BLM focuses on storing and selling helium to
    government agencies and private entities.
        My remarks today summarize and update information from our
    May 2010 testimony. I will discuss how the 1996 Act addressed
    issues we raised in the 1990s, and 3 urgent issues facing the
    helium program in the near future.
        The 1996 Act caused considerable changes to the helium
    program and addressed or altered GAO's prior concerns in 3
    specific areas: the program's debt; Federal pricing of helium;
    and alternatives to meeting the Federal need for helium.
        By the early 1990s, the program's debt to the Treasury,
    which paid for the purchase of helium for storage, reached
    about $1.3 billion, most of which was accrued interest. The
    1996 Act froze the debt at $1.4 billion with interest no longer
    accruing, and required repayment of the debt. The 1996 Act also
    changed the method for determining the minimum price of crude
    helium. The Secretary was required to set sale prices to cover
    the reserves, operating costs, and to produce an amount
    sufficient to pay back the debt, plus an inflation factor.
        Finally, the 1996 Act reset the program's objective,
    directing Interior to stop refining helium and establish an in-
    kind sales program for Federal agencies. Since 1998, Federal
    agencies can purchase helium from authorized helium supply
    companies. And, in return, BLM sells an equivalent amount of
    crude helium to these companies at the minimum price.
        Since the 1996 Act, we have identified three urgent issues
    regarding the program's direction. The first issue is how the
    helium program will be funded after 2013, when the debt is paid
    off. The Act requires that all program revenues be returned to
    the Treasury upon repayment of the program's debt. The program
    relies on revenues generated by the helium sales to pay for its
    day-to-day operations. As a result, the program does not
    receive any new appropriated funds.
        When the debt is paid off this year, as expected, it is not
    clear how the operations of the helium program will be paid
    for. BLM is still evaluating possible options, but it may have
    to undertake an orderly shut-down of the reserves, unless the
    use of program revenues is extended, or there is discretionary
    funding appropriated.
        The second issue is at what price should BLM sell its crude
    helium. When BLM first set its price after the 1996 Act, it was
    estimated to be significantly higher than market levels. But
    now the reverse is true. BLM's price for crude helium is
    estimated to be below market levels. BLM implemented a new
    pricing system in 2011 in which sales to non-governmental
    entities are charged a higher price, based on debt repayment
    and other factors. While the new system results in higher
    prices, it is not a market-based system. Given current market
    prices, the potential for higher returns on Federal helium
    exist.
        Finally, the third issue is: How should the helium
    remaining in storage be used after 2015? The 1996 Act required
    BLM to offer for sale substantially all the helium in storage
    by January 2015. While the required amounts have been offered
    for sale, only 79 percent has actually been sold in recent
    years. BLM will have significantly more helium in storage than
    the target established in the 1996 Act. And it is uncertain at
    this point how the helium still remaining in storage after 2015
    will be used.
        In conclusion, Mr. Chairman, there have been a number of
    changes in the market for helium since the Congress passed the
    Act. And now time is running out. Action will be needed to
    ensure that funding authority for operating the reserve is
    available beyond the current fiscal year. Otherwise, the risk
    of a major disruption in the supply of helium looms in an
    already-stressed market.
        Further, addressing the pricing of Federal helium will
    generate a fair return on government assets. And clarifying the
    program's future objectives will provide direction to BLM as it
    continues to serve the Nation's helium need.
        Mr. Chairman, this completes my prepared statement. I would
    be happy to respond to any questions you may have at this time.
        [The prepared statement of Mr. Garcia-Diaz follows:]

       Statement of Daniel Garcia-Diaz, Director, National Resources and
               Environment, U.S. Government Accountability Office

        Chairman Hastings, Ranking Member Markey, and Members of the
    Committee:
        I am pleased to be here today to discuss the federal helium program
    currently managed by the Department of the Interior's (Interior) Bureau
    of Land Management (BLM). As you know, helium is an important
    nonrenewable natural resource that has a variety of uses. The federal
    government uses helium for, among other things, the space program,
    national security applications, and scientific research. For many of
    its uses, helium has no substitute.
        During the 1960s and early 1970s, to fulfill the conservation
    objective of the Helium Act Amendments of 1960,\1\ Interior purchased
    about 34 billion cubic feet of helium from private crude helium
    producers.\2\ In the 1990s, we reported to, and testified before the
    Subcommittee on Energy and Mineral Resources on Interior's management
    of the federal helium program.\3\ In May 1993, we testified that
    Interior had enough helium in storage to meet federal needs until at
    least 2070 and that a reassessment of the objectives of the Helium Act
    was needed.
        Since our reports in the early 1990s, key changes have affected the
    federal helium program, and a 2010 report by the National Academies'
    National Research Council concluded that it is time once again to
    reassess the program.\4\ We revisited our work from the 1990s, and we
    raised some issues facing BLM's helium program in our May 13, 2010,
    testimony before this Committee's Subcommittee on Energy and Mineral
    Resources.\5\ My testimony today will describe (1) how the Helium
    Privatization Act of 1996 addressed issues we raised in the 1990s and
    (2) three urgent issues facing the helium program in the near future.
    This testimony summarizes and updates the information presented in our
    May 2010 testimony. Our May 2010 testimony was a performance audit
    conducted in accordance with generally accepted government auditing
    standards. A detailed description of our scope and methodology is
    presented in our May 2010 testimony.\6\
    Background
        Helium is an inert element that occurs naturally in gaseous form
    and has a variety of uses (see table 1).\7\ Helium's many uses arise
    from its unique physical and chemical characteristics. For example,
    helium has the lowest melting and boiling point of any element and, as
    the second lightest element, gaseous helium is much lighter than air.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Certain natural gas fields contain a relatively large amount of
    naturally occurring helium, which can be recovered as a secondary
    product. The helium is separated from the natural gas and stored in a
    concentrated form that is referred to as crude helium because it has
    yet to go through the final refining process.\8\ The federal government
    has a reserve of crude helium that is stored in the ground in an area
    of a natural gas field that has a naturally occurring underground
    structural dome near Amarillo, Texas. In addition to the federal
    government's reserve of crude helium, private companies that are
    connected to BLM's pipeline and pay a storage fee, are also able to
    store and retrieve their own private crude helium reserves from the
    same storage area.
        The federal government has been extensively involved in the
    production, storage, and use of helium since the early part of the
    twentieth century. The federal government and private sector
    cooperatively produced helium before 1925 specifically for military
    uses. The Helium Act of 1925,\9\ as amended, assigned responsibility
    for producing helium for federal users to Interior's Bureau of
    Mines.\10\ From 1937 until 1960, the Bureau of Mines was the sole
    producer of helium. The act provided that funds from helium sales be
    used to finance the program by establishing a revolving fund known as
    the helium production fund. Such revolving funds are used to finance a
    cycle of business-type operations by charging for the sale of products
    and then using the proceeds to finance their spending. In the federal
    budget, this fund is referred to as the Helium Fund, and it is used to
    account for the program's revenues and expenses.
        The Helium Act Amendments of 1960 stipulated that the price of
    federal helium cover all of the helium program's costs, including
    interest on the program's debt. The 1960 act required the Secretary of
    the Interior to determine a value for net capital and retained
    earnings, establish this value as debt in the Helium Fund, and add
    subsequent program borrowings to that debt. The program's borrowings
    were authorized by subsequent appropriations acts and recorded as
    outlays in the federal budget in the years in which they were expended.
    In addition, the interest was added to the debt in the Helium Fund.
    However, this interest is simply a paper transaction, not a government
    outlay. The Bureau of Mines determined that the value of the program's
    net capital and retained earnings was about $40 million in 1960.
    Subsequent borrowings from the U.S. Treasury totaling about $252
    million were used to purchase helium for storage. By September 30,
    1991, the debt had grown to about $1.3 billion, of which more than $1
    billion consisted of interest because the interest accrued faster than
    the program could repay the debt.
        The Helium Privatization Act of 1996 significantly changed the
    objectives and functions of Interior's helium program.\11\ For example,
    the 1996 act made the following key changes:
              Interior was required to close all government-owned
            refined helium production facilities and to terminate the
            marketing of refined helium within 18 months of enactment (50
            U.S.C. Sec. 167b(b),(c));
              the helium program's debt was frozen as of October 1,
            1995 (50 U.S.C. Sec. 167d(c));
              Interior was required to offer for sale all but 600
            million cubic feet of the crude helium in storage on a
            straight-line basis--a depreciation method that spreads out the
            cost of an asset equally over its lifetime--by January 1, 2015
            (50 U.S.C. Sec. 167f(a)(1));
              Interior was required to set sale prices to cover the
            crude helium reserve's operating costs and to produce an amount
            sufficient to repay the program's debt. The price at which
            Interior sells crude helium was required to be equal to or
            greater than a formula that incorporates the amount of debt to
            be repaid divided by the volume of crude helium remaining in
            storage, with a consumer price index adjustment (50 U.S.C.
            Sec. Sec. 167d(c), 167f(a)(3)). Furthermore, when the debt is
            fully paid off, the revolving Helium Fund shall be terminated
            (50 U.S.C. Sec. 167d(e)(2)(B));
              Interior was allowed to maintain its role in the
            helium storage business (50 U.S.C. Sec. 167b(a)); and
              established a modified ``in-kind'' program to meet
            federal needs for helium. Rather than purchasing refined helium
            directly from Interior, federal agencies were required to
            purchase their major helium requirements from persons who have
            entered into enforceable contracts to purchase an equivalent
            amount of crude helium from Interior (50 U.S.C.
            Sec. 167d(a)).\12\
        As directed by Congress, the National Academies' National Research
    Council reviewed the helium program and released a report in 2000 that
    evaluated the changes made in the program, the effects of these changes
    on the program, and several scenarios for managing the federal
    government's reserve of helium in the future.\13\ Because of subsequent
    changes in price and availability of helium, in 2008, the National
    Research Council convened a committee to determine if the current
    implementation of the helium program was having an adverse effect on
    U.S. scientific, technical, biomedical, and national security users of
    helium. The committee reported on these effects in early 2010 and
    concluded that the current implementation of the program has adversely
    affected critical users of helium and was not in the best interest of
    the U.S. taxpayers or the country.
    The Helium Privatization Act of 1996 Addressed or Altered Our Prior
            Concerns
        Since our reports in the early 1990s, the Helium Privatization Act
    of 1996 has caused considerable changes to the helium program and
    addressed or altered our prior concerns. In October 1992, we reported
    on various aspects of the federal helium program including the helium
    debt, pricing, and alternatives for meeting federal helium needs.\14\
    Helium Debt
        In October 1992, we recommended that Congress cancel the helium
    program's debt. As of September 1991, the debt had grown to about $1.3
    billion, over $1 billion of which was interest that had accrued on the
    original debt principal of about $290 million. At that time, the
    deadline for paying off the debt was 1995. We reported that the only
    way to pay off the debt by that deadline would be to charge federal
    agencies with major requirements for helium over $3,000 per thousand
    cubic feet of helium, compared to the price at that time of $55. We
    recommended that Congress cancel the debt in the Helium Fund because it
    was no longer realistic to expect the debt to be repaid by the
    statutory deadline of 1995, and because canceling the debt would not
    adversely affect the federal budget as the debt consisted of outlays
    that had already been appropriated and interest that was a paper
    transaction. The 1996 act did not cancel the debt, as we had
    recommended, but because the 1996 act effectively froze the debt at
    $1.37 billion, and interest no longer accrued, BLM has been able to pay
    off a large portion of its debt. As of the end of fiscal year 2012, BLM
    had $44 million in debt remaining, which according to BLM officials it
    expects to pay off this year (see fig. 1).

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       Helium Pricing
        The helium debt was also a factor in setting the price of federal
    helium. In 1992, GAO recognized that if the helium debt was cancelled,
    Congress may wish to propose a new pricing scheme. The 1996 act did not
    cancel the debt, as we had recommended, but it did require a specific
    method for pricing crude helium. The initial minimum BLM selling price
    for crude helium after the act was passed was almost double the price
    for private crude helium at that time. However, after BLM started to
    sell its crude helium, according to the method specified in the act,
    the market price for crude and refined helium began to change.
    According to the National Research Council, the private sector began
    using the BLM crude price as a benchmark for establishing its price
    and, as a result, privately sourced crude helium prices increased and
    now they meet or exceed BLM's price. Increases in the price of crude
    helium have also led to increases in the price of refined helium (see
    fig. 2). Refined helium prices have more than tripled from 2000 through
    2012 pursuant to demand trends.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

       Alternatives for Meeting Federal Helium Needs
        In 1992, GAO recommended that Congress reassess the conservation
    objectives of the helium program and consider other alternatives to
    meet federal helium needs. As part of the resetting of the helium
    program's objectives, the 1996 act established a revised approach for
    meeting federal needs for helium. In 1998, BLM began using in-kind
    sales to federal agencies. The in-kind regulations established
    procedures for BLM to sell crude helium to authorized helium supply
    companies and required federal agency buyers to purchase helium from
    these approved suppliers.\15\ Since the in-kind program started, the
    sales to federal agencies have fluctuated, primarily due to the
    National Aeronautics and Space Administration's unique requirement for
    large volumes of helium on a sporadic basis. Total federal in-kind
    sales for fiscal year 2012 were 160.67 million cubic feet (see fig. 3).

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       Three Urgent Issues Facing the Helium Program
        As we testified in 2010, changes in helium prices, production, and
    demand have generated concerns about the future availability of helium
    for the federal government and other critical purposes. The Helium
    Privatization Act of 1996 does not provide a specific direction for the
    helium program past 2015. As a result of these factors, in 2010, we
    identified three areas of uncertainty about the program's direction
    after 2015. The same three areas are even more urgent today because 3
    years have passed since our 2010 testimony, and BLM's schedule for
    paying off the program's debt has accelerated. Specifically, the three
    urgent issues are as follows:
              How will the helium program be funded after 2013? If
            the helium program's debt is paid off this year, as expected,
            and the revolving helium fund is terminated, it is not clear
            how the operations of the helium program will be paid for.
            Currently the helium program does not receive any appropriated
            funds for its operations. The revenues generated by the program
            go into the Helium Fund, and the program has access to those
            funds to pay for its day-to-day operations. It is uncertain at
            this point how the helium program's operations will be funded
            after 2013. BLM is still evaluating possible options, but it
            may have to undertake an orderly shutdown of the helium reserve
            unless the revolving fund is not terminated or appropriated
            funds are available for crude helium sales and the operations
            of the reserve. When we last testified on this issue, the
            estimated payoff date was 5 years away in 2015, and it was more
            closely aligned with the 1996 act's requirement to sell down
            the helium reserve by January 1, 2015. The debt payoff schedule
            has accelerated primarily because of improved sales of the
            crude helium offered for sale. As a result, BLM's helium
            program will not have a funding mechanism for its continued
            operation until 2015. Furthermore, because of some years of
            slow sales, BLM estimates that it will need to continue helium
            sales from the reserve until sometime between 2018 and 2020 to
            reach the 1996 act's requirement to draw down to 600 million
            cubic feet.
              At what price should BLM sell its crude helium? Since
            the Helium Privatization Act of 1996 was passed, BLM has set
            the price for federal crude helium at the minimum price
            required by the act. However, because federal crude helium
            reserves provide a major supply of crude helium, we expect
            BLM's prices will continue to affect private industry market
            prices for crude and refined helium. When BLM first set its
            price after the 1996 act, its price was estimated to be
            significantly higher than the market price, but now the reverse
            is true--BLM's price for crude helium is estimated to be at or
            below the market price for refined helium. The 1996 act, like
            the Helium Act Amendments of 1960 before it, tied the price to
            the program's operating expenses and debt. If the debt is paid
            off in 2013, as projected, the debt will no longer be a factor
            in setting helium prices. BLM officials told us that the 1996
            act sets a minimum selling price and that the Secretary of the
            Interior has the discretion to set a higher price. In response
            to a recommendation in the National Research Council's 2010
            report, beginning in fiscal year 2011, BLM implemented a new
            two-tiered pricing system. Under the new pricing system, in-
            kind sales involving federal agencies continued to be based on
            the minimum selling price set in the 1996 act, while other
            sales to nongovernmental entities are charged a higher price
            based on debt repayment and cost recovery factors.\16\ The new
            pricing system, however, is still not a market-based pricing
            system. In November 2012, Interior's Office of Inspector
            General recommended that BLM implement a new helium pricing
            process by the end of 2013 to ensure a fair return on the sale
            of helium.\17\
              How should the helium remaining in storage after 2015
            be used? The Helium Privatization Act of 1996 required BLM to
            offer for sale substantially all of the helium in storage by
            January 1, 2015. While the required amounts have been offered
            for sale, only 79 percent of the amounts offered for sale have
            actually been sold (see table 2). BLM will likely still have
            significantly more crude helium in storage than the 600 million
            cubic feet required by the 1996 act. As of September 30, 2012,
            there were 11.44 billion cubic feet of conservation helium in
            storage.\18\ According to the 2010 report by the National
            Academies' National Research Council, the United States could
            become a net importer of helium within the next 7 to 12 years,
            and the principal new sources of helium will be in the Middle
            East and Russia. Given these circumstances, the National
            Academies' report recommended that Congress may want to
            reevaluate how the domestic crude helium reserve is used or
            conserved. It is uncertain at this point how the helium still
            remaining in storage after January 1, 2015, will be used.

            [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            In conclusion, Mr. Chairman, there have been a number of
    changes in the market for helium since Congress passed the Helium
    Privatization Act of 1996. As the deadline for the required actions to
    be taken under this act approaches, Congress may need to address some
    unresolved issues such as how the helium program will operate once the
    Helium Fund expires at the end of this year, how to set the price for
    the helium owned by the federal government, and how to use the
    remaining helium in storage.
        Chairman Hastings, Ranking Member Markey, and Members of the
    Committee, this concludes my prepared statement. I would be pleased to
    answer any questions that you may have at this time.
    GAO Contact and Staff Acknowledgments
        For further information about this testimony, please contact me at
    (202) 512-3841 or garciadiazd@gao.gov. Contact points for our Offices
    of Congressional Relations and Public Affairs may be found on the last
    page of this testimony. In addition, Jeff Malcolm (Assistant Director),
    Carol Bray, Leslie Pollock, and Jeanette Soares made key contributions
    to this testimony.
    ENDNOTES
    \1\ Pub. L. No. 86-777, 74 Stat. 918 (1960), codified as amended at 50
        U.S.C. Sec. /Sec.  167-167m.
    \2\ ``Crude helium'' is a gas containing approximately 50 to 85 percent
        helium.
    \3\ GAO, Mineral Resources: Federal Helium Purity Should Be Maintained,
        GAO/RCED 92 44 (Washington, D.C.: Nov. 8, 1991); GAO, Mineral
        Resources: Meeting Federal Needs for Helium, GAO/RCED 93 1
        (Washington, D.C.: Oct. 30, 1992); GAO, Mineral Resources: Meeting
        Federal Needs for Helium, GAO/T RCED 93 44 (Washington, D.C.: May
        20, 1993); GAO, Mineral Resources: H.R. 3967 A Bill to Change How
        Federal Needs For Refined Helium Are Met, GAO/T RCED 94 183
        (Washington, D.C.: Apr. 19, 1994); and GAO, Terminating Federal
        Helium Refining, GAO/RCED 95 252R (Washington, D.C.: Aug. 28,
        1995).
    \4\ National Research Council, Selling the Nation's Helium Reserve
        (Washington, D.C.: National Academies Press, 2010).
    \5\ GAO, Helium Program: Key Developments Since the Early 1990s and
        Future Considerations, GAO 10 700T (Washington, D.C.: May 13,
        2010). In addition, hearings were held in the U.S. Senate and the
        House of Representatives on helium in 2012. See, Helium
        Stewardship: Hearing to Receive Testimony on S. 2374, The Helium
        Stewardship Act of 2012 Before the Senate Comm. on Energy and
        Natural Resources, 112th Cong. (2012); and Helium: Supply Shortages
        Impacting our Economy, National Defense and Manufacturing Oversight
        Hearing Before the Subcomm. on Energy and Mineral Resources of the
        House Comm. on Natural Resources, 112th Cong. (2012).
    \6\ GAO 10 700T.
    \7\ Helium in this statement refers to helium-4, the most abundant
        naturally occurring helium isotope. Helium-3, which has its own
        supply and demand issues, is not the focus of this statement. For
        additional information on helium-3, see GAO, Technology Assessment:
        NeutronDetectors: Alternatives to Using Helium-3, GAO 11 753
        (Washington, D.C.: Sept. 29, 2011), and GAO, Managing Critical
        Isotopes: Weaknesses in DOE's Management of Helium-3 Delayed the
        Federal Response to a Critical Supply Shortage, GAO 11 472
        (Washington, D.C.: May 12,2011).
    \8\ Refined helium has a varying purity of 99.99 percent to 99.9999
        percent helium.
    \9\ Pub. L. No. 68-544, 43 Stat. 1110 (1925) (originally codified at 50
        U.S.C. Sec. Sec. 161-166 and currently codified as amended at 50
        U.S.C. Sec. Sec. 167-167m).
    \10\ The Bureau of Mines was established in 1910 and abolished in 1996.
        The helium program was transferred to BLM.
    \11\ Pub. L. No. 104-273, 110 Stat. 3315 (1996), codified at 50 U.S.C.
        Sec. Sec. 167-167m.
    \12\ The term ``person'' means any individual, corporation,
        partnership, firm, association, trust, estate, public or private
        institution, or state or political subdivision thereof. 50 U.S.C.
        Sec.  167(2).
    \13\ National Research Council, The Impact of Selling the Federal
        Helium Reserve (Washington, D.C.: National Academy Press, 2000).
    \14\ GAO/RCED 93 1
    \15\ 43 CFR Part 3195.
    \16\ According to BLM officials, federal agencies must negotiate their
        own purchasing contacts directly with an authorized helium supply
        company. BLM does not track the price negotiated andpaid by federal
        agencies. The authorized helium supply companies are required to
        purchase the same amount of helium, by volume, as sold to federal
        agencies. The price that the companies pay to buy the crude helium
        from BLM for these transactions involving federal agency sales is
        the ``in-kind'' sales price.
    \17\  Department of the Interior, Office of Inspector General, Bureau
        of Land Management's Helium Program, C-IN-MOA-0010-2011
        (Washington, D.C.: Nov. 9, 2012).
    \18\ According to BLM, the native natural gas in the reserve contains
        an additional 2.44 billion cubic feet of helium.
                                     ______

                                   HIGHLIGHTS

                               February 14, 2013

                                 HELIUM PROGRAM

         Urgent Issues Facing BLM's Storage and Sale of Helium Reserves

    Why GAO Did This Study
        The federal government has been extensively involved in the
    production, storage, and use of helium since the early part of the
    twentieth century. The federal helium program is currently managed by
    the Department of the Interior's BLM. During the 1960s and early 1970s,
    Interior purchased about 34 billion cubic feet of crude helium for
    conservation purposes and to meet federal helium needs, such as for the
    space program and scientific research. Crude helium is a gas of 50 to
    85 percent helium. While some of this helium was used to meet federal
    needs, most of it was retained in storage. The funds used to purchase
    this helium became a debt owed by the program. BLM now sells crude
    helium from the reserve, and the proceeds go into the revolving Helium
    Fund, which is used to finance the program and payoff the program's
    debt.
        GAO reported on the management of the helium program in the 1990s
    (GAO/RCED-92-44 and GAO/RCED-93-1).
        Since GAO's reviews of the program in the 1990s, key changes have
    affected the program, and a 2010 report by the National Academies'
    National Research Council concluded that it is time to reassess the
    program. GAO testified on the helium program in May 2010 (GAO-10-700T).
    This testimony is an update of GAO's May 2010 testimony and discusses
    (1) how the Helium Privatization Act of 1996 addressed issues raised by
    GAO in the 1990s and (2) three urgent issues facing the helium program
    in the near future.
        GAO is not making any recommendations in this testimony.
    What GAO Found
        Since GAO's reports in the early 1990s, the Helium Privatization
    Act of 1996 has caused considerable changes to the helium program and
    addressed or altered GAO's prior concerns. In 1992, GAO reported on
    various aspects of the federal helium program including the helium
    debt, pricing, and alternatives for meeting federal helium needs.
              Helium debt. In 1992, GAO recommended that Congress
            cancel the helium program's debt since doing so would not
            adversely affect the federal budget, as the debt consisted of
            outlays that had already been appropriated and interest that
            was a paper transaction. As of September 1991, this debt had
            grown to about $1.3 billion, over $1 billion of which was
            interest that had accrued on the original debt principal of
            about $290 million. The 1996 act did not cancel the debt as GAO
            had recommended, but it did freeze the growth of the program's
            debt and, as a result, the debt should be paid off this year.
              Helium pricing. The helium debt was also a factor in
            setting the price of federal helium. In 1992, GAO recognized
            that, if the helium debt was cancelled, Congress might need to
            propose a new pricing scheme. The 1996 act requires a specific
            method for pricing helium. This, along with other changes in
            the supply and demand for helium, has resulted in the Bureau of
            Land Management's (BLM) price to be at or below the market
            price.
              Alternatives for meeting federal helium needs. In
            1992, GAO recommended that Congress reassess the conservation
            objectives of the helium program and consider other
            alternatives to meet federal helium needs. In resetting the
            program's objectives, the 1996 act directed Interior to stop
            refining helium and established a modified in-kind approach for
            meeting federal helium needs. Agencies must purchase helium
            from refiners that then purchase an equivalent amount of crude
            helium from BLM.
        Changes in the helium market have generated concerns about the
    future availability of helium for federal and other needs. The Helium
    Privatization Act of 1996 did not provide a specific direction for the
    federal helium program past 2015. Three urgent issues facing the
    program are as follows:
              How will the helium program be funded after 2013? If
            the helium program's debt is paid off this year, as expected,
            the revolving Helium Fund will be terminated as required by the
            1996 act. When GAO last testified on this issue, the estimated
            payoff date was 5 years away in 2015. The schedule has
            accelerated primarily because of improved crude helium sales.
              At what price should BLM sell its helium? In the
            past, the debt has been a factor in the price, and the price
            has been above the market price. After 2013, the debt will be
            paid off, and the current price is at or below market.
              How should the helium owned by the federal government
            be used? BLM's effort to sell off the excess helium in storage
            will not be completed by January 1, 2015, as required by the
            1996 act. As of September 30, 2012, there were 11.44 billion
            cubic feet of conservation helium in storage. After BLM is
            finished drawing down the reserve, some believe that the United
            States could become a net importer of helium.
                                     ______

     Response to questions submitted for the record by Daniel Garcia-Diaz,
         Director, Natural Resources and Environment, U.S. Government
                             Accountability Office

    Questions for the Record Submitted by Representative Hanabusa

    1.  What is the cost of separating crude helium from natural gas
    deposits?

    2.  Have advances in the natural gas extraction process and/or the
    crude helium separation process led to increased volumes of helium
    being collected?

    3.  In collecting natural gas through the fracking process, do the
    compounds in the fracking fluid create any kind of chemical reaction
    that can alter the helium deposits of affect the helium separation
    process?
    GAO Response:
        Unfortunately, GAO has not conducted any prior work related to the
    three questions posed by Representative Hanabusa. As a result, we are
    not in a position to provide responses to any of the questions above.
    Questions for the Record Submitted by Representative Lowenthal
    1.  Since passage of the 1996 Helium Privatization Act directed the
            Interior Department to sell crude helium from the Federal
            Helium Reserve using a statutory pricing scheme, what is your
            best estimate of the aggregate to-date revenue lost due to
            sales of helium at prices below what a free market sale would
            have commanded? For this estimate, please distinguish between
            revenue lost based on sales to the private sector and sales to
            Federal Agencies (thru in-kind sales).
    2.  What is your best estimate of the aggregate value of the remaining
            helium in the Federal Helium Reserve? Please base your estimate
            on projected market proves assuming sales from the Reserve are
            sold at auctions as envisioned by H.R. 527 (until 3 billion
            cubic feet remain). Please also distinguish between the value
            of helium sold to the private sector and the value of helium
            sold to Federal Agencies as projected based on a constant 161
            million cubic feet annual Federal Agency consumption rate of
            Reserve helium at the prevailing auction price.
    GAO Response:
        Unfortunately, GAO has not conducted any prior work related to the
    two questions posed by Representative Lowenthal. As a result, we are
    not in a position to provide responses to any of the questions above.
                                     ______

        The Chairman. Thank you, Mr. Garcia-Diaz. I appreciate your
    statement. And last, we will recognize Kimberly Elmore,
    Assistant Inspector General of Audits, Inspections, and
    Evaluations, at the U.S. Department of the Interior.
        And you are recognized for 5 minutes.

     STATEMENT OF KIMBERLY ELMORE, ASSISTANT INSPECTOR GENERAL FOR
     AUDITS, INSPECTIONS, AND EVALUATIONS, U.S. DEPARTMENT OF THE
                                INTERIOR

        Ms. Elmore. Good morning, Mr. Chairman and members of the
    Committee. I am pleased to be here today to participate in this
    hearing to discuss our most recent audit report dealing with
    the Bureau of Land Management's helium program.
        The Bureau of Land Management administers America's Federal
    helium program. It oversees the national helium reserve to
    ensure that a sustained supply of helium is available for
    government and private-sector needs.
        We had two objectives when performing our audit: to
    determine whether the BLM is charging its non-governmental
    customers market value prices for helium sales; and to
    determine if BLM has the appropriate policies and procedures in
    place to ensure sales to non-governmental customers are free
    from potential fraud, waste, and mismanagement. Our audit team
    concluded that BLM was not charging market prices and there
    were no policies in place dealing specifically with sales to
    non-governmental customers.
        BLM has a current inventory of helium valued at
    approximately $1 billion. The inventory is valued based on
    cost, rather than market value. The Helium Privatization Act of
    1996 required helium sales to be priced at a minimum to cover
    operating costs and repay the debt incurred by the government
    when it purchased a large inventory of helium in 1960. BLM
    estimates that this debt, which is approximately $44 million,
    will be paid off later this year.
        Upon repayment of the debt, the helium fund will terminate,
    pursuant to the 1996 law. According to BLM, this will have the
    effect, absent reauthorization or other appropriation, of
    ending the Department's ability to pay for continuing program
    operations.
        BLM officials informed us, and industry research and
    newspaper articles confirm, that helium is in short supply.
    Industry predictions suggest that helium prices will increase
    when BLM exits the market. Approximately 90 percent of BLM's
    helium sales are to non-governmental customers. These sales
    equate to about 40 percent of the Nation's helium market.
    Because BLM is such a large provider, they are essentially
    driving the market price, which is based on cost, rather than
    market value of this resource.
        We found that BLM does not have the expertise needed to
    identify the market value prices for its helium reserve because
    of its long history selling primarily to Federal buyers, and
    because of the limited number of private companies that
    currently have access to the Federal Government's supply.
    Without changes to the program, there is no assurance that
    BLM's non-governmental helium sales will ever be made at market
    value.
        High technology uses have led to a rapid rise in helium
    demand in recent years, making the determination of market
    value for the government supply even more critical. Our audit
    detailed that for each percentage point increase in value to
    the helium supply, and the current value is a billion, BLM
    would collect an estimated $10 million in additional helium
    revenues. If the value of helium inventory were raised by 25
    percent, BLM would collect an additional $250 million.
        To capitalize on this opportunity, BLM needs to identify
    and to charge market value for helium sales to non-governmental
    purchasers. We recommended in our report that BLM should work
    with the Department of the Interior's Office of Minerals
    Evaluation to develop a process to identify fair market value
    for the price of helium sold to non-governmental buyers.
        During our audit we also found that BLM has been operating
    without formal procedures for non-governmental helium sales
    since it assumed responsibility for the helium program in 1996.
    Establishing formal procedures not only provides for the
    consistency of program operations, but also minimizes the risk
    of fraud, waste, and mismanagement. BLM continues to sell
    helium at prices set during the 1990s, with adjustments for
    only inflation and changes in the program's operating costs.
        There is no assurance that BLM's process reflects the
    market value of helium, which has increased dramatically in the
    private sector, as changes in technology have led to new and
    increasing uses for the resource. We strongly believe BLM
    should take this opportunity to determine and obtain fair-
    market value for its helium inventory. In doing so, BLM would
    help to ensure that government receives an appropriate return
    for the sale of this significant natural resource.
        Mr. Chairman, thank you for the opportunity to testify
    today. I am happy to answer any questions you or any members of
    the Committee may have.
        [The prepared statement of Ms. Elmore follows:]

     Statement of Kimberly Elmore, Assistant Inspector General for Audits,
        Inspections, and Evaluations, Office of Inspector General, U.S.
                           Department of the Interior

        Good Morning, Mr. Chairman, and members of the Committee. My name
    is Kimberly Elmore. I am the Assistant Inspector General for Audits,
    Inspections and Evaluations at the Department of the Interior's Office
    of Inspector General. I am pleased to be here today to participate in
    this hearing to discuss our most recent audit report dealing with the
    Bureau of Land Management's Helium Program.
        The Bureau of Land Management (BLM) administers America's Federal
    Helium Program. It oversees the National Helium Reserve to ensure that
    a sustained supply of helium is available for Government and private
    sector needs. Helium is an odorless gas found with other gasses in
    pockets beneath the Earth's surface. It is also a nonrenewable natural
    resource that has a variety of uses. Helium is essential to the high-
    tech manufacturing of fiber optic cables and the manufacturing of
    computer chips. It is used in biological research, deep sea diving,
    high-speed welding, weapons development, and plays a prominent role in
    medical imaging.
        We had two objectives when performing our audit: to determine
    whether the BLM is charging its non-governmental customers market value
    prices for its helium sales, and to determine if BLM has the
    appropriate policies and procedures in place to ensure sales to non-
    governmental customers are free from potential fraud, waste and
    mismanagement. Our audit team concluded that BLM was not charging
    market value prices and that there were no policies in place dealing
    specifically with sales to non-governmental customers.
        BLM has a current inventory of helium valued at approximately $1
    billion. The inventory is valued based on costs rather than market
    value. The Helium Privatization Act of 1996 required helium sales to be
    priced, at a minimum, to cover operating costs and repay the debt
    incurred by the Government when it purchased a large inventory of
    helium in 1960. BLM estimates that this debt, which is approximately
    $44 million, will be paid off in 2013. Upon repayment of the debt, the
    helium fund will terminate, pursuant to the 1996 law. According to BLM,
    this will have the effect (absent reauthorization of the fund or other
    appropriations action) of ending the Department's ability to pay for
    continuing program operations. We believe, under current market
    conditions, BLM's remaining helium inventory is worth considerably more
    than its current $1 billion valuation, and if the program continues,
    sales to non-governmental purchasers will continue.
        BLM officials informed us, and industry, research and newspaper
    articles confirm, that helium is in short supply. Industry predictions
    suggest that helium prices will increase when BLM exits the market. A
    2011 international industry article (``Tight Supply Reins In The
    Worldwide Helium Market,'' CryoGas International, October 2011)
    reported that non-governmental helium producers have been increasing
    the price of helium at rates nearly three times greater than BLM over
    the past decade, and the article predicts prices will continue rising
    at double-digit annual rates over the next several years.
        Approximately 90 percent of BLM's helium sales are to non-
    governmental customers. These sales equate to about 40 percent of the
    Nation's helium market. Because BLM is such a large provider, they are
    essentially driving the market price, which is based on costs rather
    than market value of the resource. We found that BLM does not have the
    expertise needed to identify market value prices for its helium reserve
    because of its long history of selling helium primarily to Federal
    buyers and because of the limited number of private companies that
    currently have access to the Federal Government's helium supply.
    Without changes to the program, there is no assurance that BLM's non-
    governmental helium sales will ever be made at market value. High-
    technology uses have led to a rapid rise in helium demand in recent
    years, making the determination of market value for the Government's
    supply more critical. In 2010, a National Academy of Sciences study
    concluded that the enormous BLM sales volumes were controlling prices
    worldwide, giving no assurance that BML's helium price had any
    relationship to market value. Our audit found that for each percentage
    point increase in value to the helium supply, (the current inventory is
    valued at $ 1 billion), BLM would collect an estimated $10 million in
    additional helium revenues. If the value of the helium inventory were
    raised by 25 percent, BLM would collect an additional $250 million. To
    capitalize on this opportunity, BLM needs to identify and to charge
    market value for all helium sales to non-governmental purchasers.
        We recommended in our report that BLM should work with the
    Department of the Interior's Office of Minerals Evaluation (OME) to
    develop a process to identify the fair market value price of helium
    sold to non-governmental buyers. In their response to our report, BLM
    officials concurred with the recommendation and stated that they had
    begun to work with OME. The response detailed that they have developed
    several options for determining a new and fair pricing of sales to non-
    governmental buyers.
        During our audit we also found that BLM has been operating without
    formal procedures for non-governmental helium sales since it assumed
    responsibility for the helium program in 1996. Establishing formal
    procedures not only provides for consistency in program operations, but
    also creates a baseline for internal controls. Without proper internal
    controls in place, the risk of fraud, waste and mismanagement is
    increased.
        The Department of the Interior has a long history of selling helium
    primarily to Federal buyers; this is no longer the case, however. We
    recommended that BLM prepare and implement comprehensive procedures for
    managing its helium sales to non-governmental buyers. BLM officials
    agreed with our recommendation and have reported they are in the
    process of developing a comprehensive manual.
        Our report provides highlights of the history of Government helium
    sales and provides recommendations that, if implemented, will help
    obtain fair market value from future sales. Legislation passed during
    the 1990's authorized that the Government's sale of the helium
    inventory be concluded by 2015, with the exception of a small reserve
    maintained for Federal purposes. Due to complications with determining
    fair market value for these reserves, BLM continues to sell its helium
    at prices set during the 1990's with adjustments only for inflation and
    changes in the programs operating costs. There is no assurance that
    BLM's process reflects the market value of helium, which has increased
    dramatically in the private sector as changes in technology have led to
    new and increasing uses for the resource. We strongly believe BLM
    should take the opportunity to determine and obtain market value for
    its helium inventory. In so doing, BLM would help to ensure that the
    Government receives an appropriate return for the sale of this
    significant natural resource.
        Mr. Chairman, thank you for the opportunity to testify today. I am
    happy to answer any questions you or members of the Committee may have.
                                     ______

      Response to questions submitted for the record by Kimberly Elmore,
     Assistant Inspector General for Audits, Inspections, and Evaluations,
          Office of Inspector General, U.S. Department of the Interior

    Questions from Congresswoman Hanabusa
    1.  What is the cost of separating crude helium from natural gas
            deposits?
        Helium is a by-product of natural gas production. As described by
    the Bureau of Land Management (BLM)--
            ``When natural gas is processed, various impurities such as
            water vapor, carbon dioxide, and helium can be removed. This
            processing is required to make the natural gas meet various
            pipeline standards for transport and sale. If there is enough
            helium in the gas stream (usually about 0.3 percent or
            greater), special processing can be added to further extract
            and concentrate the helium and make it ready for sale.''
        This threshold of ``0.3 percent'' is a general guideline for the
    conditions under which producing (rather than flaring or venting)
    helium from a natural gas field might be considered economically
    viable. There are, however, many additional factors to be considered.
    Such factors include not only the geologic characteristics of the gas
    field and engineering characteristics of the production operation, but
    also: the cost and availability of transportation to refiners,
    distributors, and consumers; the local or regional demand for the
    commodity; and considerations of the quality (purity) of the helium.
    These factors are highly variable.
        We did not gather specific data regarding the costs of separating
    crude helium from natural gas deposits, but note generally that higher
    market prices (driven by increasing demand) coupled with technological
    improvement should lead, over time, to increased production from
    natural gas deposits--whether from public or private lands. As stated
    by BLM--
            ``[With] advances in natural gas extraction and liquification
            [sic] technology, helium extraction and processing is no longer
            a cost intensive process; in other words, it is not necessary
            that helium occur in concentrations of 0.3% or more to be
            economical for production. Helium could occur in very low
            concentrations and still be processed as an economical product
            for marketing and sales. Also, the high market price of natural
            gas and natural gas byproducts, such as nitrogen and helium, is
            a good incentive for exploration of new gasfields [sic] and the
            production of helium among other gases. The high market prices
            are a driving force for increased exploration and re-evaluating
            reserve estimates.''
    2.  Have advances in the natural gas extraction process and/or the
            crude helium separation process led to increased volumes of
            helium being collected?
        The latest data available from the U.S. Geological Survey (USGS)
    and BLM indicate that overall helium production (including both
    ``crude'' and ``pure'' helium) has held to a range between 12,000 and
    13,500 metric tons per year, from 2005 to 2011. As we indicated in our
    audit report, approximately 40% of U.S. supply comes from the BLM
    Helium program. BLM staff have indicated that ExxonMobil provides
    approximately 20% of domestic supply (from federal lands in Wyoming).
        We do expect that the combination of increasing demand, improved
    technology, and market-based pricing will lead to increased production.
    We have not attempted to forecast, however, the rate of such growth.
    USGS reports that a number of new helium plants, in the U.S. and
    abroad, are planned through 2018. As one example of interest in
    expanding production within the U.S., Denbury Resources recently
    acquired the rights to produce federal helium from Riley Ridge,
    Wyoming, and estimate proved reserves of between 8.9 Bcf (federal) and
    12.0 Bcf (including surrounding acreage) at a concentration of 0.6%.
    Helium producers operating on federal lands generally pay a royalty of
    \1/8\ (12.5 percent).
    3.  In collecting natural gas through the fracking process, do the
            compounds in the fracking fluid create any kind of chemical
            reaction that can alter the helium deposits or affect the
            helium separation process?
        This particular question is beyond our scientific/technical
    expertise, and not a question we have examined with BLM. We would
    expect BLM to consider implementing safeguards in their environmental
    analysis, permitting, and monitoring and enforcement processes if there
    is risk that industry practices such as hydraulic fracturing pose a
    conservation concern with respect to the quality of, or ability to
    produce, helium resources.
    Questions from Congressman Alan Lowenthal
    1.  In your prepared testimony, you state that ``. . . BLM's remaining
            helium inventory is worth considerably more than its current $1
            billion dollar valuation . . .'' What is your best estimate of
            the aggregate value of the remaining helium in the Federal
            Helium Reserve? Please base your estimate on projected market
            prices assuming sales from the Reserve are sold at auctions as
            envisioned by H.R. 527 (until 3 billion cubic feet remain).
            Please also distinguish between the value of helium sold to the
            private sector and the value of helium sold to Federal Agencies
            as projected based on a constant 161 million cubic feet annual
            Federal Agency consumption rate of Reserve helium at the
            prevailing auction price.
        Responsibly estimating the value of the Federal Helium Reserve
    would require access to market data that neither we nor the Department
    have available. Further, even informal valuation is complicated by
    BLM's dominant market position. We are pleased that, as we recommended
    in our audit report, BLM is cooperating with the Department's Office of
    Minerals Evaluation (OME). Procurement processes are underway, we are
    told, for a ``Crude Helium Pricing Methodology Project''. The results
    of this effort are intended to inform the Department on approaches to
    valuing the Helium Reserve and, in turn, BLM's establishment of helium
    prices for 2014.
        Given the limited access, in practical terms, to the Helium Reserve
    we are uncertain that conventional ``sealed-bid'' auctions are
    necessarily the best means to achieving market value. Four refiners on
    an existing pipeline network constitute, in essence, a ``closed
    market'' with considerable cost implications for any prospective new
    competitors. We suggest that some discretion be given for the
    Department to consider alternative means, and to protect the
    Department's ability to set appropriate minimum (``reserve'') prices
    should auctions be deemed the most appropriate course.

    2.  Since passage of the 1996 Helium Privatization Act directed the
    Interior Department to sell crude helium from the Federal Helium
    Reserve using a statutory pricing scheme, what is your best estimate of
    the aggregate to-date revenue lost due to sales of helium at prices
    below what a free market sale would have commanded? For this estimate,
    please distinguish between revenue lost based on sales to the private
    sector and sales to Federal Agencies (thru in-kind sales).

        As with the uncertainty of current market value referred to in the
    previous question, we have no past market data upon which to base an
    estimate of foregone revenues. In terms of distinguishing between
    conservation (nongovernmental) and in-kind (governmental) sales, we
    note that there was no difference in pricing between the two sales
    programs from October 1997 to September 2010. Only since October 2010
    has BLM charged a higher price for its conservation crude program.
                                     ______

        The Chairman. Thank you very much, and I want to thank all
    of you for your testimony. I will recognize myself for 5
    minutes for questioning. I just want to follow up on the
    pricing, because well, all of you kind of alluded to it, but
    especially the last two.
        Director Garcia-Diaz, in your testimony, written testimony,
    you provided a chart that shows the estimated price of
    refined--I will emphasize that--``refined'' helium. And it is
    significantly higher than what BLM sells crude. Now, I know
    there is a difference between crude and refined. There is
    obviously a processing cost. But the difference of roughly $160
    per 1,000 cubic feet on the refined side and $85 that you are
    selling it is a huge difference, it seems to me.
        I just want to know, I guess, why BLM has not been able to
    track the market prices. It's a very simple question. Is there
    a reason for that?
        Mr. Garcia-Diaz. Yes, I am not sure why they haven't.
    Obviously, the price is going to be based on some of the
    statutory requirements of how they set the minimum price for
    sales to Federal agencies. And recently they have introduced a
    new two-tier pricing system for non-governmental entities,
    which is higher.
        But at this point we haven't looked specifically at their
    methodology. And so I can't explain that difference, why their
    non-governmental price has not caught up with that higher
    grade-A refined helium price.
        The Chairman. You know, part of H.R. 527, obviously, is the
    auctions, bringing in market forces. Do you see that as one way
    to at least catch up to the pricing and be at market values,
    then?
        Mr. Garcia-Diaz. Yes. Introducing more of a market-based
    approach for setting prices would make sense, and it would be a
    way to get away from a formula-driven calculation of what the
    crude price should be.
        The Chairman. OK. Director Spisak, any comments on the
    question I just asked Director Garcia-Diaz?
        Mr. Spisak. Sure. I appreciate the opportunity. I think
    when you are comparing, and I know you recognize there is a
    difference between refined and crude, but there is a lot of
    difference between refined and crude, and a lot of costs are
    associated with where it is delivered, and the services that
    are bundled around that. And generally, the costs associated
    with the refining part at a wholesale level are much closer.
    And so this, I believe, is maybe showing it in the worst light.
    But that is just my belief.
        The Chairman. Right. Well, there is no question about that,
    and it depends how it is sold, from destination, there are a
    lot of factors. But that is a big, big difference on that
    chart, as you can see. You can see roughly 10 years ago, the
    pricing was pretty much, you know, the same.
        I just wanted to pursue that one part. That is the only
    questions that I have. So I will recognize--who is next on your
    side? Mr. Holt, you, as a sponsor--and thank you for
    cosponsoring this legislation--you are recognized for 5
    minutes.
        Dr. Holt. Thank you, Mr. Chairman, and thank you for
    scheduling the hearing and inviting bipartisan participation in
    the bill.
        Mr. Spisak, let me start with you. Over there. We are
    getting taller members of the Committee here, it seems.
        [Laughter.]
        Dr. Holt. Apparently, a number of Federal helium users,
    national labs, Federally funded researchers, and so forth, are
    seeing that their deliveries have been delayed and even reduced
    in amount. In some cases they have been able to deal with this,
    I think, by better recycling and reuse of it. But I am trying
    to understand what is behind these smaller deliveries.
        Do you think it makes sense to have a better carve-out for
    such users to ensure that the helium from the Federal reserve
    goes first to meet the needs of NASA and the Defense Department
    and the national labs and so forth?
        Mr. Spisak. When the 1996 Act was passed, we developed
    regulations that guided how agencies were to report their
    sales. And we negotiated what are called our in-kind sales
    contracts with those private companies that would supply
    refined helium to meet that in-kind Federal demand. Part of
    those contracts was to provide a priority to those Federal
    demands, and it doesn't get much more specific than that. A
    priority for the Federal uses was primarily targeted to major
    users of helium, like NASA, DoD, or DOE.
        And at the time, as was mentioned in previous testimony,
    there was a higher price for crude helium, for a higher refined
    price, for those uses. So we were cognizant to the impact on
    the smaller users, by not requiring them to participate in the
    in-kind program.
        Going forward, as time has gone on, they have picked up and
    started participating in that program. But the companies still
    have a means to adjust what they deliver, based on what helium
    they can acquire and refine and sell. And they have put their
    customers on allocations----
        Dr. Holt. But let me ask you to answer more specifically.
    What is the source of these smaller deliveries? Why is that
    happening now?
        Mr. Spisak. Well, their----
        Dr. Holt. You know, so----
        Mr. Spisak. Yes.
        Dr. Holt. Let's see, Argonne Lab is currently receiving
    only 70 percent of its allocation; Oak Ridge only 60 percent of
    its allocation, so forth.
        Mr. Spisak. As the life of the field goes on, physics is
    asserting itself, and the pressure in the field is going down,
    the field, with the equipment installed, is not able to
    maintain the same flow rates that it did earlier in its life.
    And we are starting to see that now, where we are not able to
    keep up with all the demands out there that may come into
    place.
        You talked about going forward with this Act. I believe
    that we can, with the Act or some reauthorization passed,
    provide a stronger provision for Federal uses, given that this
    was developed for Federal----
        Dr. Holt. Didn't I hear you say that there should be a
    stronger provision for Federal uses?
        Here is my question. We have a Federal resource here. This
    is a resource owned by the taxpayer. If there is restricted
    flow for reasons of physics or other reasons, should the
    Federal uses, Federally funded research, the national labs,
    NASA, Department of Defense, have a better-protected priority
    for whatever that flow rate is?
        Mr. Spisak. Well, clearly, the helium was purchased for
    Federal uses, one of the tenants of it, and it would be
    certainly within Congress's purview to make that a clear
    priority, that that could be what is guiding, overall.
        Dr. Holt. OK. Well, we have only a few seconds left. But,
    Ms. Elmore, you say the BLM is not able to determine, doesn't
    have the ability to determine market price. Could they get that
    ability? I mean is this something we just have to work around?
    Or, if we required it and they hired appropriate people, could
    that be done?
        Ms. Elmore. Yes, we believe that can be done. As part of
    the Department of the Interior, there is an Office of Valuation
    Services. And within that office there is Office of Minerals
    Evaluation. And they have economists and geologists on staff
    that are there to help develop market value. They were
    originally stood up to make sure that when they were appraising
    land, that minerals were captured and true appraisal was
    formulated. So we believe that they could be that third
    independent party that you discuss in the legislation to help
    come up with the market value.
        Dr. Holt. Thank you.
        The Chairman. The time of the gentleman has expired. The
    Chair recognizes the gentleman from Colorado, Mr. Lamborn.
        Mr. Lamborn. Thank you, Mr. Chairman. And I am going to ask
    this same question of the third panel. One question that has
    been coming up recently in this debate is: Who actually owns
    the helium in the reserve? There has been some question that
    the process of granting allotments and specified shares has led
    to the belief that people with allotments and specified shares
    have an ownership interest in the helium in the reserve.
        Can you pin down that legal ownership issue of the helium
    in the reserve? That is important to know for our ongoing
    course of what we do here. Any one of you. We will start with
    you, Mr. Spisak.
        Mr. Spisak. Sure. Basically, the helium starts as Federal
    helium in place. As sales are made, we basically, on a piece of
    paper, a bookkeeping transfer of helium from the Federal
    account to the private account. And that happens each year with
    the sales. Over the last several years there is roughly a
    little over $1 billion cubic feet of private helium in the
    reserve. And that changes every day, as helium is redelivered.
    But the majority of it is Federal helium. But as it comes out
    of the ground it is redelivered as private helium.
        Mr. Lamborn. Do either of you two want to add to that?
        Mr. Garcia-Diaz. No. My understanding would be similar to
    that.
        Mr. Lamborn. OK.
        Ms. Elmore. I agree. I don't have any comment to add.
        Mr. Lamborn. OK. So at the time of sale, and after it
    leaves the ground, is that what you are saying, Mr. Spisak?
    Then it becomes the property of the buyer?
        Mr. Spisak. When the sale is made and the payment is
    completed, we will transfer it from the government account to
    the private account. But as it is produced and goes up the
    pipeline, it is being redelivered as privately owned helium.
        Mr. Lamborn. OK. All right, thank you. It is still a
    complicated system.
        Inspector General Elmore, your testimony states that the
    BLM has been operating without formal procedures for non-
    governmental helium sales, and that there are not the proper
    controls in place to provide for operational consistency, and
    to reduce the risk of fraud and waste. What can be done to
    ensure that does not continue? And does BLM have the tools
    needed to deal with the helium companies, and in an impartial
    manner, so as to get the best deal for the taxpayers?
        Ms. Elmore. I believe that good procedures are good
    business. And in response to our report, BLM has responded that
    they have already begun improving their procedures and
    documenting their policies and their operating procedures.
        What we pointed out to them is that if you don't have good
    procedures documented, you can't do your risk assessment well.
    You have got to make sure this money is tracked, and you want
    to make sure that it is not misused. You want to know that it
    is accounted for. And you want to make sure that you have good
    separation of duties. So, by documenting all their procedures
    and, yes, they can do that, I think it will really strengthen
    their program for the sales of 90 percent of their helium.
        Mr. Lamborn. So you are recommending better documentation.
        Ms. Elmore. Yes.
        Mr. Lamborn. Complete, thorough, and accurate
    documentation.
        Ms. Elmore. Yes, I am.
        Mr. Lamborn. And will that get us to the point that we need
    to under the current system, apart from legislation, but a
    current system or in the future, as well, to be where we need
    to be for the ultimate protection of the taxpayers?
        Ms. Elmore. Yes, I do. I think, under either system, their
    policies and procedures should be documented.
        Mr. Lamborn. OK. All right, thank you, Mr. Chairman. I
    yield back.
        The Chairman. I thank the gentleman, and I recognize the
    distinguished Ranking Member, Mr. Markey.
        Mr. Markey. Thank you, Mr. Chairman. Mr. Spisak, one of the
    central recommendations from the National Academy of Sciences
    in 2010 was ``the BLM should adopt policies that open its crude
    helium sales to a broader array of buyers and make the process
    of establishing the selling price of crude helium from the
    Federal helium reserve more transparent.''
        Do you think that the auction system created in the
    legislation the Chairman and I are introducing is consistent
    with the goals outlined by the National Academy of Sciences?
        Mr. Spisak. Thank you. The auction system, as outlined,
    certainly would be a way to make more transparent the sale of
    the reserve going forward.
        Mr. Markey. Ms. Elmore, do you agree?
        Ms. Elmore. Yes, I agree. I think the auction process will
    bring a higher rate, and it will open up more bidders, and open
    up the market to more people. So I think it is a great idea.
        Mr. Markey. And Mr. Garcia-Diaz, would the legislation that
    we have introduced address the three urgent issues identified
    by the GAO: one, how the helium program will be funded after
    2013; two, the price at which BLM sells its helium; and three,
    how the helium owned by the Federal Government should be used?
        Mr. Garcia-Diaz. Yes, we feel that the legislation will
    address those three urgent issues.
        Mr. Markey. Mr. Spisak, some have argued that the
    bipartisan legislation would not help bring any new helium to
    market. But the National Academy of Sciences concluded in 2010
    that BLM's current system for pricing crude helium may slow
    efforts to aggressively pursue alternative crude helium
    sources, and negatively impact the evolution of the helium
    market.
        Do you agree with the NAS conclusion that if we create a
    more transparent and open market for helium that better
    reflects a true price, it would provide additional economic
    incentives for private investment to bring new supplies of
    helium online, or to develop an efficiency and conservation
    measures? Do you agree with that?
        Mr. Spisak. Generally. The difficulty with the helium
    market is that it is a fairly small number of players. And the
    pricing is generally fairly closed, and it is difficult to get
    some of that information. The BLM's price being the only
    published price on the market has driven a lot of those price
    adjustments.
        I think the objectives in the Act that you have would help
    open that up, and allow more market-based pricing to come
    through.
        Mr. Markey. Mr. Garcia-Diaz, do you agree with what Mr.
    Spisak just said?
        Mr. Garcia-Diaz. Yes, I do. To the extent that you have
    more transparency about price, over the long run you will have
    something that is approaching more market than what we have
    now.
        Mr. Markey. Are we venting or flaring helium anywhere in
    the United States, or in the rest of the world? Mr. Spisak?
        Mr. Spisak. I don't have specifics, but I am certain that
    there are projects out there where the economics are either
    marginal to where helium is being lost with the natural gas, or
    that the various processes haven't been put in place yet to
    recover helium that is more economic. So yes, that is
    happening.
        Mr. Markey. So you are saying that if helium prices were
    higher, based upon a more open and transparent market, wouldn't
    that increase the economic incentive to potentially capture the
    helium that is not being captured right now?
        Mr. Spisak. Raising the price of helium will make projects
    more profitable, yes.
        Mr. Markey. Do you agree with that?
        Mr. Spisak. Yes.
        Mr. Markey. Do you agree with that, Ms. Elmore?
        Ms. Elmore. Yes, I do.
        Mr. Markey. There are some that argue that we should just
    keep the current system in place until we exhaust the BLM
    supply.
        Mr. Spisak, would you agree that if we don't put reforms in
    place now, we could easily have even more disruption in the
    helium supplies, and potentially very severe price spikes and
    economic pain for those industries and for consumers down the
    road?
        Mr. Spisak. Well, from that question, the premise I am
    assuming is that the funding issue would be fixed, but we would
    still be offering helium at the same levels that we are now.
    And that would set up a situation where we are promising to
    deliver, through sales, more than we would be able to produce.
    And that would cause significant disruptions, yes.
        Mr. Markey. So, in my opinion, Adam Smith would be spinning
    in his grave if he could see the way in which we were
    allocating this Federal resource to four companies at below
    market prices without competition. If we are going to avoid an
    even larger crisis and more severe price spikes in the future,
    we need to introduce some ruthless Darwinian-style competition
    into the helium market in order to incentivize private market
    investment.
        And I thank you, Mr. Chairman and the witnesses, for this
    hearing.
        The Chairman. And I thank you for those statements. I am
    speechless, but I am so----
        [Laughter.]
        Mr. Markey. Can I say that Adam Smith's most important
    chapter is on monopolies.
        The Chairman. Yes.
        Mr. Markey. And if you want to ever read something that
    will just----
        The Chairman. Yes, I----
        Mr. Markey [continuing]. Make your heart start to beat
    faster.
        The Chairman. It has been a----
        Mr. Markey. Monopolies----
        The Chairman. It has been a while since I have read ``The
    Wealth of Nations,'' but I know you are talking about that Adam
    Smith, not my colleague from Washington, so----
        [Laughter.]
        The Chairman. The Chair recognizes the gentleman from
    Virginia, Mr. Wittman.
        Dr. Wittman. Thank you, Mr. Chairman. I would like to thank
    our panel members for joining us today.
        Mr. Spisak, I want to address a question to you. In your
    testimony you pointed out that the legislation before us today
    would accomplish the original goals of the Helium Privatization
    Act by creating a glide path for the sale of helium.
        And I want to ask you if you could explain to us what the
    repercussions would be if the BLM were to do a sale where they
    would do one mass sale, single sale, where all the helium would
    be sold off at one time? What potential effect would that have
    on the marketplace? And is that something that is in the realm
    of consideration for the BLM in putting in place dispensing
    with the helium reserves?
        Mr. Spisak. Well, I will answer the latter part first. We
    are not considering a mass sale in that fashion.
        Dr. Wittman. OK.
        Mr. Spisak. Just off the top of my head, though, I think in
    doing it in such a manner, you would be putting out a lot more
    helium that would be able to be consumed immediately. And, very
    likely, the price could be much lower.
        Dr. Wittman. Right.
        Mr. Spisak. Additionally, though, you could have a
    speculator that might come in and might want to corner the
    helium market, so to speak, and buy a whole bunch, that they
    may not be equipped to deal with. So I wouldn't see that as a
    viable option.
        Dr. Wittman. OK. Let me ask you, too. I understand that
    somebody that is trying to purchase helium but is not part of
    the allocation doesn't have access to the pipeline to even
    purchase it. Can you tell me why that might be?
        Mr. Spisak. When we were developing some of our contract
    procedures, we recognized quite some time ago that there was
    more refining capacity already installed along the pipeline
    than what the field would be able to redeliver. And while we
    don't prohibit anybody else from installing additional
    capacity, we wanted to recognize that those that were there
    refining had installed a base, had a commitment in capital,
    that we wanted to ensure that there was a certain amount of
    helium to keep those existing plants loaded up.
        Dr. Wittman. OK. How would you, in the future, for anybody
    that rightfully buys helium, assure that they have access to
    the pipeline?
        Obviously, there are issues concerning people's access to
    it if they were to buy it and how they could transport it. Can
    you give us a little insight as to how that may occur?
        Mr. Spisak. Well, what you have currently proposed has some
    language in there about, in effect, opening up equal access to
    all that have an existing refining capacity. And if that is in
    place, we do have some storage contracts that are about to run
    their term. And it would be a matter of renegotiating those
    terms and basically opening it up to anybody that wants to
    build refining capacity.
        I still believe, though, a company coming in making a large
    investment in a refining capacity at this stage, the barriers
    to entry to those types of expenditures may preclude additional
    folks from making those types of decisions.
        But at the same time, as the field ages and there is lesser
    volumes of helium being produced, it may be appropriate to have
    a newer technology that can run and extract the helium at lower
    rates that might actually be what would be required to get us
    to the end.
        Dr. Wittman. Yes, I think it is extraordinarily important
    as we look at how to deal with dispensing with the helium
    reserves, to make sure that there is indeed equal access,
    regardless of who is capitalized, who is not capitalized, who
    would decide to get in the marketplace. I think those things
    should be secondary to making sure there is equal access. If
    folks have that, then they can make their own economic
    decisions about how to get in there.
        And I just want to be assured that you will make sure that
    happens as this process goes forward.
        Mr. Spisak. That can be done.
        Dr. Wittman. OK, very good.
        Thank you, Mr. Chairman. With that, I yield back.
        The Chairman. I thank the gentleman. And I will next
    recognize a new member of the Committee, Mr. Ruiz, from
    California. And if you are wondering why you are being
    recognized when you are down the list, we have a protocol on
    this Committee that members that are here when the gavel drops
    gets preference on asking questions. And you were here. So, Mr.
    Ruiz, you are recognized for 5 minutes.
        [Laughter.]
        Dr. Ruiz. I appreciate that. Thank you, Mr. Chairman. I am
    an emergency medicine physician, and so every day that I go
    into work, MRIs are a valuable resource to saving human lives.
    And so I appreciate the important role that helium has played
    for our patients and for all Americans throughout our country.
        My question, Mr. Daniel Garcia-Diaz, can you give us an
    idea of how the global helium market might react if Congress
    does not pass H.R. 527, or similar legislation to extend the
    life of the Federal helium reserve? And what would this mean
    for high-tech manufacturing in the U.S. and researchers working
    on cutting-edge applications relating to energy, national
    security, and telecommunications?
        Mr. Garcia-Diaz. Thank you. We haven't looked at the impact
    of not passing legislation extending the program beyond the
    dates in the 1996 Act. But if you look at the statistics behind
    the BLM reserve, that it accounts for over 40 percent of
    domestic helium and accounts for over 30 percent of
    international, or the global helium consumption, it is safe to
    say that it would have a very big impact if it were not
    available at this moment in time. And it would cut across all
    those industries that you have discussed.
        Dr. Ruiz. How about you, Ms. Elmore?
        Ms. Elmore. I agree. I think it is just a matter of supply
    and demand. If you take that helium out of the supply, the
    demand is far going to exceed the supply, and there won't be
    enough.
        Dr. Ruiz. This next question, Ms. Elmore. You state in your
    testimony that the OIG audit found that BLM has been operating
    without formal procedures for non-governmental helium sales
    since it assumed responsibility for the helium program in 1996.
    And you recommended that ``BLM prepare and implement
    comprehensive procedures for managing its helium sales to non-
    governmental buyers.''
        Would transparency provisions like those included in H.R.
    527 help prevent against waste, fraud, and mismanagement in the
    BLM helium program?
        Ms. Elmore. Yes, they will. The transparency provisions in
    the draft legislation, as an auditor, we love. They will lay
    out exactly what is happening, even down the minutes, the
    meetings between the refiners and the BLM. So I think the
    reporting procedures that were laid out add to the
    transparency. They will help BLM document their regulations.
    They will know what rules they have to comply with, and
    everybody working in that component will know what is expected
    of them.
        Dr. Ruiz. Thank you very much, and thank you all for being
    here. I yield my time, Mr. Chairman.
        The Chairman. I thank the gentleman for his participation,
    and welcome to the Committee.
        Next will be Mr. Daines from Montana, also a new member of
    the Committee. Welcome, and you are recognized for 5 minutes.
        Mr. Daines. Thanks, Mr. Chairman. This is for Deputy
    Director Spisak. Do you or somebody in the BLM do any type of
    price tracking to determine at what price the refined helium is
    being sold at after the crude is purchased at the significantly
    below-market-value prices? It goes back to that chart that we
    saw earlier.
        Mr. Spisak. A limited amount. When we were part of the
    Bureau of Mines, we had a much larger organization that kept up
    with helium uses and prices and such. When the Bureau of Mines
    went away in 1995, a lot of that capability left also.
        Mr. Daines. Right. And I guess maybe you could elaborate on
    the limited amount, what----
        Mr. Spisak. There is a USGS minerals commodity report that
    essentially the folks in Amarillo complete through a memorandum
    of understanding for USGS.
        Mr. Daines. All right. And then maybe, finally, if we look
    back, say over the last year, for example, would you have some
    kind of reporting that would show that gap?
        Mr. Spisak. We just don't have that type of information.
        Mr. Daines. OK. And one other question, just back on the
    supply and demand, the nature of helium. In your testimony you
    say that you support the goals of H.R. 527 and recognize the
    importance of keeping the reserve open. However, I think one
    day the reservoir will dry up and it will be time for us to
    pursue other ways to obtain helium.
        Are there other domestic sources of helium besides this
    reservoir?
        Mr. Spisak. There are several. And several of those are
    producing from Federal mineral state. And part of the standard
    BLM oil and gas lease withholds does not transfer the helium,
    the contained helium in that gas.
        And typically what happens is, as example, some of the
    plants in Southwest Wyoming that have a lot of Federal mineral
    state, we enter into a contract that authorizes the company to
    recover that helium, and when they recover it, that they
    provide it, in effect, like a royalty to the government for
    that sale.
        Mr. Daines. And last follow-up and then I will yield the
    rest of my time back.
        Do you recognize access to natural gas reserves on public
    lands as a potential obstacle to natural gas development, and
    therefore, the capture of crude helium?
        Mr. Spisak. The development of natural gas being----
        Mr. Daines. On public lands, yes. I represent the State of
    Montana. In terms of natural gas development, of which helium
    is a byproduct there.
        Mr. Spisak. I think the two are related, certainly, because
    helium will be found in all natural gas. It might be down to
    the parts-per-billion range in some, but it is really the rule
    of thumb, if there is three-tenths of a percent of helium in
    the natural gas, then it could be recovered.
        Certainly with the natural gas liquids processes, that
    threshold is lower. But there has to be a certain amount in
    there for the economics to work out.
        Mr. Daines. Mr. Chairman, I yield back the rest of my time.
        The Chairman. I thank the gentleman for his questions, and
    I recognize the gentlelady from Hawaii, Ms. Hanabusa.
        Ms. Hanabusa. Thank you, Mr. Chairman. Mr. Chairman, I
    would like to yield my time to the Ranking Member of the
    Subcommittee of Energy and Mineral Resources. Thank you.
        Dr. Holt. I thank my friend and colleague. I would like to
    pursue the kinds of questions that Mr. Daines and others have
    been asking. Much of the discussion about supply and demand
    curve is whether the price is fair. But I wanted to look at it
    from the other point of view of how can we ensure supply.
        It seems to me that the history shows that if it hadn't
    been for some far-sighted people years ago, we would be in
    short supply of helium now. And I wanted to pursue that,
    understand really what happened back in the 1960s, and what is
    happening in the world at large now.
        So, Mr. Spisak, let me start with you. How dependent is the
    helium production on the market price? Now, I realize maybe
    asking the BLM, that is asking the wrong person, but we have to
    get this somehow. To what extent would a free-market-based
    pricing system, auction or otherwise, ensure adequate supply?
        Mr. Spisak. It will be a step in the right direction.
    However, natural gas production, which the helium production is
    dependent on, is a much bigger enterprise. And the small amount
    that the helium brings is sometimes maybe seen as a hindrance.
    And it may not be put forth to recover. So, certainly, as the
    price goes up and as time goes on, the price goes up further,
    there will be more incentive to put up with the hindrance and
    recover that helium.
        Dr. Holt. The reason I ask the question is back in 1960
    most of the uses of helium today were not foreseen. And I
    imagine much of the demand for helium in coming decades will
    not be foreseen today. And so, today's market may not lead us
    to set aside helium. Now, it may be that there will be enough
    natural gas in future years that we can get it, but some of the
    reserves of natural gas out there, I think, are not so rich in
    helium.
        So, let me pursue this line of questioning a little
    further. Maybe this is for Mr. Diaz. What are other countries
    doing? And for the privately produced helium here, how much is
    production determined by the price today?
        So, let me ask first Mr. Spisak, maybe you have said all
    you have to say on that subject, and then turn to Mr. Diaz.
        Mr. Spisak. Well, I think you are right about back in the
    1960s. I think we might live in quite a different world if
    helium wasn't around as such to allow for some of the research
    and things like that that have gone on. But, I have a feeling I
    know what Daniel is going to say, but I think your panel three
    with some of the sources will have maybe a really good idea, or
    maybe convey some of the information about international
    supplies coming on, and the effects on price.
        Dr. Holt. Mr. Diaz, in the minute that remains?
        Mr. Garcia-Diaz. Yes, right now, based on some of the
    information from USGS and BLM, there is kind of a supply
    response happening. But it is slow in the making. So some added
    production is being developed in other countries, but it will
    be a while before those come online.
        There is a greater demand in application for helium. We
    don't know what it will be 10 or 20 years from now, that is
    true. But right now there are a lot of industries that are
    relying on it for manufacturing. The space industry will still
    continue using it. The Department of Defense will still be
    using it. So----
        Dr. Holt. If we let the stockpile be depleted completely,
    might we run into some supply problems as new uses emerge? This
    has to be a very quick answer, I think.
        Mr. Garcia-Diaz. We haven't done work to forecast that, to
    understand if we would deplete it and be in a bad situation.
        Dr. Holt. Thank you.
        The Chairman. The time of the gentleman has expired. I
    recognize the gentlelady from Wyoming, Ms. Lummis.
        Ms. Lummis. Thank you, Mr. Chairman. Mr. Spisak, does the
    BLM have the resources and the technical expertise to
    administer an auction like the one that is described in the
    Hastings bill?
        Mr. Spisak. Yes, I believe we do.
        Ms. Lummis. For all the witnesses, we know that refiners
    have said that the Secretary always has had the authority to
    increase the price of helium under the current way it does
    business. So the new system of setting a fair-market price is
    not necessarily warranted. Can you explain why the Secretary
    did not increase prices over the minimum price?
        Mr. Spisak. Over the history of the program there is a lot
    of interaction with the BLM and industry. And at various times
    during that history there has been interaction with Congress
    and others about how we manage the program. Part of that came
    through in the 1996 Act.
        Ms. Lummis. OK.
        Mr. Spisak. I would say, generally speaking, we are going
    to take an approach of a path to least resistance when it comes
    to pricing. It started out being much higher, and then we
    started having those shortages in 2004, 2005, and 2006. That
    led us to having the academies refreshen the study and they
    came up with, basically, almost a 90 or almost a 180 degree
    turn from the 2000 report. And so, we tend to move slower than
    many would like. But that was part of the process that we went
    through to start raising that price.
        We have talked about a fair-market price. That has always
    been a very difficult thing to determine.
        Ms. Lummis. Right.
        Mr. Spisak. And it is easy to say, ``Charge a fair-market
    price.'' But the data is not there, just to pick out that
    number. If it was easy, it would have been done already.
        Ms. Lummis. Another follow-up question for you, Mr. Spisak.
    How confident are you that, using the tools that are prescribed
    in this piece of legislation, it is the confidential survey and
    the market analysis, that you could reach a minimum price that
    is more relative to market price?
        Mr. Spisak. Well, using the minimum price, and we are kind
    of going down that path already with the Inspector General
    recommendations, and we are working with our Office of Mineral
    Evaluations and, actually, my understanding is they are going
    to contract that out, that evaluation, because of a lot of the
    proprietary information that you are talking about.
        We believe we will be able to pull together that
    information and, using the auction mechanism and the minimum
    pricing together, we will be able to meet the objectives.
        Ms. Lummis. Well, Mr. Chairman, a couple more questions
    because your answer just led me into my next question.
        Do you envision that this minimum price would be
    confidential? In other words, would the minimum price that you
    establish be published as the starting bid? Or would it be held
    back and companies would bid blindly, like they do under the
    co-lease program?
        Mr. Spisak. Given the concerns of transparency that have
    been conveyed in the bill, I would expect that we would publish
    the minimum price, and that would be posted.
        Ms. Lummis. Oh, OK. Couple more questions, Mr. Spisak.
    Written testimony offered by the refiners indicates their
    belief that the BLM is under contract to offer access to the
    helium extraction unit and the pipeline. Do you share that
    opinion? This is with regard to the current system of
    allotment, granting three refiners near-exclusive access to the
    Federal helium stockpile.
        Mr. Spisak. Well, the storage contracts that I mentioned,
    and I have seen in some of the testimony they are referring to,
    go into 2015. Given the delay that is built into the Act as
    written would have a buffer time that would get us close to
    that point. I believe we would be able to thread that needle,
    as it were, to close that out and move forward post-2015, with
    a more open process with an auction.
        Ms. Lummis. Now, with regard to the contract, in your
    opinion does that contract terminate with the end of the debt
    repayment program?
        Mr. Spisak. No, the storage contracts were in place
    starting in 1995, and were actually a follow-on from previous
    storage contracts. They don't really tie to the helium debt at
    all.
        Ms. Lummis. OK. Mr. Chairman, thank you. I yield back.
        The Chairman. I thank the gentlelady for her questions, and
    I thank all of the Members for their questions. In particular,
    I want to thank the first panel. I thought your testimony was
    very enlightening, and it certainly is in line with the intent
    of those of us that have cosponsored the bill.
        So, with that, I will dismiss the first panel and, if we
    could, call up the second panel: Mr. Rodney Morgan, Brad
    Boersen, Gary Page, and Dr. Sam Aronson.
        Thank you all for being here. I am going to introduce the
    panel out of order, because I understand that Mr. Morgan is a
    constituent of Mr. Labrador, and he wants to be here for the
    proper introduction. So I don't know if that was prearranged or
    not, Mr. Morgan, but you are on the hot seat, anyway.
        We have, starting on my right, we have Dr. Sam Aronson,
    Vice President of APS Physics. Next to him we have Gary Page,
    President of Helium and Balloons Across America. And then we
    have Mr. Brad Boersen, Director of Business Strategy of the
    Optical Fiber and Cable Telecommunications Business Group of
    Corning, Incorporated.
        And I see that Mr. Labrador isn't here, so he has missed
    out on this, and Mr. Morgan, you have missed out on it,
    apparently. You are Vice President of Procurement of Micron
    Technology out of Boise, Idaho.
        Now we will go in order. And, Mr. Morgan, you are
    recognized for 5 minutes.
        But before I recognize you, I am sure you heard what I said
    to the previous panel. The full statement that we ask of you
    will appear in its entirety in the record. But I would ask you
    to keep your oral statements within the 5-minute mark. And
    again, when the green light is on, you are doing well. When the
    yellow light comes on, it means there is 1 minute left. And if
    the red light comes on, it means your time is expired.
        So, Mr. Morgan, recognize you for 5 minutes.

      STATEMENT OF RODNEY MORGAN, VICE PRESIDENT OF PROCUREMENT,
                           MICRON TECHNOLOGY

        Mr. Morgan. Mr. Chairman, members of the Committee, thank
    you for the opportunity to testify on H.R. 527, The Responsible
    Helium Administration and Stewardship Act. On behalf of Micron
    and the Semiconductor Industry Association, our industry trade
    association, I am here to lend my voice to the growing chorus
    of manufacturers concerned about the eminent closure of the
    Federal helium reserve. H.R. 527 is important legislation for
    the semiconductor industry. It will ensure the continued
    operation of sales of helium from the Federal helium reserve,
    providing a stable and secure supply of critical material for
    the next few years.
        Founded nearly 35 years ago in Boise, Idaho, Micron has
    grown into a company of 25,000 people, and a global leader in
    the computer memory technology arena. In fact, we are the only
    pure play memory manufacturer based in the United States. The
    semiconductor industry is a signature American industry, and
    one in which we still lead. It is a key driver of the economy,
    employs a quarter-million people, and is one of the country's
    top exporters. Helium is just one of a number of gases used to
    make memory chips, but it is absolutely vital.
        Put simply, without helium, we cannot operate. Helium's
    unique physical and chemical properties make it critical to the
    manufacture of semiconductors. Some principal uses are as
    carrier gas for deposition processes, as dilutant in plasma
    edge technologies, and in some specialized ways for cooling
    applications.
        In some applications, alternatives to helium, such as argon
    or nitrogen, may be used. But this typically results in a
    decrease in manufacturing output. Micron has been working to
    develop alternatives to helium, but for some processes we have
    been unable to find another option. Alternatives could also
    result in costly, unproven retrofits to tools used that make
    our products.
        For all its great properties, helium is really difficult to
    manage. Because it is a small molecule, it quickly leaks out of
    containers. Due to the problems associated with storing helium,
    we are dependent on regular deliveries. A delay of even a few
    days could slow production at a semiconductor facility. A
    significant delay could idle a plant entirely.
        It is worth noting we are already facing supply shortages.
    In fact, for most of the past year, we have been receiving a
    lower percentage of helium for which we have contracted. Again,
    Micron is not unique in this situation. All users of helium
    have had to struggle through reduced helium deliveries. As
    everyone here today knows, the Federal helium reserve operated
    by the Bureau of Land Management comprises a significant
    portion of the world's helium supply.
        What would happen if helium reserve were to stop making
    available sale to the private entities? It is hard to say for
    certain, but there is no question that it would be disruptive
    to the market. If supplies were disrupted for a significant
    period, it could even impact the overall economy. A significant
    delay might not just slow the production of computer chips, but
    the computers, lifesaving medical devices, and weapons systems
    they power. That is an unacceptable scenario.
        Micron technology and the Semiconductor Industry
    Association are absolutely committed to ensuring a stable,
    secure supply of helium. H.R. 527, Responsible Helium
    Administration and Stewardship Act, represents a significant
    step forward in addressing the concerns associated with the
    helium supply from the reserve. The bill provides the continued
    operation of the Federal helium reserve and the sale of helium
    to private entities, thereby helping to ensure a stable and
    secure supply of helium in the near future. It provides price
    transparency through clear reporting requirements for both the
    BLM and those who purchase the helium. H.R. 527 also provides
    some protection against market speculation and it provides an
    ample transition period.
        I should note that the auction system envisioned by the
    bill would pose some uncertainty for helium users and our
    practice of entering into long-term supply contracts. But we
    believe the bill provides the Secretary of the Interior with
    the discretion to manage those uncertainties. These concerns
    should not delay the need to address this issue immediately.
    H.R. 527 is important and urgently needed legislation to
    address the helium supply.
        We applaud Chairman Hastings, Ranking Member Markey for
    their work on this bill, and we urge the full House to consider
    the legislation soon.
        Again, thank you for the opportunity to testify. Mr.
    Chairman, I am happy to answer any questions.
        [The prepared statement of Mr. Morgan follows:]

          Statement of Rodney Morgan, Vice President of Procurement,
                               Micron Technology

        Mr. Chairman, thank you for the opportunity to testify on H.R. 527,
    ``The Responsible Helium Administration and Stewardship Act.'' My name
    is Rodney Morgan and I am the Vice President of Procurement for Micron
    Technology. In this capacity I oversee all purchasing by Micron,
    including critical materials like helium.
        On behalf of Micron and the Semiconductor Industry Association
    (SIA),\1\ our industry trade association, I am here to lend my voice to
    the growing chorus of manufacturers concerned about the imminent
    closure of the Federal Helium Reserve. H.R. 527 is important
    legislation for the semiconductor industry. It will ensure the
    continued operation of and sales of helium from the Federal Helium
    Reserve, providing a stable and secure supply of a critical material
    for the next few years.
    ---------------------------------------------------------------------------
        \1\ More information on Micron is available at www.micron.com.
    Additional information on SIA, including a list of members, is
    available at www.sia-online.org.
    ---------------------------------------------------------------------------
        Founded nearly 35 years ago in Boise, Idaho, Micron has grown into
    a global leader in computer memory technology. In fact, we are the only
    pure play memory manufacturer based in the United States. In addition
    to our headquarters in Boise, we have major manufacturing operations in
    Lehi, Utah, and Manassas, Virginia, as well as in Asia and in Europe.
    Micron also has design and research and development facilities in
    California, Texas, Colorado, and Minnesota. In all we employee more
    than 25,000 people, approximately half of which are in the United
    States.
        The U.S. semiconductor industry is a key driver of the economy and
    one of our top exports.\2\ Semiconductors are the basic building block
    of all modern electronics, and every year approximately 250,000
    Americans work together to produce millions of computer chips that make
    smart phones, GPS, and MRI's possible. It is a signature American
    industry and one in which we still the lead.
    ---------------------------------------------------------------------------
        \2\ There are 244,800 direct jobs in the industry. SIA has also
    calculated that there are 1.1M indirect jobs.
        Source: calculations based on Official U.S. Government data from
    the U.S. Bureau of Labor Statistics
    ---------------------------------------------------------------------------
        Manufacturing semiconductors is an incredibly complex process. It
    takes weeks and hundreds of processes to make a chip, using
    sophisticated equipment and techniques developed by the world's leading
    scientists and engineers.\3\ The technology is constantly evolving to
    produce faster and better products. It is also an incredibly capital
    intensive business. A typical semiconductor manufacturing facility is a
    multibillion dollar investment. Micron typically introduces a new
    product every six months. We introduced two just last week, for
    instance. But for all the technology, many of the processes and
    materials are fairly basic. Helium is just one of a number of gasses
    used to make our memory chips, but it's absolutely vital. To put it
    simply, without helium, we cannot operate. Micron is not alone in its
    dependence on this crucial gas.
    ---------------------------------------------------------------------------
        \3\ USPTO granted 913 patents to Micron in 2012, and six of top 15
    U.S. companies were semiconductor companies (IBM, Qualcomm, Intel,
    Broadcom, Micron, and Texas Instruments).
        Source: USPTO, compiled by IFI Claims
        U.S. semiconductor industry invests on average 15-20 percent of
    sales in R&D. In 2011, U.S. industry invested 18 percent of total sales
    (or $27 billion) in R&D Source: WSTS and IC Insights
    ---------------------------------------------------------------------------
        Helium's unique physical and chemical properties make it critical
    to the manufacture of semiconductors. Helium is inert, has a low
    boiling point (4 Kelvin, near absolute zero), and high thermal
    conductivity. Some principle uses of helium in the semiconductor
    industry are as a carrier gas for deposition processes, as a dilutant
    in plasma etch processes, and in some specialized wafer cooling
    applications.
        Helium is used to achieve ultra-clean manufacturing and assembly
    environments that are essential for advanced semiconductor
    manufacturing.\4\ According to the National Academy of Sciences,
    semiconductor and optical fiber manufacturing account for 13 percent of
    total helium usage.\5\ Suppliers to the industry have indicated that
    semiconductor manufacturing accounts for approximately 6 percent of
    helium usage. Although the semiconductor industry consumes only a small
    amount of the overall quantity of helium used today, it remains a
    critical, irreplaceable input into our manufacturing process.
    ---------------------------------------------------------------------------
        \4\ ``Selling the Nation's Helium Reserve'' (2010) at pp. 63, 67.
        \5\ ``Selling the Nation's Helium Reserve'' (2010) at p. 17.
    ---------------------------------------------------------------------------
        In some applications, alternatives to helium such as argon or
    nitrogen may be used, but this typically results in a decrease in
    manufacturing output. Micron has been working to develop alternatives
    to helium, but for some processes, we have been unable to find another
    option. Alternatives could also result in costly, unproven retrofits to
    the tools used to make our products.
        For all its great properties, helium is really difficult to manage.
    Because it is a small molecule, it quickly leaks out of containers.
    Anyone who has filled a latex balloon with helium only to find it on
    the ground the next day, has witnessed this. Due to the problems
    associated with storing helium, we are dependent on regular deliveries
    to our facilities. A delay of even a few days could slow production at
    a semiconductor facility. A significant delay, could idle a plant
    entirely. This possibility would result in significant costs to our
    company, the industry and country as a whole.
        It's worth noting that we are already facing supply shortages. In
    fact, for most of the past year, we have only been receiving about 80
    percent of the helium for which we have contracted. Again, Micron is
    not unique in this situation. All U.S. users of helium have had to
    struggle through reduced helium deliveries.
        As everyone here today knows, the Federal Helium Reserve operated
    by the Bureau of Land Management comprises a significant portion of the
    world's helium supply. What would happen if the helium reserve were to
    stop making helium available for sale to private entities? It's hard to
    say for certain, but there is no question that it would be disruptive
    to the market. And for reasons already mentioned, it has the potential
    to be damaging to U.S. manufacturers, and the semiconductor industry in
    particular. If supplies were disrupted for a significant period it
    could even impact the overall economy. That may seem like a stretch,
    but we should not forget the impact flooding in Thailand had on the
    shipment of hard disk drives.
        In November of 2011, widespread flooding in Thailand forced a
    number of hard disk drive manufacturers to halt production. Fewer hard
    disk drives were shipped, leading to price increases and shortages.\6\
    Now imagine not just the delay of computer chips, but the computers,
    life-saving medical devices, and weapons systems that they power.
    That's an unacceptable scenario.
    ---------------------------------------------------------------------------
        \6\ Thomas Fuller, ``Thailand Flooding Cripples Hard-Drive
    Suppliers,'' The New York Times, 11/6/11
    ---------------------------------------------------------------------------
        Congress must act to prevent the looming helium shortage. BLM's
    authority to operate the reserve is set to expire, and it requires an
    act of Congress to keep the reserve open. As such, SIA worked with a
    group of helium end-users to develop a set of principles that we
    thought should be included in any legislation to address the helium
    supply. These were:
            1.  Establish a framework for secure, continuous supplies of
            helium that can be implemented through long-term contracts with
            suppliers.
            2.  Ensure price transparency.
            3.  Provide for mechanisms to prevent market speculation or
            manipulation.
            4.  Adequate transition period to assure continuity in
            supplies.
            5.  Promote increased supplies of helium in the future.
        When used to evaluate H.R. 527, ``The Responsible Helium
    Administration and Stewardship Act,'' we see that it is largely
    consistent with the spirit of these principles. The bill provides a
    framework for a secure supply. It provides price transparency through
    clear reporting requirements for both the BLM and those who purchase
    the helium. H.R. 527 also provides some protection against market
    speculation. And it provides an ample transition period. The new
    approach envisioned by the bill would pose some uncertainty for helium
    users and our practice of entering into long term supply contracts, but
    we believe the bill provides the Secretary of the Interior with the
    discretion to manage those uncertainties. These concerns should not
    delay the need to address this issue immediately.
        Micron Technology and the Semiconductor Industry Association are
    absolutely committed to ensuring a stable and secure supply of helium.
    H.R. 527, ``The Responsible Helium Administration and Stewardship
    Act,'' represents a significant step forward in addressing the concerns
    associated with the helium supply from the reserve. The bill provides
    for the continued operation of the Federal Helium Reserve and the sale
    of helium to private entities, thereby helping to ensure a stable and
    secure supply of helium in the near term. It is important and urgently
    needed that the House act on legislation to address the helium supply.
    We applaud Chairman Hastings, and Ranking Member Markey for their work
    on this bill, and we urge the full House to consider the legislation
    soon.
        Again, thank you for the opportunity to testify, Mr. Chairman. I am
    happy to answer any questions.
                                     ______

       Response to questions submitted for the record by Rodney Morgan,
                Vice President of Procurement, Micron Technology

        *Micron Technology and the Semiconductor Industry Association (SIA)
    is pleased to provide this response to the Question for the Record
    posed by Representative Markey in a letter from the Natural Resources
    Committee dated March 11, 2013. The question from Rep. Markey is as
    follows:
            ``At current drawdown rates, in 5 to 8 years, the helium in the
            BLM Reserve is anticipated to be largely depleted. Should
            Congress consider steps to provide for a long-term helium
            stockpile? If so, what steps do you believe Congress should
            take?''
        Helium is used in increasing amounts in a range of advanced
    manufacturing processes, including the production of semiconductors,
    but there is a global supply shortage that has resulted in Micron and
    others in the semiconductor industry receiving a limited ``allocation''
    of supply. While a number of new sources of helium are expected to come
    online in the near future, it remains unclear whether the private
    sector will be able to meet the increased need for helium by government
    entities, industry and the scientific community. Therefore it is
    appropriate for the federal government to maintain some form of
    strategic reserve of this important material to prevent supply
    disruptions in the future.
        A more difficult question is the steps Congress should take to
    address the long term helium needs of the industrial and scientific
    community. Unfortunately, we are not aware of any simple fix to the
    challenge of long-term helium supplies, but we believe that Congress
    should make this issue a priority. Some of the provisions in H.R. 527
    may result in an improved climate for the supply of helium. First,
    establishing a market price should result in increased helium supplies
    over time by encouraging more private investment. Second, the
    transparency provisions set forth in Section 5 will provide information
    that will allow all stakeholders to make better informed decisions
    about the production, storage, and use of helium.
        We also suggest that Congress should take the following steps:
          Direct the appropriate federal agencies, or the National
    Academies, to publish a study to address issues related to the helium
    supply and uses that would include the following:
            1.  Techniques to improve and increase the capture of helium
            from gas wells.
            2.  Improved methods for the conservation, recapture, and
            recycling of helium in current applications.
            3.  Alternatives to helium in non-critical applications.
          Consider appropriate incentives for increased production
    and storage of helium.
        We appreciate the Committee's consideration of our views.
                                     ______

        The Chairman. Thank you very much, Mr. Morgan, for your
    testimony. And I will recognize Mr. Boersen of the Corning
    Corporation for your testimony. And you are recognized for 5
    minutes.

      STATEMENT OF BRAD BOERSEN, DIRECTOR, STRATEGIC PLANNING AND
            ANALYSIS FOR OPTICAL FIBER, CORNING INCORPORATED

        Mr. Boersen. Thank you, Chairman Hastings and Ranking
    Member Markey. Corning appreciates your leadership and
    bipartisan cooperation on the important issue of the Federal
    helium reserve. I am Brad Boersen, Director of Business
    Strategy for Corning's fiber and cable business.
        Corning has been in business for over 160 years, and was
    founded by the great-great-grandfather of Amo Houghton, Jr.,
    who served with many of you in the House for 18 years.
    Invention and innovation have been the keys to Corning's
    success throughout our history. This has led to life-changing
    inventions, such as optical fiber, catalytic converters, and
    glass for liquid crystal displays.
        While I am here representing Corning, we are also part of
    an informal coalition of end users representing medical
    imaging, semiconductors, fiber optics, chemicals, aerospace,
    and science, and research. As a whole, these end users play a
    major role in the U.S. economy. The coalition's main priority
    is to ensure a secure and sufficient supply of reasonably
    priced helium. And so we are focused on expeditious passage of
    legislation to keep the reserve operating. Our efforts are
    guided by a set of five principles, and I will say more about
    them in a minute.
        Let me first explain the use of helium in optical fiber
    manufacturing. Corning is the world's largest producer of
    optical fiber. Our competitors are in Japan, China, India,
    Europe, and North America. The fiber-making process begins by
    creating a glass rod, which is termed a pre-form, which is
    heated close to its melting point and drawn into fiber. The
    fiber is the diameter of a human hair, with dimensional
    precision at the one-micron level. It is then tested at
    strength at at least 100,000 pounds per square inch.
        Helium is used to manufacture the pre-form, and there is
    presently no substitute for helium in this portion of the
    process. Corning has been concerned about the depletion of the
    BLM reserves since 2007, when we first experienced helium
    shortages. As we evaluated the security and availability of
    supply, we projected BLM would reach its limit by about 2018,
    if not sooner.
        Based on this projection, Corning began to pursue more
    aggressive conservation measures, such as reuse and recycling,
    which we have been doing for 17 years. Additionally, we have
    invested over $10 million in R&D since 2007 to reduce
    consumption. And we will continue these investments.
        Now, let me turn to H.R. 527. This bill represents
    significant progress, and the Committee is to be commended. Let
    me highlight three key principles: transition, transparency,
    and supply.
        First, we appreciate the inclusion of a 1-year transition
    period. This provision is significant. And it is necessary for
    BLM to establish the process and procedures, as well as for
    refiners, distributors, and end users, to determine how best to
    operate under the new system.
        Second, we strongly support the transparency provisions in
    section 16. Because the BLM represents a significant share of
    the global helium supply, its actions have a major impact on
    helium supply to all end users. The provisions will make
    critical information available to manufacturers that will
    improve supply chain responsiveness and efficiencies.
        We believe if these provisions had been in place last
    spring, Corning would not have incurred significant increased
    costs as a result of allocation measures imposed on us with
    limited notice.
        Third, we are pleased the Committee reduced the frequency
    of auction from quarterly to twice annually. We believe fewer
    auctions minimize uncertainty of supply. While we would prefer
    a more gradual adjustment to the process, we understand the
    Committee's goal to establish a more market-driven pricing
    mechanism and, therefore, maximize taxpayer revenue.
        So, let me summarize the three key principles driving
    Corning's focus on the helium legislation. First, supply,
    supply, supply. Maintaining BLM's operation of the helium
    reserve is job one. Second, transition. Business thrives on
    certainty. And time to shift from the existing system to an
    auction process is essential. Finally, transparency. In a
    constrained market, where every molecule of helium is needed,
    the more information about supply, the better. These provisions
    will allow end users to react sooner and adjust more quickly to
    handle disruptions.
        We commend the Committee for its leadership on this issue,
    and look forward to continuing to work with you. Thank you.
        [The prepared statement of Mr. Boersen follows:]

     Statement of Brad Boersen, Director, Business Strategy, Optical Fiber
       and Cable--Telecommunications Business Group, Corning Incorporated

    Introduction
        Thank you Chairman Hastings and Ranking Member Markey for the
    opportunity to be here today. Corning appreciates your leadership and
    bipartisan cooperation on the important issue of the Federal Helium
    Reserve.
        I am Brad Boersen, the director of Business Strategy for Corning's
    Optical Fiber and Cable business. My responsibilities include global
    strategic planning, market analysis and forecasting, and business
    development.
        Corning Incorporated (Corning) is a world leader in specialty glass
    and ceramics. We have been in business as an American manufacturer for
    over 160 years. We were founded in 1851 by Amory Houghton, the great-
    grandfather of Amo Houghton, Jr., who served with many of you in the
    House for 18 years.
        We research, develop, and manufacture a wide range of intermediate
    products including optical components for telecom networks, mirror
    blanks for space telescopes, and Corning Gorilla Glass, a product
    which is now on more than one billion consumer electronic devices.
    Corning has a long history of technology innovation and is a four-time
    recipient of the President's National Medal of Technology and
    Innovation. One of those four medals was awarded to Corning for its
    invention of optical fiber. We remain a global leader in optical fiber
    manufacturing and technology. We continue to operate the world's
    largest and most advanced optical fiber manufacturing facility here in
    the United States.
    End-User Coalition
        While I am here representing Corning, I wanted to acknowledge that
    Corning also is part of an informal coalition of end-users representing
    a number of important industries, including medical imaging,
    semiconductors, fiber optics, chemicals, aerospace, and others that
    depend on helium for essential applications. In addition, helium is an
    important gas for the scientific and research community. As a whole,
    these users of helium play a major role in the U.S. economy, national
    security, and scientific advancement.
        The Coalition's main priority is to ensure a secure and sufficient
    supply of reasonably priced helium. This will not be possible without
    expeditious passage of legislation to allow BLM to continue to extract
    helium from the reserve. The Coalition developed a set of principles to
    guide our deliberations and discussions with the Committee. This
    coalition appreciates the work of the Committee and its subcommittee
    staff, both majority and minority, to address our key principles.
        The principles are:
            1.  Establish a framework for secure, continuous supplies of
            helium that can be implemented through long-term contracts with
            suppliers
            2.  Ensure transparency
            3.  Provide for mechanisms to prevent market speculation or
            manipulation
            4.  Transition period to assure continuity in supplies
            5.  Promote increased supplies of helium in the future
        I will discuss the principles in more detail later in my statement.
    Optical Fiber Manufacturing
        Corning is the world's largest producer of optical fiber and the
    only U.S.-owned company making optical fiber. We compete with optical
    fiber manufacturers in Japan, China, India, and Europe. We employ about
    1,600 people in the United States in our optical fiber business.
        Optical fiber changed the way the world communicates. About 1.8
    billion kilometers of optical fiber are deployed worldwide, connecting
    people, business communities, countries and continents. We continue to
    innovate for new applications and markets.
        The fiber making process begins by creating a glass rod or
    ``preform'', with the deposition of the materials controlled so
    precisely that impurities are measured in parts per billion. The
    preform is heated close to its melting point and drawn into fiber
    before being coated with an acrylate protective layer (or ``coating'').
    The fiber is the diameter of a human hair, with dimensional precision
    at the one-micron level. It is tested for strength at 100,000 pounds
    per square inch.
        As the National Academy of Sciences reported, helium is used to
    manufacture the preform. Helium is the only gas that prevents bubbles
    from forming in the preform manufacturing step, which would render the
    fiber unusable. There is presently no substitute for helium in this
    process. It is also commonly used to cool the fiber as it is drawn.
        We require helium in sufficient quantities and at prices that
    enable us to maintain our global cost competitiveness. Given the unique
    qualities of helium, it is difficult to store on site for more than 10
    days. For this reason, and the global nature of our demand, we have
    established strategic supplier relationships and long-term supply
    agreements.
        Corning has been concerned about the depletion of the Bureau of
    Land Management (BLM) reserve since 2007, when we first experienced
    helium shortages that required suppliers to enforce allocation
    restriction on end-users. This event drove Corning to evaluate the on-
    going security and long-term availability of supply. Based on this
    evaluation, we projected from BLM and USGS data, that BLM will reach
    the depletion limit of 3 billion cubic feet by about 2018, if not
    sooner.
        This realization led Corning to pursue more aggressive conservation
    measures such as reuse and recycling. Corning recognized the
    significance of helium reuse/recycling early on and have engaged in
    this practice for over 17 years. We have invested over $10 million in
    R&D since 2007 to reduce consumption. We will continue to invest
    millions in R&D to further identify ways to reduce helium use or find
    an acceptable substitute.
        Unlike the 2007 allocation experience which was brief, the 2012
    supply allocation that was imposed by suppliers in the spring remains
    in effect and is expected to continue given market conditions.
    The Responsible Helium Administration and Stewardship Act (H.R. 527)
        The Committee has worked hard to ensure the broad range of concerns
    and interests of all parties affected are addressed and we believe that
    H.R. 527 represents significant progress. As mentioned above, the
    coalition principles have provided a foundation to guide our assessment
    of the legislation. Corning would like to focus on three of the
    principles: transition, transparency and supply.
        First, we appreciate the inclusion of a one-year transition period.
    This transition period will allow BLM to establish the auction process
    and procedures. Further, the transition will allow refiners,
    distributors and end-users time to evaluate the impact on existing
    contracts and determine how best to operate under the auction system.
    This provision is significant.
        Second, we strongly support the transparency provisions in Section
    16 of the legislation. Because the BLM represents a significant share
    of the global helium supply, its actions have a major impact on helium
    supplies to federal, industrial, medical and other commercial users.
    The provisions will provide manufacturers critical information
    necessary to adjust in a timely manner to planned and unplanned
    disruptions of the reserve. We believe if these provisions had been in
    place last spring, Corning would not have incurred significant
    increased costs as a result of allocation measures imposed on us with
    limited notice. The provisions bring transparency at the production
    level that will improve supply chain responses and efficiencies.
        Third, we are pleased that the committee reduced the frequency of
    auction from quarterly to twice annually. We believe fewer auctions
    minimize uncertainty of supply. While we would prefer a more gradual
    adjustment to the auction process, we understand the Committee's goal
    to establish a more market-driven pricing mechanism and, therefore,
    maximize the taxpayer revenue.
        Manufacturers' value chains are a global web of suppliers and
    customers that must be coordinated to ensure responsive delivery, often
    within 24 hours. Managing these relationships and meeting the demands
    of our customers, require careful planning, precision processes and
    carefully negotiated contracts to ensure maximum certainty and security
    of supply.
        H.R. 527 establishes an auction system, which represents a change
    from existing practices. Our focus, in this process, has been to ensure
    that any new process adequately addresses end-users concerns about
    reliable supply, as the system contemplated may prevent end-users from
    knowing which refiners have available supply. Under existing practices,
    end-users have established supply chains and legally binding long-term
    supply agreements. These are important, because Corning, like most
    manufacturers, requires refined helium.
    Conclusion
        For Corning, like most end-users, our top priority is ensuring that
    Congress expeditiously passes legislation allowing BLM to maintain
    operations of the helium reserve.
        So let me summarize the three key principles driving Corning's
    focus on helium legislation:
            1.  Supply, supply, supply. In the constrained helium market,
            maintaining BLM's operation of the helium reserve is critical.
            2.  Transition. Business thrives on certainty and part of
            ensuring adequate supply is having an adequate transition
            period to shift from the existing system to an auction process.
            And to have the flexibility in that process to minimize supply
            disruptions.
            3.  Transparency. In a constrained market where every molecule
            of helium is needed, the more information the better. Providing
            data regarding BLM's operations, maintenance schedules and
            other factors affecting supply will allow end-users to react
            sooner and take more effective action to adjust and plan for
            disruptions.
        In conclusion, we commend the Committee for its leadership and
    decisive action. We look forward to continuing our work with you to
    maintain the operation of the BLM helium reserve.
        Thank you.

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Response to questions submitted for the record by Brad Boersen,
        Director, Strategy Optical Fiber and Cable, Corning Incorporated

        Corning Incorporated is pleased to provide this response to the
    Question for the Record posed by Representative Markey in a letter from
    the Natural Resources Committee dated March 11, 2013. The question from
    Rep. Markey is as follows:
        ``At current drawdown rates, in 5 to 8 years, the helium in the BLM
    Reserve is anticipated to be largely depleted. Should Congress consider
    steps to provide for a long-term helium stockpile? If so, what steps do
    you believe Congress should take?''
        Given the unique characteristics of the helium market, we believe
    it would be prudent to consider a long-term helium stockpile that could
    be used to mitigate future supply disruptions. The global supply
    disruptions that have occurred recently, and the negative effects as
    described in the hearing on February 14, highlight the importance of
    helium in advanced manufacturing. The disruptions have occurred due to
    maintenance problems at existing Helium operations, and delays in
    bringing new sources on line. It is unclear when these new sources may
    come on line and how reliable their supply will be. Once the BLM
    reserve is depleted, the U.S. may become reliant on foreign-sources of
    helium, a situation that has not previously occurred to our knowledge.
        With the current shortages of helium, it is difficult to know
    exactly what steps would be most effective to create a long-term
    stockpile. We believe that many of the provisions of H.R. 527,
    specifically the transparency provisions in Section 4, BLM transparency
    and supply chain information, and Section 5, helium resource
    assessment, will provide critical information for all stakeholders,
    allowing for better informed decisions throughout the supply chain.
        We would suggest that Congress consider the following steps:
              Authorize support for RD&E to develop and deploy
            helium conservation and improved storage technologies
              Authorize incentives for helium recycling and reuse
            in current applications
              Direct the appropriate federal agencies, or the
            National Academies, to publish a study to address issues
            related to the helium supply and uses that would include the
            following:
                      Ways to expand domestic helium sources
                      Improved methods for conservation, recapture and
                    recycling of helium
                      New technology to improve and increase the
                    capture of helium from gas wells, including gas streams
                    with low concentrations of helium
                      Develop viable alternatives to helium where
                    appropriate
        We appreciate the Committee's interest in this important matter and
    the consideration of our views.
                                     ______

        The Chairman. Thank you very much, Mr. Boersen, for your
    testimony. I will now recognize Mr. Gary Page, who is President
    of Helium and Balloons Across America.
        Mr. Page, you are recognized for 5 minutes.

       STATEMENT OF GARY W. PAGE, PRESIDENT, HELIUM AND BALLOONS
                             ACROSS AMERICA

        Mr. Page. Mr. Chairman, members of the Committee, thank you
    for this opportunity to testify today on the Responsible Helium
    Administration and Stewardship Act. My name is Gary Page, and
    my company, proudly based in Christian principles, Helium and
    Balloons Across America, or the acronym HABAA, started in my
    home in Charlotte, North Carolina, and has been servicing our
    customers for over 32 years with balloons and helium.
        When we secure a national contract such as K-Mart, we
    solicit partnerships locally for helium distribution, and
    handle orders centrally through HABAA for better customer
    service, accountability of cylinder assets, mostly under supply
    contract agreements. Eventually, HABAA was distributing helium
    across the United States. Today is Valentine's Day. And,
    coincidentally, February 14th is the largest retail balloon
    sales day of the year.
        However, as I testify today, hundreds of my best customers
    are either without helium or have received a ration that will
    not allow them to meet the demands of the day. This is the
    second year in a row, and I hope, with the passage of H.R. 527,
    the last.
        The market has become so tight for helium that HABAA has
    two employees who are dedicated to searching for helium supply
    and managing our vendor relationships. We have hundreds of
    customers who have been waiting for up to a year for delivery
    of a single helium cylinder, with no real prospect that they
    will be serviced. Before this shortage, a typical cylinder
    delivery would take a few days. HABAA has grown from 3 vendor
    partners to 93, with several hundred more vendors waiting. Even
    a company as large as Airgas can geographically help HABAA in
    less than 16 percent of their service area.
        In 2006, there were shortages of helium and price spikes
    dramatically every few months. There seemed to be less product
    available to some customers than to others, specifically to
    those selling balloons. Upon further investigation, it was my
    conviction that there was plenty of helium, but that the
    refiners had made business decisions to sell their product for
    higher profits, usually overseas.
        All domestic uses for helium, liquid and gas, require 2.4
    billion cubic feet per year. By comparison, 4.8 billion cubic
    feet are refined in the U.S. each year. In other words, two
    times the need. I found some older, proven technology for the
    refinement of helium called Nitrotec, and purchased a system
    which was being taken offline in Chillicothe, Texas, due to the
    fact that the helium supply had been exhausted at that site.
        HABAA recognized a broken helium refinement paradigm that
    did not even represent or accommodate a third of their customer
    base. HABAA's Nitrotec helium refinement capability produces
    gas as an end product, and could potentially lower end user
    costs dramatically. HABAA's Nitrotec unit will be able to
    maximize the depletion of the helium reserve. The lower
    pressures and smaller gas requirements necessary to remain
    profitable for a Nitrotec unit will allow continued operation
    long after current refiners have been forced to shut down due
    to operational economic considerations.
        In March of 2008, we purchased a non-allotted volume of raw
    helium from the BLM and were denied tolling by all current
    refiners without any real discussion, or even having them
    extend the courtesy of placing a price on the table. Then HABAA
    went directly to the BLM with our request to become a refiner
    on the pipeline, which was summarily denied without any hearing
    or due process. Since mid-2007, we have attempted various ways
    to access the BLM pipeline via direct contact and consultants.
    All have ended without success.
        There are many, but I want to highlight some key problems
    to the current system.
        The loss of American jobs. In 2009, HABAA had 5 consecutive
    years of 28-plus percent growth and 175 employees. Now, as a
    result of the domestic helium market, I have less than 20.
        Monopolistic helium pricing. Because the control of our
    Nation's helium is bottlenecked by three refiners, it allows
    those refineries to have full control over supplies, and
    ultimately drive pricing. These refiners transact with
    subsidiaries to turn a cylinder that cost $25 via the BLM
    transaction into a market cost to me of $900. This is a markup
    of more than 3,500 percent. Tolling does not work, because
    refiners have no incentive to allow competition.
        No helium gas refinement on the BLM pipeline. As I
    indicated in greater detail within my written testimony, the
    BLM has not supported businesses that need helium gas, even
    though these businesses represent a third of the helium needs.
    I attempted to cite a small refinery on the BLM which ignored
    my request.
        Market chaos is everywhere. For example, the average cost
    of wholesale helium has tripled, yet the price continues to
    move upward monthly. We have made thousands of phone calls,
    emails, and other contacts looking for helium for our
    customers. Refiner distributors are buying small, struggling
    distributor companies and trying to drive competition out of
    the market. In the past few months we have documented more than
    50 cases. For example, the refiner-distributor recently took a
    large chain customer we had under contract. The refiner-
    distributor had access to the supplies, and we were unable to
    service the account, even though it was under contract.
        Thank you for your kind attention and the opportunity to
    present this testimony. Happy Valentine's Day to you and to all
    you love.
        [The prepared statement of Mr. Page follows:]

     Statement of Gary W. Page, President, Helium & Balloons Across America

        Mr. Chairman, Members of the Committee, thank you for the
    opportunity to testify today on the Responsible Helium Administration
    and Stewardship Act. Sir Isaac Newton said, ``What goes up, must come
    down.'' Clearly, he was not following the current domestic helium
    market.
        My name is Gary Page and my company, proudly based on Christian
    principles, Helium & Balloons Across America (HABAA) in Charlotte, NC,
    started in my home and has been servicing our customers for over 32
    years with balloons and helium. HABAA began helium distribution
    regionally in the Southeast and amassed 8,000 helium cylinders; a
    super jumbo tube trailer purchasing 200,000 cu. ft. of helium at a
    time; a cylinder fill station; a fleet of delivery trucks and tractor
    trailers; and in-store service personnel. When we secured a national
    chain (i.e. Kmart), or a set of stores with a large footprint, we
    solicited partnerships locally for helium distribution and handled
    orders centrally through HABAA for better customer service and
    accountability of cylinder assets--mostly under supply agreement
    contracts. Eventually, HABAA was distributing helium across the
    continental USA including Hawaii, Alaska, and Canada internationally.
        Helium & Balloons Across America (HABAA) is the ``face'' of small
    businesses across the country. It is at the core of what the
    ``Responsible Helium Administration and Stewardship Act'' is all about,
    though literally hundreds of other business from diversely different
    industries could be providing testimony before the House Committee on
    Natural Resources today. Most of those businesses do not have the clout
    of the current refiners--who dominate the market with the help of the
    current system. Entrepreneurs such as me are truly ``small businesses''
    who create jobs, but are unable to come to Washington to make their
    case. I hope my perspectives add some context from the real pain end
    users feel as a result of the current structure.
        I want to commend the Committee leadership for coming together, on
    a bipartisan basis, to address the systemic issues that exist within
    our domestic helium production and distribution markets. The bipartisan
    feeling in this room is buoyed by the fact that today is Valentine's
    Day and coincidentally February 14th is also the largest retail balloon
    sales day of the year. However, as I testify today, hundreds of my best
    customers are either without any helium, or have received a ration that
    will not allow them to meet the demands of the day. This is the second
    year in a row and I hope, with the passage of H.R. 527, the last.
        I am here before you today as a businessman who has tried to buy
    volumes of helium via the auction process, but was unable to receive my
    helium for lack of access to infrastructure. When I purchased the
    technology needed to access volumes directly, I was blocked by the
    Bureau of Land Management (BLM) from gaining access to the pipelines
    they oversee. I have tried to follow the processes to allow open access
    and competition that are supposed to exist today, but found those
    processes in practice to be little more than theoretical.
        The market has become so tight for helium that HABAA has two
    employees who are largely dedicated to searching for helium supply and
    managing our vendor relationships. We have hundreds of customers who
    have been waiting for up to a year for a delivery of a single helium
    cylinder--with no real prospect that they will be serviced. Before this
    shortage, a typical delivery would take a few days. HABAA has grown
    from 3 vendor partners to over 93 with several hundred more vendors
    waiting for helium to begin servicing our customers. We have made
    thousands of phone calls, emails, and other contacts looking for helium
    for our customers. Even a company as large as Airgas can geographically
    help HABAA in less than 16% of their service area--in all other areas
    there is no reliable helium supply.
        HABAA was growing at a rate of 28% compounded year over year for
    about five consecutive years. We were forced into a second warehouse,
    which kept growing in size, and finally placed HABAA in a position of
    an aggressive consolidation and building program plan--we had 75 full-
    time employees and 100 part-time employees. HABAA occupies a unique
    position in the balloon industry as the hinge between balloon
    manufacturers and suppliers; new and unique proprietary marketing
    programs (i.e. Scan Based Trading = SBT); program implementation and
    management with retail chains; and the supply, distribution, and ``back
    office control'' of helium needed to drive this business.
        In 2006 there were shortages of helium and prices spiked
    dramatically every few months. There seemed to be less product
    available to some customers than to others--even with contractual
    agreements, forced majeure or invoked allocations. Upon further
    investigation, it was my conviction that there was plenty of helium,
    but that the refiners had made business decisions to sell their product
    for higher profits, usually overseas. I found some older proven
    technology for the refinement of helium called Nitrotec, and purchased
    a system which was being taken offline in Chillicothe, TX, due to the
    fact that the helium supply had been exhausted at that site (please see
    an attached diagram of facility and system process).
        HABAA recognized a ``broken'' helium refinement paradigm that did
    not even represent or accommodate a third of their customer base. In
    2007, we realized that we needed to process our own helium gas to meet
    our own demands and those of our customers. In the summer of 2008, I
    purchased a Nitrotec portable refinery that has a current market value
    of approximately $4 million. We made a huge capital risk for a small
    business and purchased helium refinement equipment when we purchased
    the Nitrotec. This acquired capability was necessary so that HABAA
    could be taken seriously and with the hope we could compete for federal
    helium and receive needed access to helium gas in order to sustain our
    business and support the larger industry.
        HABAA's Nitrotec helium refinement capability produces gas as an
    end product and could potentially lower end user cost dramatically. As
    important as serving the existing refining needs for gasified helium
    demand, the HABAA's Nitrotec unit will be able to maximize the
    depletion of the helium reserve. The lower pressure and smaller gas
    requirements (3 MM cu. ft. day) necessary to remain profitable for a
    Nitrotec unit will allow continued operations long after current
    refiners have been forced to shut down due to operational economic
    considerations. This will allow increased utilization of this important
    natural resource and ensure that the public maximizes the development
    of this resource. The Committee's measure, the ``Responsible Helium
    Administration and Stewardship Act'', creates an environment that both
    allows competition and will ensure the helium reserve is maximized.
        In March of 2008, we purchased a non-allotted volume of raw helium
    from the BLM and were denied tolling by all current refiners, without
    any real discussion or even having them extend the courtesy of placing
    a price on the table. Then HABAA went directly to the BLM with our
    request to become a refiner on the pipeline, which was summarily denied
    without any hearing or due process. Our email, protesting the
    nonsensical notion that the BLM would accept money for helium which had
    no realistic opportunity to ever be delivered to us, was never
    responded to by the BLM. Since mid-2007, we have attempted various ways
    to access the BLM pipeline via direct contact and consultants. All have
    ended without success, but we have great hope with the access
    provisions included within H.R. 527.
        I want to highlight seven problems with the current system:
        1.  THE LOSS OF MANY AMERICAN JOBS: Elimination of the balloon
    industry will cause the loss of significant jobs--the International
    Balloon Association estimates that hundreds of thousands of jobs are
    impacted by helium supply issues. HABAA's current staffing of only 10%
    of the employees which were employed by our company when this disaster
    began is a testament to this fact. There will be a significant economic
    impact as balloon manufacturing plants are forced to close as well as
    commerce from associated industries. Sales and marketing, display
    manufacturers, ribbon and balloon weight manufacturers, sticks and cup
    manufacturers, regulator and safety equipment manufacturers, cylinder
    manufacturers, store service and set-up crews, industrial gas
    suppliers, accounting, customer service, technology support, and other
    back-office functions will all be affected as industry infrastructure
    crumbles to maintain profitability for diminishing sales. Thousands
    upon thousands of retailers (party stores, grocery stores, dollar
    stores, card stores, drug stores, discount chains, and small gift
    shops) all rely on the income produced by the sale of balloons. There
    are full-time staff positions which are totally (or partially)
    supported by this single source of retail sales. A balloon manufacturer
    estimated that at any given time, 20% to 25% of retailers are totally
    out of helium without knowing when they will be in stock.
        2.  OUTRAGEOUS AND UNFAIR ``MONOPOLY'' HELIUM MARKET PRICING:
    Because the control of our nation's helium is bottlenecked by three
    refiners, it allows those refineries to have full control over supplies
    and ultimately drive pricing. These refineries can transact with
    subsidiaries and add cost during each internal transaction that far
    exceeds value. For example, one refiner and distributor of BLM helium
    pays $24.44 for the amount of helium required to fill one 291 cu. ft.
    cylinders (equivalent to $.04 per 18" foil balloon), using current BLM
    2013 pricing of $84 per Mcf. In this example, this refiner then sells
    that cylinder to a distributer like me for $873. This is a markup at an
    unbelievable 3,572%! That price was for the helium only; it did not
    include the distribution costs of $30.96 ($5.95 haz mat + $4.01 fuel
    charge + $21.00 delivery) or the $52.98 taxes, which bring the total to
    $956.94 ($2.13 of helium cost per foil balloon). Those are my costs
    that then have to be marked up to my customers in order to stay in
    business. Quite simply, because there is limited to no competition in
    the refining market, the public and small business suffers.
        3.  TOLLING DOES NOT WORK: The current framework, and some prior
    legislative proposals, holds the noble goal of allowing companies who
    did not have access to the BLM pipeline the ability to purchase helium
    and receive it via one of the existing access points (refineries). This
    ended up being a good theory, but is not practical. Refiners who have
    complete control of the supply can and routinely prevent access by
    merely refusing to refine raw helium after it has been purchased
    directly. In fact, the refiners we reached out to would not even quote
    us a price for tolling. This inequity in the system is what drove me to
    make the capital purchase of the Nitrotec, as I was operating under the
    belief that I could secure the 6% set aside that is mandated by the
    law. Unfortunately, the current framework does not force the set aside
    to function as it was intended. Efforts to prod the BLM to change the
    way these set asides function are daunting for even large operations
    such as mine and why the changes within H.R. 527 are so important in
    their effort to ensure competition.
        4.  NO HELIUM GAS REFINEMENT ON THE BLM PIPELINE: The BLM has not
    supported businesses that need helium gas and not liquefied helium
    which creates additional capital costs to pay for purity and a product
    form which is not wanted nor useful in these applications. Helium gas
    is the ``natural state'' of helium found in nature; it requires huge
    capital investment to make it pure and cold enough to become a liquid,
    and consumers are saddled with that unnecessary cost. And even though
    two-thirds of helium is utilized in the liquid state (pressure/purge-
    NASA and DOD; superconductivity/cryogenics--MRI; controlled atmosphere-
    fiber optic and chip manufacturing), a third of current uses are for
    helium gas (leak detection; breathing mixtures--deep sea diving and
    hospital use; welding; heat transfer; chromatography; lifting), and
    should have their own reliable supply source through the BLM.
        5.  MARKET CHAOS IS EVERYWHERE: End users in every state are
    impacted by the current helium refinery monopoly. As an example, Airgas
    has been excluded from the BLM process. They are the largest
    distribution outlet and depended upon for meeting helium needs of
    American industries and consumers, but are not stakeholders of the
    refining process. Two of what was the then three refiners, Air Products
    and BOC, sold their packaged gas businesses to Airgas, so they must
    have recognized that Airgas could ``do'' distribution better. However,
    some of those same forces have crippled Airgas during this helium
    supply crisis hurting many U.S. businesses and the national economy.
    Some points to highlight a few of the market issues:
              i.  For example, the average cost of wholesale helium has
            tripled, yet the price continues to move upward monthly. Other
            related costs, that have nothing to do with the price of
            helium, such as cylinder rental, have also approached tripling
            as vendors attempt to offset lower gas sales with increased
            costs elsewhere. For example, 18 months ago, a helium cylinder
            which cost HABAA less than $60 wholesale now averages $150 and
            the cost is going up every month. These costs are before the
            30% price increase has been factored in, which was announced in
            late December and went into effect January 1, 2013 by both
            Praxair and Air Products--the 2 largest refiners on the BLM
            system.
             ii.  We have made thousands of phone calls, emails, and other
            contacts looking for helium for our customers. Airgas can
            geographically help HABAA in less than 16% of their service
            area--in all other areas there is no reliable helium supply.
            Praxair, Airgas, and Matheson are buying small struggling
            distribution companies, damaged by the helium shortage, then
            giving HABAA notice that they will no longer be providing
            helium to our customers in these areas. This has occurred twice
            this week alone with Praxair, but has occurred 51 times in the
            past three months. For a reference point, the normal volume of
            such consolidation/acquisitions has historically been closer to
            a couple each quarter.
            iii.  There is an unprecedented push toward consolidation, as a
            number of small businesses are being sold or approached for
            purchase for pennies on the dollar by the major players. This
            is due to their precarious business position or weak balance
            sheet, which is forcing them out of business. This
            consolidation disadvantages others in the market. For example,
            a refiner/distributor recently took a large chain customer we
            had under contract. The refiner/distributor had access to
            supplies and we were unable to service the account. The
            refinery monopoly has downstream competitive consequences--it
            is not simply limited to supply issues at the loading docks of
            the three refiners. HABAA has lost several thousand customers
            in addition to the chain referenced above. As a result, we have
            outsourced everything we can, sold many of our hard assets
            (cylinders, tube trailer, etc.) to Airgas, and are now down to
            10% of our employees since 2009.
        6.  THE BLM HAS BEEN COMPLICIT IN PERPETUATING THESE INEQUITIES BY
    BLOCKING ACCESS TO OTHER POTENTIAL REFINERS: As mentioned above, the
    BLM has developed a cozy relationship with these refiners and refused
    to manage helium sales as far back as 1996. This relationship has been
    described by the Office of Inspector General as ``less-than-arms-
    length'' and ``we found overcharging, possible double-billing, costly
    short-term financing, and unjustified allocation of equipment costs,''
    and ``weaknesses that leave the Government vulnerable to fraud,
    mismanagement, and potentially large monetary losses.'' More recently,
    in November 2012, an audit by the Office of Inspector General issued a
    scathing report which charged the BLM ``to prepare and implement
    comprehensive procedures for managing its helium sales to
    nongovernmental buyers.''
        7.  EXPORTING VERSUS DOMESTIC NEEDS FOR HELIUM RESOURCES: While I
    recognize that exporting commodities in times of low pricing could be
    in the government's best interest, helium's prices are excessively high
    (to the point of damaging the U.S. economy) and helium supply is not
    currently abundant. Over nearly the past two years, helium supplies
    have dried up, and I believe that it is because there is effectively a
    helium refining monopoly which has taken the taxpayers' resources to
    higher profits overseas, while sticking the rest of the American
    business community with dramatically higher costs for their helium due
    to a manufactured shortage.
        In an effort to address the current issues of domestic availability
    of helium for the thousands of companies that comprise the balloon
    industry, I suggest the following:
        1.  Provide a distinction between end users who need refined liquid
    helium versus those who just need refined helium gas. There is a huge
    cost differential and current industrial companies have no interest in
    providing anything but liquid helium. This could potentially lower end
    user cost dramatically and improve availability to underserviced
    industries.
        2.  Ensure access to the BLM pipeline for small facilities, such as
    a Nitrotec unit. Competition will be enhanced with greater refining
    capacity and small facilities will maximize the depletion of the helium
    reserve and benefit to the taxpayers. The lower pressure and smaller
    gas requirements (3 MM cu. ft. day) necessary to remain profitable will
    allow continued operations long after all other refiners have been
    forced to shut down due to operational and economic considerations.
    This is why Nitrotec's technology was developed--to refine helium at
    the source for sale, rather than discarding it, and then move the plant
    to another source. Helium does not need to be a financial black hole,
    and some activities are appropriate for government to tackle until
    private industry can prove adequacy to stand in the gap.
        3.  The Committee should consider expanding the current BLM
    pipeline in a westerly direction and repopulate the Cliffside Storage
    Field. In 2010, a National Academy of Sciences study concluded that the
    1996 Privatization Act had adversely affected critical users of helium
    and that selling off the supply, as required, was not in the best
    interest of U.S. taxpayers or the Nation. Because of the strategic
    importance of helium to America (the reason the BLM pipeline system was
    developed in the first place), the Federal Government should consider
    those voices on the National Research Council of the National Academies
    (authors of ``Selling the Nation's Helium Reserve''). What was true
    then is true now--storage is the major issue, as helium is a ``waste
    by-product'' of the quest for hydrocarbons, and this resource will be
    lost because it cannot be stored physically and economically.
        4.  Stability to the federal program could allow for private
    capital to enter the market. It is a new concept and now conceivable
    that private companies could actively pursue drilling rights for helium
    wells on federal public lands and not just viewing helium as a
    byproduct in traditional drilling operations.
        5.  While I am for free trade and recognize that not all
    commodities should be treated equally with respect to export, many of
    the issues with availability and price of our domestic helium can be
    traced back to supply. If private companies find the helium, store it,
    refine it, and distribute it, there should be no restrictions as to
    where it goes, but volumes from the BLM system should be focused upon
    meeting domestic needs. Currently, there is not a shortage of helium,
    but rather a shortage of helium refinement capacity and competition in
    the American helium marketplace due to a lack of access. If one adds up
    the total helium domestic needs from all sources (MRI's and medical
    needs, manufacturing of fiber optics, computer chips, plasma TV's,
    welding, leak detection, scientific research, and yes, even balloons),
    it would require 2.4 billion cubic feet a year. The BLM pipeline
    system refines 2.1 billion cubic feet a year and all other sources,
    including EXXON in Wyoming produces another 2.7 billion cubic feet of
    refined capacity for a net total of 4.8 billion cubic feet. This is
    according to an independent consulting firm, RMW Solutions, LLC. This
    group is made up largely of ex-Air Products helium experts including
    Ben Reinoehl, a principal at RMW and a member of the National Research
    Council who wrote part of ``Selling the Nation's Helium Reserve.'' The
    Congress has relied on this book to make decisions related to the
    national helium reserves. RMW has collected this data from BLM
    governmental and industry sources.
        6.  With the sale of BOC's packaged gas business (cylinder
    distribution), the Federal Government required the divestiture of
    refinement capabilities to a third party rather than bundling it to
    Airgas. This did not prevent a monopoly but effectively perpetuated
    one. Future decisions should take into consideration the larger market
    picture of creating more competition.
        In closing, I want to thank the Committee for the opportunity to
    testify today on behalf of the small business end users who are
    dependent upon federal helium policies. I hope that my perspectives, as
    an entrepreneurial businessman, are of value to the Committee. Please
    know that I stand ready to assist your efforts and hope that Congress
    works in the same bipartisan manner the Committee has started with the
    introduction of H.R. 527, the Responsible Helium Administration and
    Stewardship Act. The current authorization for the helium reserve
    expires at the end of this fiscal year and it is critical that
    legislation move quickly through the process in order to be completed
    before October.
        Thank you for your kind attention and the opportunity to present
    this testimony! Happy Valentine's Day to you, and to all those you
    love.
                                     ______

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Response to questions submitted for the record by Gary W. Page,
                  President, Helium & Balloons Across America

    Questions from Chairman Doc Hastings
    1.  Mr. Page, in your testimony you say that in March of 2008, you
            purchased a non allotted volume of crude helium from BLM and no
            refiner would toll for you, nor were you permitted to hook up
            to the pipeline to procure your helium. Can you further
            elaborate on this situation?
    a.  To be clear, you put out a request for one of the four refiners to
            toll for you and you received zero responses? Were you given a
            reason for this?
          Actually, Helium & Balloons Across America (HABAA)
    contacted ALL refiners who were on the pipeline and received NO
    CONSIDERATION from any of them. Even though we had helium to toll and
    tried to schedule a meeting to discuss, no refiner was willing to enter
    into any meaningful conversation, but summarily blew us off without
    quoting a price or giving us hope for future cooperation (see
    attachment). I believe that the common thread was that they did not
    have ``capacity for tolling''--certainly something HABAA could not
    refute.
    b.  You say that you were denied the ability to procure your helium by
            the BLM can you explain how that happened?
          HABAA paid our fees and went through the acceptance
    procedure to be able to bid on a non-allotted supply of crude helium
    through the BLM. Because we were unable to access our helium through
    the tolling procedure outlined by statute, HABAA went back to the BLM
    to petition for direct access to our helium by refining it ourselves
    with the Nitrotec helium refinement capacity we had purchased. The law
    seems clear that there is a 6% set aside which we had gone through the
    government procedure to secure, and to block access goes against the
    grain of the intent of the law. HABAA was not requesting any ``special
    consideration,'' only that we have access to the set-aside that was
    created for companies such as ours. HABAA's COO, Jim Redmon, was
    petitioning through Leslie Theiss and John Hamak to allow us to secure
    our helium investment. This was to no avail, as they blocked our
    efforts to secure our helium saying that ``there was no additional
    helium supplies to be secured,'' which seemed nonsensical considering
    the set-aside. HABAA was only left with the option to store our helium
    for a fee for some indefinite amount of time, without any clear
    prospect of ever taking delivery. This offer was met with a stern
    letter of protest from HABAA (attached), which was NEVER acknowledged
    or responded to by the BLM.
    c.  You say that since 2007 you attempted various ways to access the
            BLM pipeline. What various ways did you attempt to access the
            pipeline?
          HABAA went through direct contacts with Leslie Theiss and
    John Hamak, which have been outlined above. In addition, HABAA secured
    the services of RMW Solutions and the principal J. Benjamin Reinoehl,
    who are retired executives with Air Products. Ben was a contributing
    author of ``Selling the Nation's Helium Reserve,'' which the Federal
    Government has used extensively to determine helium policy since the
    1996 Privatization Act. Ben knows BLM personnel and current refiners
    intimately, and has been a key player in setting up the current BLM
    structure. Ben was able to get agreement from the BLM for HABAA to
    place our Nitrotec helium refinement unit on the pipeline, but received
    flat denials that we would be awarded any crude helium to operate our
    plant--effectively killing the project.
    d.  What happened to the helium you had purchased?
          Due to the fact that all options had been stripped from
    HABAA (no tolling agreement; could not establish our plant to process
    our crude helium ourselves; refusal of the BLM to make crude helium
    available to us if we did set up a refinery; and HABAA's unwillingness
    to pay for crude helium storage with dubious prospects that it would
    ever be delivered) convinced us to pull the plug on continuing with
    this strategy. Interestingly enough, a legislative change to the law
    seemed to be the only remaining viable option for HABAA to succeed with
    our Nitrotec investment.
    2.  Mr. Page, in your testimony you say you hope the access provisions
            in H.R. 527 will help solve some of the problems you have had
            accessing your helium from the BLM. Can you tell the Committee
            some of the specific provisions that will help reach your goal
            of buying and procuring helium?
          Opening up access to additional players other than the
    current helium refinement ``monopoly'' is a huge step. Competition is
    key in solving problems of out-of-control prices and unreliable sources
    of supply. Creating an auction for meaningful volumes of BLM helium
    reserves will open up the process to free-markets to move without
    restraint. Accountability and opening up disclosures will help to clear
    the ``smoke-filled'' room in which the refiners and BLM have been
    operating. It has been our belief, based on our experiences, that the
    BLM was running interference for the helium refinement monopoly on the
    pipeline rather than using their authority to equitably administer the
    set-aside provision that was legislated by Congress. There is no
    question that the BLM has been complicit in perpetuating these
    inequities and that charges leveled by the Office of Inspector General
    are evidence of this cozy relationship and must be taken seriously and
    acted upon going forward if they are to continue having the fiduciary
    responsibility for this valuable natural resource (see enclosures).
    Questions from Rep. Edward J. Markey
    1.  Mr. Morgan, Mr. Boerson, Mr. Page, Dr. Aronson: At current drawdown
            rates, in 5 to 8 years, the helium in the BLM Reserve is
            anticipated to be largely depleted. Should Congress consider
            steps to provide for a long-term helium stockpile? If so, what
            steps do you believe Congress should take?
          This is an important and critical question to be asking
    and has many implications to the role of government and strategic
    planning for our nation in regard to critical natural resources and
    their stewardship. It is my conviction that Congress missed the mark in
    the 1996 Privatization Act in regard to helium policy, as it is not in
    the best interest of the U.S. taxpayer or the Nation. Because of the
    strategic importance of helium to America (something which is growing
    yearly as a result of cutting edge research), domestic policy should be
    the reverse of a ``depletion strategy.'' What was true nearly 100 years
    ago is still true today: storage is the major issue in a stable helium
    supply for America, since helium is a ``waste by-product'' of the quest
    for hydrocarbons, and this resource will be lost (vented to the
    atmosphere) because it cannot be stored physically and economically.
    The Cliffside Storage Field is a national treasure, as much as the
    giant redwoods of the Pacific Northwest, the Grand Canyon, or
    Yellowstone, and should be preserved and used to benefit future
    generations!

           The BLM pipeline should be expanded in a westward direction to
    encompass the ``new'' helium discoveries in Arizona and New Mexico.
    This is not just my opinion but also some voices on the National
    Research Council of the National Academies (authors of ``Selling the
    Nation's Helium Reserve''). Many helium sources would love to sell
    their ``waste helium'' to the government, as they did decades ago--
    which built this world dominating resource. This does not need to be a
    ``black hole for dollars'' since market pricing could reflect an
    immediate payback to these investments for the Federal Government. No
    one would argue that the taxpayer and America are infinitely more
    enriched due to the Federal investment in the Eisenhower interstate
    highway system!

           The second fallacy of the 1996 policy is that private companies
    would have an interest in picking up the slack and developing the next
    generation of helium exploration, discovery, storage, refinement, and
    distribution. All current refiners on the BLM pipeline are interested
    in refining and distribution, but have NO INTEREST in the real critical
    aspects of perpetuating the National helium supply. If you think I am
    incorrect about this, please take a look at the prospectus from Air
    Products, Praxair, and Linde and see where they have invested their
    treasure.

           It is not too late to change course to prevent the inevitable
    from happening--America's dependence on foreign supplies of helium and
    greatly increased prices and availability at the whim of outside
    countries who are antagonistic if not considered enemies of the USA!
    When we do not develop our own resources in our own national interest,
    this is what we should expect will happen. Look at the tremendous
    transfer of wealth for oil the United States pays to unstable
    countries, and consider how those dollars finance anti-American
    sentiment and violence around the globe. We should have learned our
    lesson!
                                     ______

        The Chairman. Thank you very much for that. I guess that is
    worth 48 seconds.
        [Laughter.]
        The Chairman. And certainly last, but not least on the
    panel, Dr. Sam Aronson, Vice President of APS Physics. Dr.
    Aronson, you are recognized for 5 minutes.

             STATEMENT OF DR. SAM ARONSON, VICE PRESIDENT,
                  THE AMERICAN PHYSICAL SOCIETY (APS)

        Dr. Aronson. Chairman Hastings, thank you. And thanks to
    the Committee for this opportunity to testify today regarding
    the critical nature of helium for the research enterprise in
    this country.
        I am the former director of Brookhaven National Laboratory,
    one of the DOE national labs. I will be speaking about the
    impact on them, but more broadly on the impact on the 50,000
    physicists and academia and industry, national labs, and so on
    that are represented by the American Physical Society.
        In 2010, the National Research Council released a report
    which outlined a number of issues that have come about as a
    result of the 1996 Privatization Act. Principal among those has
    been the impact of the Act on Federal users and researchers
    that rely on Federal grant programs. Those are the constituents
    I want to focus on today.
        In 1995, the Council of the American Physical Society
    issued a statement about helium, concluding that ``in view of
    the importance of this unique and irreplaceable natural
    resource in modern science and technology, the American
    Physical Society urges that measures be adopted that will both
    conserve and enhance the Nation's helium reserves. Failure to
    do so would not only be wasteful, but would be economically and
    technologically shortsighted.
        And I commend the Committee for its work on this important
    issue.
        Because of its unique properties, helium is used in a broad
    range of scientific research in both small and large-scale
    facilities and experiments. These include its uses for super-
    conducting magnets and radio frequency power systems, for
    vacuum systems and measurements of nuclear magnetic resonance,
    which is the basis for MRI, research in nano-technologies, and
    many other applications.
        At Brookhaven and other large labs, helium is used to cool
    superconducting equipment for accelerators, particle detectors,
    and research magnets. It is also used to operate measurement
    and diagnostic equipment.
        The acquisition of extremely weak signals in the data of
    several different disciplines relies on helium-cooled detectors
    to reduce electronic noise and thermal noise. These detectors
    have not only research applications, but they have national
    security applications, as well.
        Given the applications and the properties of helium, there
    is, for most of these, simply no other substance that can serve
    as a refrigerant to achieve the temperatures near absolute zero
    that these devices need. This means that if researchers cannot
    obtain helium due to supply or pricing constraints, their
    experiments shut down. In superconductivity applications such
    as in cooling magnets and accelerators, only helium can act as
    the adequate refrigerant for large-scale systems like
    accelerators. Therefore, if helium is unavailable to replenish
    a system, those also would shut down.
        Recent discussions with both large and small-scale research
    projects at Brookhaven have reminded me that the reliability of
    the supply is often as important as the volatility and the
    price of helium.
        The 1996 Privatization Act established a Federal in-kind
    program designed to give preferred access to Federal users. The
    initial focus was on those Federal users with a major
    requirement of helium. Regulations were subsequently
    promulgated and contracts signed with what became authorized
    Federal helium suppliers. And one of the features of those
    contracts required those suppliers to provide a priority to
    Federal users.
        While smaller Federal users were not required to use the
    in-kind program, according to the BLM nothing precluded them
    from doing so. And in 2010, in the National Academy's report
    referred to earlier, there was a recommendation that, given the
    extreme price fluctuations and supply shocks over the last 10
    years or more, small researchers reliant on Federal grants
    should be able to participate in the in-kind program.
        I also note, as Mr. Holt mentioned earlier, that a number
    of the national labs are currently receiving something on the
    order of two-thirds of their normal supply of helium, due to
    allocations. This requires reprioritization of projects, and
    some things just don't get done.
        H.R. 527 provides a provision that authorizes the in-kind
    program, and ties the price being offered under the in-kind
    program to the minimum auction price. I would encourage the
    Committee to more closely examine the operation of this
    program, and specifically to ensure that small, Federal
    grantees are explicitly eligible.
        And finally, just a word about the medium and long-term
    availability. We all know that this is a finite resource, and
    so I would like to see the Committee in the future consider the
    extension of the supply of helium that is available, because we
    will run out.
        And with that, I would like to terminate my remarks and
    thank the Committee and answer any questions you might have.
        [The prepared statement of Dr. Aronson follows:]

     Statement of Dr. Samuel Aronson, Former Director, Brookhaven National
           Laboratory, Vice President, The American Physical Society

        Chairman Hastings, Ranking Member Markey, distinguished members of
    the Committee:
        My name is Samuel Aronson, and I am the former director of the
    Brookhaven National Laboratory, part of the Department of Energy
    National Laboratory complex. Today, I am representing the American
    Physical Society as its recently-elected Vice President. The APS is a
    non-profit membership organization working to advance and diffuse the
    knowledge of physics through its outstanding research journals,
    scientific meetings, and education, outreach, advocacy and
    international activities. APS represents over 50,000 members, including
    physicists in academia, national laboratories and industry in the
    United States and throughout the world.
        Thank you for providing me the opportunity to speak to you today
    about one of our nation's most critical resources, helium.
        In 2010, the National Research Council and National Material
    National Materials Advisory Board released a report which examined the
    impact of the 1996 Helium Privatization Act. Principal among those has
    been the impact of the act on federal users and researchers who rely on
    federal grant programs. It is about these users that I wish to focus my
    comments.
        But first, I would like to briefly discuss the properties of
    helium. Helium is extremely unique, even among other elements. It
    occurs at a fraction of a percent in natural gas, and it is only
    economic to recover helium from deposits where its concentration is
    0.25% or greater. It is very rare in the atmosphere, making recovery
    from air extremely expensive. It is unlikely that other economically
    viable sources of helium will ever be discovered. Natural gas is
    extracted from reservoirs at a rapidly increasing rate and, as a
    result, much of the Earth's endowment of helium is being rapidly
    depleted. Conservation and efficiency in obtaining helium is therefore
    critical.
        In 1995, the Council of the American Physical Society issued a
    statement about helium, concluding that ``In view of the importance of
    this unique and irreplaceable natural resource to modern science and
    technology, The American Physical Society urges that measures be
    adopted that will both conserve and enhance the nation's helium
    reserves. Failure to do so would not only be wasteful, but would be
    economically and technologically short-sighted.''
        I commend the Committee for working to address this important
    issue.
        Turning to scientific applications, helium is used in a broad range
    of research, in small and large scale facilities and experiments. Its
    unique properties make it irreplaceable for superconducting magnets and
    radio frequency power systems, vacuum systems, measurements of nuclear
    magnetic resonance, research in nanotechnologies and many other
    cryogenic applications.
        At Brookhaven and other large scale labs, helium is used to cool
    superconducting equipment for accelerators, particle detectors, and
    research magnets. It is also used for research magnets and to operate
    measurement and diagnostic measurement. Devices used in astronomy and
    astrophysics studies also depend critically on liquid helium. The
    acquisition of extremely weak signals in several disciplines relies on
    helium-cooled detectors to reduce thermal and electrical noise. These
    detectors are also used for national defense needs, such as for
    detecting submarines by the military.
        There is no other substance other than helium that can be used as a
    refrigerant to achieve temperatures from 4.2 K above absolute zero down
    to millikelvins (thousands of a kelvin). If researchers cannot obtain
    helium due to supply or pricing constraints, they must shut down their
    experiments. Light sources and accelerators which depend upon liquid
    helium must shut down if supplies are inadequate or too costly.
        During my tenure as Brookhaven director, we confronted such a
    shortfall. During the 2011 operations of our large particle
    accelerator, the Relativistic Heavy Ion Collider, an electrical failure
    caused the shutdown of our liquid helium (LHe) refrigerator and the
    loss of several thousand gallons of helium. The restart of the
    accelerator had to be postponed due to delivery problems. The loss of
    research productivity was minimized by an extremely cooperative vendor
    and our own scrounging for small amounts of helium from other
    researchers on site, but weeks of valuable data were not produced.
    Recent discussions with both large and small research projects at
    Brookhaven show that reliability of supply is more often the problem
    than the volatility of the price of helium.
        The 1996 Helium Privatization Act established the federal In-Kind
    program designed to give preferential access to federal users. The
    initial focus was on those Federal users with a `major' requirement of
    helium. The Bureau of Land Management then lowered the bar on what
    constituted a major requirement of helium. BLM signed contracts with
    `authorized federal helium suppliers' requiring them to make Federal
    users a priority. While the smaller Federal users were not required to
    use the In Kind program, according to the BLM, nothing precluded them
    from doing so.
        It is unclear that small researchers are sufficiently aware of
    their ability to use the in-kind program. Given the extreme price
    fluctuations and supply shocks over the last ten or more years that
    have buffeted small researchers reliant upon federal grants, the 2010
    National Research Council report recommended that such users be able to
    participate in the federal in-kind program. The report also recommended
    that the ``in-kind program and its associated customer priorities
    should be extended by the BLM, in cooperation with the main federal
    agencies not currently participating in the in-kind program--for
    example, the National Science Foundation, the National Institutes of
    Health, and the extramural grant programs of the Department of Energy--
    to research being funded in whole or in part by government grants.''
        Despite the National Research Council recommendation, small
    researchers reliant on federal research grants continue to be subject
    to severe supply constraints and price shocks which their research
    grants cannot accommodate. They are being forced to either shut down
    experiments, invest in expensive recycle equipment using their own
    resources, or, according to one nanotechnology researcher, switch to
    room temperature experiments to continue their work, in less-than-
    optimal conditions.
        I also note that some large federal users are having their
    allocations cut back. Argonne National Laboratory is currently
    receiving only 70% of its allocation from its supplier. Oak Ridge
    National laboratory currently receives only 60% of its allocation.
    Sandia National Lab often receives delayed or short orders. As a
    result, the laboratories have had to reprioritize some of their
    projects. Federal users who are supposed to receive priority access are
    not receiving that access.
        H.R. 527 includes a provision that authorizes the In-Kind program
    and ties the price being offered under that program to the minimum
    auction price. I encourage the committee to more closely examine the
    operation of the In Kind program and, specifically, to ensure that
    small Federal grantees are explicitly eligible for such priority access
    and pricing.
        Finally, I wish to say a word about medium and long term helium
    availability. While your focus has been on addressing the near term
    issue of supply from the Federal reserve, medium and long-term supply
    issues should also be addressed sooner rather than later given that
    uses for helium are likely to increase, not decrease. Specifically, we
    believe it would make sense for the Department of Energy to examine the
    R&D opportunities to increase the efficiency of helium capture at the
    well-head or during liquefaction. Doing so would ensure that less
    helium escapes into the atmosphere during drilling.
        I'd like to thank the committee for the opportunity to testify on
    this critical issue and look forward to addressing any questions you
    might have.
                                     ______

        Mr. Lamborn [presiding]. Thank you for being here, and for
    your remarks. Thank all of the panelists.
        Now, before we go to questions from the Members, I would
    like to recognize Representative Labrador, who wanted to be
    here earlier because you have a constituent on the panel.
        Mr. Labrador. Yes, thank you. Good morning.
        Mr. Lamborn. Representative.
        Mr. Labrador. Thank you, Mr. Chairman, Ranking Member
    Markey, for convening this hearing today. I just want to
    welcome Rodney Morgan, who is the Vice President of Procurement
    at Micron Technology. Thank you for being here and testifying
    this morning.
        Micron has a huge footprint in the State of Idaho and in
    the United States. They have become a global leader in computer
    memory technology with operations in Europe and Asia. Currently
    they employ more than 25,000 people. Half of their employees
    are here, in the United States. And actually, Micron is the
    only remaining U.S.-based memory producer.
        Micron was founded in Boise, Idaho, as a semiconductor
    design consulting company. And by focusing on being a low-cost
    producer, Micron has survived the numerous collapses in the RAM
    market which caused many competitors to leave the industry.
    Micron eventually acquired the memory businesses of rivals
    Texas Instrument in 1988 and Toshiba in 2001. These
    acquisitions gave Micron an international presence with
    production facilities in Italy, Singapore, and Japan.
        Helium, obviously, as you have already testified, is a
    critical component in the computer member industry, and
    Congress must act soon to ensure a reliable supply of helium
    that is available for American businesses.
        I commend the Chairman for his work on this legislation,
    H.R. 527. It is a step in the right direction to helping
    companies like Micron receive a secure and continuous supply of
    helium. And I look forward to listening to the answers to the
    questions.
        And thank you for being here today.
        Mr. Lamborn. Thank you, Representative. Now we will start
    with the questions, and I will begin.
        For any of the panelists, each of your companies is heavily
    dependent on contracts between yourselves and distributors or
    refiners. As you know, there is much communication that goes on
    between the refiners and the BLM regarding maintenance
    schedules, temporary closures, and general management of the
    reserve.
        Do you feel that your companies receive timely information
    concerning these communications and helium issues that are of
    importance to your business? And would transparency provisions
    that are contained in the legislation that require the timely
    posting of information on the Internet give assurance to your
    companies that you have the information that you need to make
    proper plans for your helium needs?
        And this is for any one or more of you.
        Dr. Aronson. I have a comment regarding Brookhaven National
    Laboratory's arrangement with its vendor, which is Linde. We
    have had supply interruptions for our large superconducting
    accelerator in the recent past. These, I think, occurred
    further up in the supply chain than the arrangement between
    Linde and Brookhaven National Laboratory. And we have had very
    good success in working with the vendor to mitigate the effects
    of those kinds of supply interruptions.
        I don't have personal knowledge as to whether there is
    adequate communication between Linde and further up the chain.
    But I know that it is working well from the vendor on down to
    the end user.
        Mr. Lamborn. OK, thank you. Any of you other gentlemen?
        Mr. Page. I would say for our company the transparency in
    H.R. 527 is extremely important. We have a general view of when
    the BLM, for instance, would go down for maintenance, and the
    coordination with facilities in Wyoming. But it is not very
    concrete information. We don't really know exactly when it is
    going to go down, when it is going to come back up, what the
    issues are, and so on.
        So, I think this would be a real plus----
        Mr. Lamborn. OK, thank you. Mr. Boersen?
        Mr. Boersen. Yes, we agree. The transparency provision in
    this bill is absolutely critical. I will answer the question by
    briefly summarizing our experience last year.
        So, in the middle of June of 2012 we were notified of a
    supply chain disruption and within 2 weeks were under force
    majeure, facing very stringent allocation measures that came
    close to--but we were able to avert--closing down part of the
    plant, including the layoffs that would have resulted from
    that.
        So, we are very pleased with the Committee's work,
    particularly on the transparency provision. We believe that
    would have significantly ameliorated the problem last year and
    we may not have had to go to the lengths that we had, in terms
    of spending significantly increased money to import helium to
    continue our operations.
        Mr. Lamborn. Thank you. Mr. Morgan, did you have anything
    to add?
        Mr. Morgan. I would concur with Mr. Boersen. This last year
    has been a struggle for us to acquire helium. Understanding and
    transparency into the maintenance activities associated with
    the BLM and the operations there would be very helpful.
        You know, as far as the transparency into pricing, we do
    pay market prices, regardless of what the difference is. So
    that is not as important as visible insight into the
    maintenance activities.
        Mr. Lamborn. OK, thank you. And for any one of you, what is
    the differential when you have to buy from foreign sources if
    there is some kind of domestic supply disruption?
        Mr. Morgan. Well, for Micron, we are a global company. And
    as Representative Labrador referred. And we have a connection
    into sources around the world and suppliers around the world
    that come from various countries that are out there already. So
    if there is a need to divert supply in order to support our
    operations, we work very closely with distributors to make that
    happen.
        Mr. Lamborn. Is it much more expensive, though, when you
    have to look to foreign sources?
        Mr. Morgan. In some cases, yes. Certainly in the case of
    Russia and the open market related to that country, it is very
    expensive. And the bidding process there really drives up the
    price.
        Mr. Lamborn. OK. Does anyone else have anything to add to
    that? Mr. Boersen?
        Mr. Boersen. I would concur with Mr. Morgan. When we have
    had to import it from international sources, the cost is much,
    much higher than we are typically used to.
        Mr. Lamborn. OK, thank you. At this point I would like to
    recognize the gentleman from New Jersey, Mr. Holt.
        Dr. Holt. Thank you, Mr. Chairman. First, a quick question
    Dr. Aronson. Does the legislation, as proposed, do enough to
    ensure a supply for Federal labs, Federal contracts, Federal
    agencies, or should we pay more attention to that in the
    legislation?
        Dr. Aronson. From my understanding, it actually does. The
    issues that I raised in my testimony regarding the legislation
    are really surrounding issues having to do with access to the
    in-kind program for small-scale users of helium in research,
    and also looking beyond the legislation, namely at the supply
    going down the road----
        Dr. Holt. Yes, I will get to the supply in a minute. But
    what I wanted to find is whether we should have some priority
    access for certain kinds of users.
        Dr. Aronson. Well, I would hope that the priority access
    that Federal users and Federal grantees currently have, subject
    to the fluctuations that we discussed, would continue in the--
    --
        Dr. Holt. OK, thank you. Mr. Page, you spoke about some of
    your association members being denied tolling by current
    refiners.
        Mr. Page. Correct.
        Dr. Holt. Did I hear you correctly?
        Mr. Page. That is correct.
        Dr. Holt. In this legislation, the Secretary would be given
    some authority to not only ensure transparency for those
    companies and those arrangements, but also to get tough with
    them, if necessary. Does the legislation, as you see it, and
    briefly, please, how do you see the Secretary using that
    authority? How might a Secretary use that authority? Is it
    sufficient?
        Mr. Page. I am not certain that it is, just because there
    is no real incentive. They are actually putting themselves in
    more competition that is created when you have to toll. And I
    see that there are not any alternatives, or doesn't seem to be
    alternatives available now. But I am just not sure how that
    works.
        Dr. Holt. Twenty percent of the auction would be available
    to----
        Mr. Page. Right.
        Dr. Holt [continuing]. Any kind of users, including
    recreational balloons----
        Mr. Page. Right.
        Dr. Holt [continuing]. And so forth. But for that to work,
    it depends on refiners, the four primary refiners, I presume,
    being competitive enough to take the job.
        Mr. Page. Correct.
        Dr. Holt. For the smaller purchasers, perhaps, or even not-
    so-small purchasers.
        Mr. Page. Well, I----
        Dr. Holt. We would be happy to hear in follow-up from any
    of you of steps that we might take, other things we might build
    into the legislation that you think would help with that.
        In the time remaining, though, I really want to get to the
    supply question. Dr. Aronson, I am really concerned that some
    critical uses will find themselves in short supply in the
    future, because we didn't foresee that. If you look at quantum
    computing, or large-scale superconducting, or other such
    things, do you see large demand that might pop up 5 years from
    now, 10 years from now, 20 years from now? And will market
    forces be sufficient to address that supply, that demand, to
    provide the supply for that demand?
        Dr. Aronson. One comment I can make is that technologies,
    new technologies coming from basic research, including
    technologies that could replace the need for liquid helium in
    cooling some processes, depending on liquid helium because most
    of the break-through technologies that we are looking at are
    dependent on highly complex materials whose structure isn't
    understood, and requires examination in research machines like
    light sources, which themselves depend on liquid helium.
        So, of course, I can't tell you what the landscape of high-
    tech applications will be 20 years from now, but I am certain
    that the fundamental research that we are doing will be
    necessary to get us there. And that will continue to be
    dependent on liquid helium, because it is a scalable resource.
    That is, all different sorts and sizes of research projects can
    and do use it.
        Dr. Holt. Thank you, Mr. Chairman.
        Mr. Lamborn. All right, thank you. Representative Lummis of
    Wyoming.
        Ms. Lummis. Well, thank you, Mr. Chairman. I would like to
    point out to Dr. Aronson that I have been very interested in
    your responses and to your testimony. I am the Chairman of the
    Energy Subcommittee on the Science, Space, and Technology
    Committee. So a lot of what you have been telling us about the
    basic research, as well as the applied research for substitutes
    for liquid helium or ways that additional research and R&D
    could benefit the applications or requirements of this scarce
    natural resource, is something that falls right in our
    wheelhouse. We would be very interested in working with you.
        So, we are just putting together our agenda for the coming
    couple of years on that Committee. So if you would be so kind,
    please submit to us your recommendations and other scientists
    in the area that we should be consulting with regard to
    preparing our agenda as to research and development regarding
    these helium issues. And I would appreciate that very much.
        Dr. Aronson. I would be very pleased to do that. Thank you.
        Ms. Lummis. Thanks very much. Let me get to my questions.
    Excuse me, Mr. Chairman. I was so excited about the science
    part, I set my questions aside.
        Mr. Lamborn. That is understandable.
        [Laughter.]
        Mr. Lamborn. You could yield some time to the gentleman
    next to you and he could trade it back to you if you need a few
    more moments to prepare.
        Ms. Lummis. I just found them. Thanks.
        Mr. Lamborn. OK.
        Ms. Lummis. OK?
        Mr. Lamborn. Well, please proceed.
        Ms. Lummis. This is for all of our guests here. In terms of
    meeting the supply demands in the companies you represent, how
    comfortable are you with the safeguards in this bill to ensure
    that the auction results in a stable supply? And that is for
    anyone.
        Mr. Morgan. As far as for Micron, the provisions, we feel,
    are relatively satisfactory. Our main focus is around the
    supply and enabling the operation to continue running. The
    three points that have been brought up and referenced by Mr.
    Boersen in relation to transparency, the transition period, I
    think, is critical to establish what those processes are that
    are going to be followed by the BLM. And then, of course, our
    main concern is a stable supply in the industry.
        The provisions we find satisfactory to support those. It is
    a new system we are all going to have to adapt to and we will
    just take the steps necessary to do so.
        Ms. Lummis. Are there any additional safety net provisions
    you would like to see in this bill, if you could? And that is
    for anyone.
        Mr. Boersen. One comment. So in the bill today it includes
    the 1-year transition period. And it may be helpful to give the
    Secretary the leverage to, depending on the situation at the
    time, depending on how the auction process development by the
    BLM is going, any constraints in the marketplace or
    legislatively at the time, give the Secretary the flexibility
    to assure that we don't run into a second helium cliff, say, in
    the 14- or 15-year timeframe after the passage of the bill
    itself.
        Ms. Lummis. OK. And----
        Mr. Page. If I could just add on to that, I feel like that
    the refiners decide today who receives product and who does
    not. And what this bill does is it presents an entirely new
    paradigm. And under this bill I think there is a lot more
    accountability, in terms of how those resources are
    appropriated.
        So, the work of this bill, I think, has reversed, I think,
    a system that does not work, that is broken.
        Ms. Lummis. Well, thank you. Mr. Page, while I have you,
    although you are not maybe, the most important segment of
    helium users out there, you are the segment that most Americans
    learn about helium from in the first place.
        Mr. Page. Right.
        Ms. Lummis. So I have a question for you, specifically.
    What about price increases that you would pass on to customers
    as a result of an auction? Do you have a level of concern about
    that?
        Mr. Page. I actually think the pricing will come down,
    based on----
        Ms. Lummis. Oh, good.
        Mr. Page [continuing]. What we are working with today. And
    the reason for that is that there is no rational connection
    between the pricing and the way the program is currently
    working. And there is no real explanation for it, outside the
    fact that some industries have been graced with helium, or more
    graced, and there has been decisions made by refiners that
    helium is a frivolous use, and this eliminates the opportunity
    of a free market to actually operate.
        And so, I think that what is going to happen is, with this
    transparency, the price to my type of customers will actually
    come down.
        Ms. Lummis. OK. Well, that is interesting because,
    obviously, the critical nature of helium to so many health-
    based and science-based uses makes it an absolutely critical
    resource. When I have been out to the Exxon Shute Creek LaBarge
    Plant in Wyoming and seen the helium trucks pulled up, they are
    printed in all different languages. And so, obviously, it is a
    global resource of great importance.
        And so I want to thank the Chairman for our hearing today
    and for these witnesses. And I yield back.
        Mr. Lamborn. OK, thank you. Representative Lowenthal of
    Pennsylvania--excuse me, Cartwright of Pennsylvania. And Mr.
    Lowenthal will be the next in line on the Democratic side.
        Mr. Cartwright. Thank you, Mr. Chairman. I do have some
    questions of the panel. My name is Matthew Cartwright. I am a
    freshman congressman from Northeastern Pennsylvania, a place
    where the landscape is being transformed at this time because
    of hydraulic fracturing for natural gas. We have not only
    wellheads going in at record paces, but also pipelines snaking
    their way across the landscape in Northeastern Pennsylvania to
    distribute the natural gas that comes out of the ground.
        My understanding is that helium is a byproduct of natural
    gas. And what I would like to hear from any of you on the panel
    is, first of all, do you have any insight into whether helium
    is prevalent in the natural gas being fractured out of
    Northeastern Pennsylvania? And second, because there has been
    so much fracking activity, and for other reasons, the price of
    natural gas has come down dramatically in the recent past. And
    what effect, if any, has that had on helium, and will have in
    the future?
        Dr. Aronson. My understanding, Congressman, is that the gas
    that is produced from shale formations isn't rich in helium. It
    is not an automatic byproduct of natural gas. It depends on the
    formation in which the natural gas was generated and captured.
    And the process by which the helium is generated is different.
    So it may or may not be there. And I believe there is not much
    in shale gas.
        Mr. Cartwright. That was my suspicion. But it still leaves
    open the question--the fact of all of the fracking going on
    bringing down the price of natural gas. And what has the effect
    of helium been for that?
        Mr. Page. Well, let me just make one comment. In regard to
    the availability of helium from natural gas, the genius of what
    former generations have done with the BLM creation of the
    storage facility is that it is an issue of storage. So, as you
    drill for natural gas and extract this natural resource, much
    of that helium gas is just being vented to the atmosphere
    because it cannot be captured.
        So, actually, the policy is almost the reverse of the way
    it should be, and that is that there should be an inflow into
    the system, rather than us talking today about emptying the
    reserve. I mean if we are going to look to the generations to
    come, to me that just makes common sense.
        Mr. Cartwright. What makes common sense, to try to capture
    the helium?
        Mr. Page. Well, actually, we should be extending the
    pipeline in a westerly direction and continue to use the dome
    to store resources, or to accumulate resources, rather than
    exhaust them.
        It has been very clear in the testimony of the importance
    of helium to our economy, to the future, technology. And yet we
    are, I think, foolishly draining ourselves of the resources. I
    truly don't understand why.
        Mr. Cartwright. And then the corollary to my prior question
    of fracking producing helium, obviously it is not a big source
    of helium. What are the most productive ways and places in the
    United States where we get helium?
        Mr. Morgan. I was just going to say, as far as an end user,
    which is what I am representing here, it is difficult for
    Micron, at least, to answer all the questions about the supply
    and what the best way is to create the helium. We are very
    familiar with how it is moved around the country and so on, but
    I would recommend that panel three takes the opportunity to
    actually answer your question in a lot more detail.
        Mr. Cartwright. I certainly will present that question to
    them. And I thank you for your attention today.
        I will yield back my time, Mr. Chairman.
        Mr. Lamborn. Thank you. Representative Thompson of
    Pennsylvania.
        Mr. Thompson. Thank you, Chairman. Gentlemen, thanks for
    participating in this panel, bringing your specific expertise
    to this important topic. I think your testimony, as well as,
    Mr. Chairman, the testimony of other witnesses we have had on
    this issue certainly has been enlightening, in terms of the
    importance of helium, strategically, to this country and,
    whether it is technology, innovation, new discoveries and,
    appropriate for today, I would say important in the whole idea
    of love, as well, with Valentine's Day and balloons.
        My first question just kind of opens up--what do you see as
    the advantages of creating this auction-based system, versus a
    straight extension by funding of the current policy? What are
    the kind of the pros, or advantages this legislation has over
    that alternative? Any opinions?
        Mr. Page. This is a free-market approach, and we don't
    currently have a free-market approach. I mean it is basically
    the Federal Government has created a monopoly, in terms of the
    availability of helium in this country. So I think that really,
    at the core, that is the really important thing this
    legislation does.
        Mr. Morgan. Yes, it is difficult for me to make certain
    comments when I purchase my helium from the number of people
    that are sitting behind me right now.
        [Laughter.]
        Mr. Thompson. That is OK. I mean we are used to sitting
    across from folks who don't always agree, so----
        Mr. Morgan. However----
        Mr. Thompson [continuing]. You should be comfortable with
    it.
        Mr. Morgan. However, I would say that I do believe that the
    current policies create a certain disadvantage to some
    suppliers out there, and there is a certain amount of tension
    that is probably put into the system, where certain suppliers
    have to have a much higher focus on cost, and their ability to
    manage costs differently, based on the current system.
        So, I believe the new system that is being proposed would
    provide a means in which to level that playing field a certain
    amount and, to Mr. Page's comments, create a more free-market
    system.
        Mr. Thompson. OK. With that, let me go back to Mr. Morgan,
    I have a question specifically for you. In your testimony you
    wrote that we have been seeing helium supply shortages. And
    over the past years your company only received about 80 percent
    of the helium which you contracted.
        What impact might these statements have on the overall
    helium prices?
        Mr. Morgan. Since I am an end user, our negotiations are
    based off of what the market is driving. I believe that the
    pricing essentially is established based off of a market-driven
    economy.
        Today, the last year, and why we have been put on
    allocation, is not necessarily the eminent situation with the
    helium reserve, but it is because of the maintenance activities
    that have been done throughout this last summer at both the
    Exxon facility in Wyoming, as well as the maintenance that has
    been done at the BLM facility, which we learned about later had
    impacts through the summer. So that is what has been driving
    our allocation methodology.
        We are concerned, which has been highlighted, with the
    potential of 30 percent of the market, or 30 percent of the
    helium being taken off the market, due to a need for action
    here at the legislative level.
        Mr. Thompson. Mr. Page, in your testimony you mentioned the
    difficulty of obtaining the helium through the auction process,
    specifically because of your ``lack of access to
    infrastructure.'' Do you have any concerns about the way the
    auction is set up in H.R. 527?
        Mr. Page. No, I think that there is a remedy with this new
    bill.
        Mr. Thompson. OK, very good. And my final question, just a
    follow-up, is you also discuss concerns with a monopoly on the
    helium refining side. How would you propose increasing
    refining?
        Mr. Page. How would I propose to--I am sorry?
        Mr. Thompson. Increasing refining.
        Mr. Page. Well, I think that certainly introducing a
    Nitrotec or some other type of outlet would be a first step.
    All of the helium that is being refined today by the three
    refiners are liquified. And there is a tremendous amount of
    costs that are built in for getting it cold enough and getting
    it pure enough to liquify it. And fully a third of the users
    out there don't even want it. So you are building in additional
    costs that are unnecessary.
        So, I think that is a good first step. It doesn't have to
    be as high-tech. It is also a great way to make the reserves
    more viable for a longer term, because they will not require
    the huge volumes of helium to continue operating. The current
    refiners--they just need a lot of volume to make it profitable.
        Mr. Thompson. Thank you. Thank you, Chairman.
        Mr. Lamborn. Thank you. And the gentleman from California,
    Mr. Lowenthal.
        Dr. Lowenthal. Thank you, Mr. Chairman, and thank you for
    holding this hearing. I appreciate it. And also to the Ranking
    Member. I think you answered some of these questions already on
    the panel, I just want to dig a little deeper.
        And the first question is that the last time that the
    refining capacity of the refineries connected to the BLM helium
    reserve and were collected and made public was in the year
    2000, I believe. And the changes in refining capacity that have
    occurred since that time have not been made public. And it is
    unclear whether the BLM is even aware of these upgrades.
        And so, my question is, do you think that the transparency
    provisions that are included in this legislation, which would
    require the public reporting of refining capacity would help
    your industries to participate in this new helium auction and
    the markets? You have talked about the benefits, potentially,
    of the auction and of the markets. Would the transparency of
    actually the refining capacities help in this process? And I
    ask any of the members of the panel to respond.
        Dr. Aronson. I am certainly no expert in markets, but it
    seems to me knowing the supply capabilities will help regulate
    the market and the products. So it has to help.
        Dr. Lowenthal. OK. Anybody else want to jump in?
        Mr. Boersen. So the transparency provisions, as many of us
    have mentioned, are absolutely critical. Whether the capacity
    piece of it specifically is key to that is hard to say. But
    having all that information in the public light would have
    certainly prevented major problems that companies like myself
    and Mr. Morgan's experienced last year.
        Mr. Morgan. I absolutely concur with Mr. Boersen with
    regard to the impact of visibility into the maintenance and the
    minutes associated between the meetings that are associated
    between the distributors and the refiners and the BLM. We would
    obviously appreciate another view of visibility that would
    allow us to keep track of what is going on in the market.
        Dr. Lowenthal. Thank you. And my second question is that
    whether, in fact, to keep--and you have talked about the
    impacts and moving toward the auctions, but what would happen
    if we didn't? What would happen, in your perception, if we just
    keep the current system in place until we exhaust the BLM
    supply? Do you think that we are going to have even more
    disruptions if we do that, and there will be more price
    spiking? And what happens if we don't move forward?
        I mean there has been some talk that sometimes it is
    difficult to get legislation out of this Congress. I know that
    is a shock to all of you. But what would happen if we don't?
    Where do you see the future, in terms of paying to your
    industries and I know you have touched on this, but maybe you
    can respond a little bit more.
        Mr. Page. I personally don't think that our industry will
    survive. There just is not a above-the-board, even-handed
    approach to the distribution of helium to our industry. And at
    any given time a manufacturer, a major manufacturer of balloons
    says that 20 to 25 percent of retail locations have no helium
    and do not know when they are going to have it. You can
    certainly see the impact that that will have, the ripple
    effect.
        And there is literally hundreds of thousands of jobs that
    are at stake that are related, either on the retail side or on
    the production or those allied industries, that work in
    lockstep with our industry to promote our product line.
        Dr. Lowenthal. Others? What would happen to you if we
    continue where we are today?
        Mr. Boersen. So, first and foremost, we need a bill. Right?
    Without a bill, we have BLM shut down and we have a major
    problem in the fall. So that is job one, to get the bill
    passed.
        As for the specifics on the auction, I think the Committee
    can manage figuring out exactly how that should be structured.
    But job one is getting a bill passed.
        Dr. Lowenthal. Thank you.
        Dr. Aronson. I would say that since we are seeing already
    that even Federal users, contractors to Federal agencies, which
    have some priority, are seeing price and availability
    fluctuations increasing, just doing more of the same is going
    to get us more of the same. So----
        Dr. Lowenthal. More spikes? More----
        Dr. Aronson. Yes, right.
        Dr. Lowenthal. More difficulty in obtaining----
        Dr. Aronson. Especially with a big chunk of the world's
    market supply going offline, it is only going to get worse.
        Mr. Morgan. As far as the semiconductor industry, obviously
    we would have to make some serious adaptions to how we do
    business. Conservancy measures in getting away from helium
    would be a major disruption to what we would have to incur. I
    agree with Mr. Boersen with regard to job one is to get the
    bill passed so that we have the supply today, and that we can
    sustain operations, moving forward.
        The semiconductor industry is obviously supporting
    tremendous growth. You can look around the room here, and
    everything that is being videotaped and so on is going onto
    some sort of memory module somewhere in the world. And without
    sustainment of that growth, a lot of opportunities would be
    curtailed in the future.
        Dr. Lowenthal. Thank you. And, Mr. Chairman, I yield the
    remainder of my time.
        Mr. Lamborn. All right, thank you. And I want to thank the
    panel for being here. I appreciate your taking the time and
    effort to help inform us on this important issue.
        And I would like to now bring up the third and last, but
    certainly not least, panel, representatives from the refining
    and distributing portion of the helium industry.
        We have with us: David Joyner, President of Air Liquide
    Helium America, Inc.; Tom Thoman, Division President for Gases
    Production of Airgas, Inc.; Kevin Lynch, Senior Vice President
    for Specialty Gases and Helium of Matheson Tri-Gas; Walter
    Nelson, Director for Sourcing and Supply Chain of Air Products
    and Chemicals, Inc.; Nick Haines, Head Global Helium Source
    Development of Linde North America; and Scott Kaltrider, Vice
    President for Business Management and Helium of Praxair, Inc.
        And as you are coming forward I will explain how the
    testifying works. Like all witnesses, your written testimony
    will appear in full in the hearing record, so I would ask that
    you keep your oral statements to 5 minutes or less, as outlined
    in our invitation letter to you and under Committee Rule 4(a).
        Our microphones are not automatic, so you need to turn them
    on when you are ready to begin. And as you have seen with
    earlier panels, the lights turn yellow after 4 minutes and turn
    red at 5 minutes. And I would ask you to conclude at that time,
    if not sooner.
        So, we will now begin with the first of our distinguished
    panelists, Mr. Joyner.

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

        Mr. Joyner. Thank you, Mr. Chairman and members of the
    Committee. I appreciate the opportunity to testify today. I am
    President of Air Liquide Helium America, part of Air Liquide's
    U.S. organization. Headquartered in Houston, Texas, Air Liquide
    has over 5,000 employees in over 200 locations throughout the
    country. Air Liquide is also a major supplier of refined liquid
    helium, worldwide. And through my over 20 years in the natural
    gas sector, I have gained an in-depth understanding of the
    helium business.
        And I want to commend and thank you for your hard work and
    that of your staff over the last year to address this important
    issue. It is Air Liquide's highest priority to assist you in
    continuing the operation of the Federal helium reserve in a
    manner that creates a stable and reliable supply for end users,
    supporting their needs as well as providing appropriate return
    on a Federal resource for the U.S. taxpayer.
        Today I will confine my remarks to two issues that we see
    as important, as the Committee continues its legislative work:
    the first, accessibility; and the other, price discovering and
    qualified bidders.
        Regarding accessibility, the helium stored at the Federal
    helium reserve is a crude helium that needs to be refined--in
    other words, tolled into a liquid helium--in order for it to
    then be transported out to other facilities for additional
    processing, and then on to end users. Air Liquide is a non-
    refiner on the BLM system infrastructure. And as such, we must
    enter into tolling contracts with the refiners who are also our
    competitors in the sales market in order to be able to
    distribute any helium that we purchase from the BLM.
        So, put simply, refiners are not currently entering into
    tolling agreements for open-market sales with non-refiners. And
    as the 2010 NRC report found, without such tolling contracts,
    non-refiners are effectively prohibited from using the BLM
    source, leaving end users with less competition for their
    business.
        To be clear, these refining facilities pre-existed the 1996
    Act. They were built to take advantage of private helium
    reserves that were also on the infrastructure. But as an
    unintended consequence, now the Federal reserve is captive to
    these refineries.
        As a result, the current system does not promote a
    competitive market. The proof is that Air Liquide is the only
    non-refiner that has bought any amount of BLM helium in years.
    And despite that, we are currently not able to have a refiner
    engage in a new open-market tolling agreement.
        Now, Mr. Chairman, we have heard some analogies that folks
    have been making in an attempt to shut down the discussion on
    access related to things such as the strategic petroleum
    reserve and car manufacturers. These analogies are fatally
    flawed, and I would be happy to answer any questions in those
    regards following testimony. Our goal is to promote competition
    and appropriate return on the taxpayer resource.
        Now, to ensure the Committee's goal of increasing access is
    realized, we recommend clarifying that purchase of helium and
    Part B of the auction will receive corresponding helium
    delivery allocations. Such an approach has already been a
    proven success. The BLM recently enacted a program that
    encourages bidders to supply helium to Federal users with an
    incentivized tolling basis. In fact, Air Liquide has
    participated in this system, and now reliably supplies critical
    helium needs to the U.S. military as a part of that program.
        So, linking the purchase volumes with corresponding
    delivery volumes on the pipeline meets the twin goals of
    increasing access and ensuring reliable supply for end users,
    with the added benefit of administrative ease. Now, let me be
    clear. This is a proven incentive-based proposal. And
    regardless of claims you may hear today, it does not interfere
    with private contracts in any way.
        Now, with regards to the issue on price discovery and
    qualified bids, on pricing we urge the Committee to be
    cognizant of the impact that the changes to the BLM pricing
    structure can have on the global helium market, given that the
    BLM serves as an index for sources worldwide.
        So, first, in determining the minimum sales price, we
    suggest that you look at all contracts active in the last 2
    years, so the BLM has a maximum number of data points to arrive
    at an accurate minimum price that offers the fairest return to
    the U.S. taxpayer. Additionally, we recommend adding
    ``wholesale'' to the definition of qualifying helium
    transactions. It provides a more objective and transparent
    calculation that can be repeatable to determine the net crude
    helium value.
        And finally, as the Committee departs from the status quo
    to develop a new pricing auction that is based on price, not
    just volume, we urge putting safeguards in place that ensures
    this one-of-a-kind system does not distort prices worldwide, as
    a result. And we believe those safeguards will mitigate price
    volatility for end users.
        Now, regarding the qualified bidders, we recommend ensuring
    persons with an infrastructure capable of accepting and
    delivering threshold quantities of helium be allowed to
    participate in the auction process. Doing so ensures that BLM
    can manage its sale of Federal crude helium effectively and
    efficiently, and also ensures that the broadest base of end
    users can depend on the broadest competition of bidders to
    service their helium needs and address their concerns over
    reliability of end use supply.
        Like the Committee, Air Liquide has worked to achieve
    consensus among industry stakeholders in order to identify a
    path forward for extending the Federal reserve and ensuring a
    reliable supply of helium for end users, and we look forward to
    continuing this effort, and strongly believe that changes to
    the current system are achievable without disrupting supply and
    while still enhancing competition in return for the U.S.
    taxpayer.
        We thank the Committee for the testimony today.
        [The prepared statement of Mr. Joyner follows:]

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

        Chairman Hastings, Ranking Member Markey, and Members of the
    Committee, I appreciate the opportunity to testify today on issues
    relating to the domestic helium industry and the Federal Helium
    Reserve. My name is David Joyner, and I am the President of Air Liquide
    Helium America, Inc., the helium company for American Air Liquide, one
    of the Nation's leading industrial and medical gas companies.
    Headquartered in Houston, Texas, Air Liquide has over 5,000 U.S.
    employees in more than 200 locations throughout the country. For
    decades, Air Liquide has offered industrial and medical gases and
    related services to the Nation's largest industries including
    manufacturing, electronics and healthcare. 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.
        I have been with Air Liquide working in the industrial gas sector
    for over twenty years, most recently as President of Air Liquide Helium
    America. In this role, I have gained an appreciation for the
    complexities of the helium market as well as the importance of helium
    to a variety of end-users. At the outset, I want to commend and thank
    you all for your hard work and that of your staff over the last year to
    consider this important issue. It is Air Liquide's highest priority to
    assist you in continuing the operation of the Federal Helium Reserve in
    a manner that creates a stable and reliable helium supply capable of
    supporting the needs of end-users as well as providing an appropriate
    and reliable return on a Federal resource for U.S. taxpayers.
        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. When Congress passed the 1996 Helium Privatization Act
    (the 1996 Act), it was expected that the supply of crude helium in the
    Federal Helium Reserve would last until 2015. It is now possible that
    the Federal Helium Reserve's supply of helium could last much longer if
    properly managed. Despite the amount of remaining helium, the funding
    mechanism in the current law could lead to the closure of the Federal
    Helium Reserve in the Fall of 2013. This closure would effectively take
    close to a third of the global supply and half of the domestic supply
    of helium offline creating shortages and substantially increasing the
    cost of helium for end-users. Accordingly, the timing of this hearing
    is critically important as Congress must act in order to ensure access
    to the helium remaining in the Federal Helium Reserve.
        As members of this Committee have noted in previous hearings, a
    stable supply of helium is important to our Nation's economy as it is a
    vital component in products ranging from magnetic resonance imaging
    (MRI) machines to airbags for the automotive sector. Helium is also
    important to our Nation's security as it is used in a variety of
    military and defense surveillance programs. Finally, the reliability of
    our helium supply is important for the Nation's research efforts such
    as those being undertaken at our Nation's national laboratories and at
    our own Delaware Research and Technology Center. These important
    efforts would be threatened by any sustained shortage in the domestic
    helium supply, particularly one that can be largely avoided by
    responsible management practices.
        For these same reasons, it is important to consider what changes
    can be made to create a more open and competitive helium market that
    would improve reliability and benefit end-users. To that end, I would
    like to confine my remarks to two issues that we see as important as
    the Committee considers legislation relating to the Federal Helium
    Reserve: (1) accessibility; and (2) price discovery and qualified
    bidders.
    I. Increasing Access and Creating a More Competitive and Transparent
            Market for Federal Crude Helium
        As the Committee is aware, the helium stored at the Federal Helium
    Reserve is ``crude'' helium which must first be refined (i.e.
    ``tolled'') into liquid before it is transported to other facilities
    for additional processing and then on 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. These six refining facilities are
    owned by just four companies and were established by those companies in
    the last century to take advantage of privately-owned crude helium
    supplies. Nevertheless, with the enactment of the 1996 Act and the
    resulting use of the federal government's infrastructure to sell crude
    helium from the Reserve, these companies gained the unexpected windfall
    advantage of controlling access to the public's stockpile of crude
    helium due to their preexisting refineries.
        Air Liquide is a so-called ``non-refiner'' and, as such, we must
    contract with the refiners--who are also our competitors in the sales
    market--to be able to distribute any helium purchased from the BLM. Put
    simply, refiners are not entering into tolling contracts for open
    market sales with non-refiners, effectively prohibiting non-refiners
    from utilizing the BLM source. In recent years, the BLM has
    contractually committed 94 percent of the captive deliverable volumes
    to these refiners and six percent to non-refiners. However, in reality,
    the refiners also control the remaining six percent because without a
    tolling contract in place, the non-refiners cannot be assured of
    refined product. Given that any amount of crude helium that remains
    unsold reverts back to the refiners for purchase, another disincentive
    for the four companies to provide tolling services exists--an
    additional market advantage that was surely not envisioned by the 1996
    Act.
        This current system's drawbacks were noted by the National Research
    Council's 2010 report, Selling the Nation's Helium Reserve, (the ``NRC
    2010 Report'') which stated: ``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.'' \1\
    ---------------------------------------------------------------------------
        \1\ Selling the Nation's Helium Reserve, National Research Council:
    Committee on Understanding the Impact of Selling the Helium Reserve,
    The National Academies Press (2010).
    ---------------------------------------------------------------------------
        Proof that this system does not promote a competitive market can be
    seen in the fact that, in the last five years, Air Liquide has been the
    only non-refiner to purchase any amount of the six percent allocation.
    The consequences of the situation described above have important
    implications for 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.\2\
    ---------------------------------------------------------------------------
        \2\ Id. at 8.
    ---------------------------------------------------------------------------
        Utilizing this approach would result in a more accurate and
    transparent BLM system and would benefit consumers by increasing the
    number of suppliers competing for the business of federal users and
    open market users with helium from the BLM. In an analogous situation,
    the United States has recognized the benefits of opening privately
    owned interstate pipeline capacity to the market in the natural gas
    industry where ownership of transportation capacity rights is held
    separate from ownership of the actual gas pipeline.\3\ Noting the
    impact this system has had on the domestic market, the report states:
    ``[u]nbundling of capacity rights from facility ownership makes it
    possible for a producer to access markets through a competitive bid for
    pipeline capacity.''
    ---------------------------------------------------------------------------
        \3\ Shale Gas and U.S. National Security, Kenneth B. Medlock, et
    al., James A. Baker III Institute for Public Policy (July 2011).
    ---------------------------------------------------------------------------
        We greatly appreciate the efforts of Members of this Committee and
    Committee staff to meet the goal of increasing access in H.R. 527--the
    Responsible Helium Administration and Stewardship Act. In addition to
    Chairman Hastings and Ranking Member Markey, we would specifically like
    to recognize Representative Flores for his active and diligent
    engagement on this issue and similar focus towards ensuring the
    program's future sustainability. To ensure that this goal is realized
    on the ground, we are recommending the insertion of language into the
    bill that would tie volumes of crude helium purchased in an auction to
    corresponding pipeline delivery allocations. Such an incentive-based
    approach is not unprecedented. BLM recently piloted a methodology that
    encourages bidding to supply helium to federal users via the ``in-
    kind'' and ``MOU'' program by providing the buyer of the helium volume
    with a corresponding helium delivery allocation that is held for the
    buyer until the buyer designates that the volume is to be delivered to
    a certain refiner who has agreed to toll the in-kind volumes. To match
    this program, we recommend clarifying that purchasers of helium in
    Section 2 Part B of H.R. 527's envisioned auction would also receive
    corresponding helium delivery allocations. Working together with other
    provisions in H.R. 527 that ensure competitiveness and fair acts and
    practices, an expansion of this methodology to include the auction
    envisioned by H.R. 527 would not interfere with contractual
    arrangements between private parties but would instead increase
    participation and transparency in the BLM's efforts while providing
    greater competition and reliability for end-users.
        Finally, we believe the transition process to a new sales system,
    especially system similar to the one already being managed by BLM,
    should be a seamless and prompt progression to allow both industry and
    end-users to have the confidence that a reliable supply of helium from
    the BLM is ensured.
    II. Price Discovery and Qualified Bidders
        Under the provisions of the 1996 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. It is commonly agreed
    that this resulted in the BLM charging a price below the free market
    value of crude helium. Air Liquide supports active price discovery that
    would allow the Secretary to establish a more accurate minimum price
    for federal crude helium. Currently, H.R. 527 would only allow the
    Secretary to consider ``new or newly negotiated'' contracts for the
    purchase or sale of at least 15 million standard cubic feet of helium
    over the previous two years. It is our recommendation that the phrase
    ``new or newly negotiated'' be stricken from this definition as most
    helium contracts in the market are active long-term contracts. These
    long-term contracts typically have price adjustments year-over-year
    that ensure they will reflect current market conditions. It is our
    recommendation that such long-term contracts, active in the last two
    years, be included for the Secretary's consideration so BLM has the
    maximum number of data points from which to derive a minimum sale price
    that offers the fairest return to the U.S. taxpayer. We would also
    recommend that the reference be clarified by adding ``wholesale' to the
    definition of qualifying domestic transactions to avoid the subjective
    and unrepeatable analysis necessary to theorize the net crude helium
    value in such transactions.
        Air Liquide's goal is to ensure a stable and reliable supply of
    helium for end-users. Accordingly, as H.R. 527 opens up access to
    federal crude helium for more bidders, we also recommend ensuring that
    only persons with an infrastructure capable of accepting and delivering
    vast quantities of helium (we have recommended a minimum threshold of
    750,000 standard cubic feet delivery increments and prorated 10,000,000
    standard cubic feet quarterly lots) be allowed to participate in the
    auction process. Doing so allows the BLM to manage its sales of federal
    crude helium effectively and efficiently while ensuring that the
    broadest base of end-users will be able to rely on a broader base of
    bidders to service their helium needs.
        Finally, as stated, we commend the Committee's efforts to include
    methodology that can achieve a more accurate minimum price for BLM
    crude. As the parties work towards achieving the most appropriate
    return to the U.S. taxpayer, we also ask the Committee to be cognizant
    of the impact that future changes to the BLM posted crude price will
    have on the global helium market. As Air Liquide has previously
    testified, a predictable, repeatable and verifiable BLM crude price
    will carry lasting, stabilizing effects for not only the domestic but
    also the global helium community.
        Air Liquide appreciates the Committee's attention to this important
    issue and supports the goal of ensuring the continuing viability of the
    Nation's helium supply. We believe the changes to the current system
    are achievable without disrupting supply and would do much to add
    competition to the market and benefit consumers. I thank the Committee
    for inviting me to testify, and I would be pleased to answer any
    questions you may have.
                                     ______

        Mr. Lamborn. OK, thank you.
        Mr. Thoman.

             STATEMENT OF TOM THOMAN, DIVISION PRESIDENT,
                     GASES PRODUCTION, AIRGAS, INC.

        Mr. Thoman. Mr. Chairman and members of the Committee, my
    name is Tom Thoman. I am the Division President for Gases
    Production at Airgas. And we are headquartered in Radnor,
    Pennsylvania.
        I would like to start this morning by expressing Airgas's
    appreciation for the significant efforts that have been made by
    this Committee and its staff. You have tackled the tough issues
    and you are trying to remedy a distorted market that has
    historically been closed to all but a few bidders.
        Airgas was founded in 1982 and operates the largest
    domestic infrastructure and supply chain for delivering helium
    in the United States, with more than 80,000 customers,
    accounting for 22 percent of the domestic market. Our customers
    range from OEM manufacturers, research, analytical,
    environmental, and government labs, the aerospace industry,
    oil, gas, and chemical industries, welders, hospitals, clinics,
    and the Federal Government. The lion's share of our helium
    business is with customers like these.
        As you well know, the Helium Privatization Act of 1996
    established a pricing mechanism based on debt repayment and a
    sales construct whereby taxpayer-owned crude helium can
    effectively only enter the market after first being allocated
    to one of three companies with pre-existing refining facilities
    on the BLM pipeline. Well-intended as the reforms set forth in
    H.R. 527 are, we believe they fall short of what is needed in
    the U.S. marketplace.
        Specifically, there are four critical elements that must be
    addressed in the bill, the absence of any one of which could
    well result in a worse situation for U.S. helium markets than
    the situation we confront today. In fact, because of the
    contracts we have with the refiners, and our commitment to meet
    the need of our customers, a continuation of the current
    regime, but with pricing measures like those proposed in this
    bill, would be preferable to a construct that fails to
    adequately address each of these issues. Let me touch on them.
        First, the bill must recognize the capital-intensive nature
    of this business, and the need for a certainty of supply. A
    requirement that auctions be held no frequently than two times
    each fiscal year would undermine the ability of refiners and
    bidders to effectively use their assets to service customers.
    Long-term agreements are a norm in our business because of the
    physical assets required to transport and store helium. They
    are very expensive, and generally acquired only at the time to
    meet the need for a new long-term customer.
        With auctions occurring two times a year, we would have no
    way of knowing, from period to period, whether we would have
    product to meet our contractual obligations to our customers.
    And neither Airgas nor other potential bidders would be
    incented to make the investment necessary to serve or continue
    to serve the end user market. Airgas, therefore, asks that you
    consider staggered auctions, providing for multi-year supply
    commitments.
        Second, the bill will not meet its objective if refiners
    are not obligated to refine for winning bidders that have the
    infrastructure to serve the U.S. market and do so at a cost
    plus tolling fee that will enable those winning bidders to be
    competitive. This is critical, because the refiners and those
    who might like to bid are now, and will continue to be,
    competitors. Without mandatory tolling at a reasonable cost, no
    party, other than a refiner, would be able to risk bidding on
    helium in an auction.
        And this is not a lot to ask of the refiners. After all,
    since the passage of the 1996 Act, they have enjoyed a virtual
    monopoly that repaid any investment they have made many times
    over.
        Third, the bill must thwart opportunities for market
    manipulation and disruption by imposing immediate storage fees
    and mandating the prompt removal of all acquired helium. Also,
    this Committee should seriously consider an allocation
    methodology based on a bidder's share of the U.S. end user
    market, with pricing determined by measures like those you have
    proposed in this bill.
        Fourth, and perhaps most critical, the bill should provide
    that all helium that is owned by the U.S. taxpayer, or that has
    benefitted from the use of the Federal pipeline and/or storage
    facility, be designed to meet domestic demand before it can be
    exported. We believe that such a provision is justified by the
    fact that this is a taxpayer-owned strategic resource which is
    currently under-supplied in the domestic market. We are not
    proposing a ban on exports. We are proposing that steps be
    taken to assure that this vital resource is prioritized to
    serve domestic needs.
        Airgas appreciates the efforts of H.R. 527 to increase
    access, foster competition, and drive toward a more market-
    based return to the taxpayer. With the adoption of our four
    recommendations, we believe this bill will significantly
    benefit the marketplace, the end users, and, importantly,
    taxpayers themselves.
        Thank you for the opportunity to testify, and we will look
    forward to your questions.
        [The prepared statement of Mr. Thoman follows:]

        Statement of Tom Thoman, Division President--Gases Production,
                                  Airgas, Inc.

        Mr. Chairman and Members of the Committee, I am Tom Thoman and I
    serve as the Division President of Gases Production for Airgas, Inc.,
    headquartered in Radnor, Pennsylvania. I had the honor of addressing a
    subcommittee of this panel last July regarding the impact of helium
    supply shortages on our economy, and I thank you for the opportunity to
    testify before many of you again, this time on the specifics of the
    Federal helium program.
        As many of the Committee Members heard last year, we are at a
    crucial point in addressing how the Nation will treat this critical,
    but diminishing, natural resource. In my testimony today, I intend to
    briefly revisit the supply constraints affecting our business and our
    customers, while focusing the majority of my testimony on
    recommendations for how best to alleviate the situation--including
    suggestions regarding the bill H.R. 527.
        Before addressing a few key points in the bill, let me first
    express Airgas' appreciation for the significant efforts that have been
    made by this Committee and its staff. Rather than taking the easy road
    of maintaining the status quo, you have evidenced through this bill
    your willingness to tackle the difficult issues and to try and remedy a
    distorted market that has historically been closed to all but a few
    participants.
        Founded in 1982, Airgas operates the largest domestic
    infrastructure and supply chain for delivering helium in the U.S., with
    more than 80,000 customers accounting for 22% of the domestic market.
    We are therefore in a unique position to attest to both the vital role
    that this limited resource plays in our economy, and the disruptive
    effects that the current shortage is having on our customers.
        Airgas serves a diverse customer base. Our customers include OEM
    manufacturers that use helium in the airbags we have in our cars and
    trucks; hospitals, clinics and nursing homes where helium is mixed with
    oxygen to provide life-saving breath for asthma sufferers; research,
    analytical, environmental, and government labs where helium is used as
    a carrier gas in chromatography; the aeronautical and aerospace
    industries that use helium for leak detection; welders who use a blend
    of helium to produce shielding gases when building and repairing
    nuclear facilities; hospitals and clinics where much-needed maintenance
    supplies of liquid helium are used to cool MRI and NMR equipment;
    diving companies that use helium to produce diving gases for offshore,
    deepwater work on oil platforms and drilling rigs; and the Federal
    government that uses helium in weather monitoring and defense
    applications. Uses like these represent the lion's share of our helium
    business.
        As you well know, the Helium Privatization Act of 1996 established
    a pricing mechanism based on debt repayment and a sales construct
    whereby the taxpayer-owned crude helium can effectively only enter the
    marketplace after first being allocated to one of the three companies
    with pre-existing refining facilities on the BLM pipeline. Taken
    together, the restricted access to the resource and the manufactured
    price have created a warped situation where a substantial amount of
    U.S. sourced helium, much of which is owned by U.S. taxpayers, is being
    sold overseas while our domestic end-user community is suffering from
    extended supply shortages.
        Mr. Chairman, it is clear from H.R. 527 that the Committee is well
    aware of the numerous flaws in the existing regime for sales of
    taxpayer-owned helium from the Federal Helium Reserve, and how that
    faulty regime underpins the problems we now face. Those flaws have been
    accurately and repeatedly documented by the National Academy of
    Sciences, the GAO, and the Department of the Interior's Inspector
    General.
        Well intended as the reforms set forth in H.R. 527 are, we believe
    they fall short of what is needed in the U.S. marketplace. My goal is
    to emphasize the importance of including four critical elements in the
    bill, the absence of any one of which could well result in a worse
    situation for U.S. helium markets than the situation we confront today.
    In fact, from the perspective of the U.S. helium market we serve, a
    continuation of the status quo, with the addition of pricing measures
    like those in last year's Senate Bill 2374, would be preferable to a
    flawed bill that fails to adequately address each of these issues.
        First, the bill must recognize the capital intensive nature of this
    business and the need for certainty of supply. The current bill
    provides that auctions must be held no less frequently than two times
    each fiscal year. While we understand that frequent auctions may be
    more reactive to price changes in the marketplace, such a policy would
    undermine the ability of refiners and bidders to effectively utilize
    their assets and serve their customers. Airgas' typical contract with
    its end-user customers extends for a five-year term. Agreements with
    our suppliers are even longer. One reason for this is that the physical
    assets required to transport and store helium are very expensive and
    are generally acquired only to meet the need of a new, long-term
    customer. With auctions occurring two times a year, we would have no
    way of knowing from period to period whether we would have product to
    meet our contractual obligations to our customers. In addition, neither
    Airgas nor other potential bidders would be incented to make the
    investment necessary to serve or continue to serve the end-user market.
    Airgas therefore asks that you consider staggered auctions providing
    for multi-year supply commitments. In the first auction, the BLM could
    agree to sell 2-, 3- and 4-year supplies and in subsequent years the
    auctions would replace those expiring that year. During intervening
    years, the helium being sold under a multi-year commitment could be
    subject to a CPI or other formulaic cost adjustment.
        Second, the bill will fail in its mission if refiners are not
    obligated to refine for winning bidders that have the infrastructure to
    serve the U.S. market and to do so at a cost plus tolling fee that will
    enable those winning bidders to be competitive. This is critical
    because the refiners and those who might like to bid are now, and will
    continue to be, competitors. Without mandatory tolling at a reasonable
    cost, no party other than a refiner will be able to risk bidding on the
    helium at an auction. This is not a lot to require of the refiners.
    After all, since at least 1996 they have enjoyed a virtual monopoly
    that has repaid any investment they made many times over.
        Third, the bill must thwart opportunities for market manipulation
    and disruption by imposing immediate storage fees and mandating the
    prompt removal of all acquired helium. Otherwise, supply chains will be
    disrupted and winning bidders will be in a position to choke off supply
    and drive-up prices to customers suddenly unable to get product from
    their previous supplier. A bill which provides for an allocation
    methodology based on a bidder's share of the U.S. end-user market, with
    pricing determined by measures like those you have proposed in this
    bill, would best address the market disruption/manipulation issue and
    would also provide a better opportunity for U.S. businesses and
    researchers to get the helium they need. We think the House should
    seriously consider such a fair and straight-forward approach.
        Fourth, and perhaps most critical, the bill should provide that all
    helium that is owned by the U.S. taxpayer or that has benefited from
    use of the federal pipeline and/or storage facility be designated to
    meet domestic demand before it can be exported. We believe that such a
    provision is justified by the fact that this is a taxpayer owned,
    strategic resource which is currently undersupplied in the domestic
    market. We are not proposing a ban on exports; we are merely proposing
    that steps be taken to assure that this vital resource is prioritized
    to serve domestic needs.
        Airgas firmly believes that unless this bill (i) addresses the
    capital intensive nature of this business and its need for certainty of
    supply by providing for multi-year supply commitments, subject to CPI
    or other formulaic price increases; (ii) mandates tolling at reasonable
    rates for the benefit of winning bidders that do not have refining
    capacity on the pipeline; (iii) protects against market disruption and
    manipulation; and (iv) provides that helium that is owned by the U.S.
    taxpayer or that has traveled through or been stored in the Federal
    system be applied to domestic needs first, our customers and other U.S.
    businesses that rely on this vital resource will continue to suffer
    from unsustainable supply disruptions.
                                     ______

         Response to questions submitted for the record by Tom Thoman,
               Division President-Gases Production, Airgas, Inc.

    Answer to Question 1
        We have sought to enter tolling contracts with the three refiners
    and have been rejected.
        We appreciate the effort contained within H.R. 527 to incentivize
    tolling agreements, however we believe they fall short of what is
    necessary, and in fact, serve as a disincentive for the refiners to
    provide the very services the bill seeks to compel. Because the
    legislation allows any entity with a tolling agreement to participate
    in the first sales tranche of 60%, the refiners are actually
    disincentivized to make such arrangements available, because to do so
    would come at their own expense in their otherwise guaranteed access to
    60% of the Reserve's resources. Another reason that the refiners will
    not toll for the bidders in tranche 2 is that though the 20% ``set-
    aside'' in tranche 3 is intended to serve as a carrot for the refiners
    to make their services available to the bidders in tranche 2, we are
    extremely confident that the refiners would prefer for that final
    tranche not to be made available to anyone rather than have it procured
    by a competitor. In such a scenario, (as with a multitude of other
    possibilities for how the proposed auction system would play out), if
    the 20% is not made available due to their refusal to refine for
    competitors, they will simply exercise force majeure clauses on their
    private contracts with the distributors and U.S. businesses will
    suffer.
        Airgas strongly supports mandatory tolling. In fact, we believe
    that in the absence of guaranteed access to tolling, any alternative
    proposal will fail because it will not be in the commercial interest of
    the non-refiners to bid on a resource for which there is no certainty
    of having it refined.
        We believe that only with some guaranteed access to refining
    services can genuine competition for federal helium be truly assured.
    We believe that the circumstances justify a requirement that the
    refiners agree to perform these services as a pre-condition of
    participating in future federal auctions. While the precise origins of
    these refining facilities remain murky, they have (at a minimum)
    enjoyed exclusive access to federally managed, taxpayer funded,
    facilities for the transportation and storage of federally owned
    helium. Further, as a result of the 1996 legislation they have enjoyed
    a monopoly on the purchase of that federally owned helium--purchases
    which took place at below market prices. In the absence of new
    legislation all access to federal helium comes to a halt. Therefore,
    the refiners have no argument that they have a reasonable expectation
    that their monopoly of access should continue. In light of this, and
    the remarkable benefits they have received over the last 16 years, it
    is perfectly reasonable to require them to perform refining services
    for others as a pre-condition of participating in future auctions. Such
    a requirement is essential if meaningful competition is to be achieved.
    Answer to Question 2
        Airgas fully supports the 30% acquisition limitation by any one
    party. Such a limitation is necessary to ensure that market distortions
    do not result as a consequence of one party, or a small number of
    parties, controlling a disproportionate share of this taxpayer owned
    resource. However, it is not effective as a tool to facilitate
    competition unless H.R. 527 is adjusted to allow for mandatory tolling,
    increased participation by qualified participants, and improved surety
    of supply. We believe it is necessary that the bill facilitates a
    regime where 50% of the auctioned volumes would be reserved for
    refiners, and the other 50% would be competed for by qualified
    participants (defined as those entities which can demonstrate ownership
    of the necessary infrastructure or assets to deliver the product to the
    end-use market, or participants who can demonstrate use of 15 million
    scf of helium per year). We would further support allowing any
    unsubscribed helium in the second 50% to revert back to the refiners.
    We believe that such a program, accompanied by guaranteed access to
    refining services, will afford Airgas and similarly situated companies
    the opportunity to purchase sufficient volumes of helium to meet our
    obligations to domestic consumers, many of whom are currently on
    allocation. If enacted, the commercial, economic, and market factors
    flowing from such a regime will drive fair competition, rigorous
    participation, a superior return to the taxpayer, and vastly improved
    security of supply for domestic end-users.
                                     ______

        Mr. Lamborn. OK, and thank you.
        Mr. Lynch.

      STATEMENT OF KEVIN LYNCH, SENIOR VICE PRESIDENT, SPECIALTY
                GASES AND HELIUM, MATHESON TRI-GAS, INC.

        Mr. Lynch. Thank you, Mr. Chairman and distinguished
    members of the Committee.
        Matheson is the sixth largest supplier of helium in the
    world and within the U.S. We are a non-refiner and we source
    all of our helium through transactions with private parties
    that are not connected to the BLM or the reserve system. But we
    are interested in how this bill affects the helium industry,
    overall.
        Matheson strongly agrees with the stated goals of H.R. 527:
    to ensure stability in the helium markets, while protecting the
    interests of the American taxpayer. And we are strongly in
    favor of the bill's increased reporting requirements, which we
    believe will improve transparency and provide useful
    information to industry participants. Unfortunately, we believe
    that H.R. 527, as currently drafted, subverts the goal of
    market stability, and does not sufficiently address the issue
    of access by non-refiners to the helium reserve.
        As has been noted, the helium industry is built on long-
    term sourcing and sales contracts with annual escalators and
    renegotiations that are generally spaced several years apart.
    Efficient distribution of helium requires investment in very
    expensive and specialized long-lived assets. In order to plan
    and invest accordingly, buyers and sellers of helium need to
    have reasonable assurance that they will have access to helium
    from their supplier over the duration of a long-term contract.
    And under the proposed biannual auction system, the planning
    horizon will be no longer than six months.
        In addition, many of the largest private helium sourcing
    transactions in the world are linked to the BLM posted price
    for crude helium. And, under the proposed auction system, the
    BLM posted price would no longer exist, which means those
    contracts would all need to be renegotiated. For these reasons,
    we believe that the proposed auction system would result in
    much greater volatility in price and availability, and would be
    very disruptive to world helium markets.
        The bill attempts to increase access to the Federal helium
    reserve's crude helium stockpile by opening bidding to parties
    who can demonstrate that they have their own refining capacity
    or have tolling agreements for refining in place. As has been
    discussed, that is problematic. The helium, to get to market,
    must be purified. The only people who, practically speaking,
    can purify it are the refiners, who would be competing against
    the non-refiners for access to the same crude helium. And we do
    not believe that any such tolling arrangements will be
    available at market-competitive prices for non-refiners.
        It has been our experience, going back to 2007, that
    refining contracts or, excuse me, tolling contracts, are not
    available at market price. In 2007, Matheson purchased crude
    helium from the Federal helium reserve. In 2009, we attempted
    to purchase tolling services from all of the helium refiners,
    and all four declined to bid. So the crude that we purchased 6
    years ago still sits in the Federal helium reserve, and it sits
    on our balance sheet as an unutilized asset today. This
    experience is what gave rise to our decision in January 2010 to
    file a petition for rulemaking with the U.S. Department of the
    Interior, which is submitted with my testimony.
        The bill also seeks to address the access issue by stating
    that any party may build a helium refining plant and add it to
    the pipeline to get access to crude on terms equal with the
    existing plants. But any new plant of any commercial scale
    would not be online at least until 2015, if the project started
    today. And, given the expected sunsetting of the helium reserve
    by 2020, you would have a maximum useful life of 5 years to
    recover your investment on that plant. We think it is very
    unlikely that anybody will invest in significant helium
    refining capacity to add to the pipeline.
        With all that said, we believe that, with some adjustments,
    H.R. 527 can achieve the goals of greater access and market
    stability, while still generating fair returns for the American
    taxpayer on the government's investment in helium
    infrastructure.
        The outline of a plan we think would work looks like this.
    The current practice of allocated and non-allocated sales of
    crude helium would continue. The allocated amount of crude
    helium would be available only to refiners, but it would
    comprise 80 percent of the total crude helium, instead of 94
    percent, as it is today. The allocated sale price would
    continue to be a posted price, or a market price. But the
    market price would be determined by a robust market survey
    similar to the one described in H.R. 527. The remaining 20
    percent of crude helium would be auctioned to all qualified
    bidders in a non-allocated sale. These bidders would include
    non-refiners and other qualified bidders.
        As a condition of participation in the allocated sale,
    refiners would be required to set aside sufficient capacity for
    tolling by non-refiners, and these tolling services would be
    performed at a reasonable price. When a refiner provides
    tolling services to a non-refiner, it would be allocated a
    light quantity of crude helium by the BLM in order to be kept
    whole on its allocated volume.
        There are some details and some nuances of how we think
    this could be structured to work very efficiently to achieve
    the goals of the bill, and we would be happy to discuss them in
    more detail. And I thank you for the opportunity to present our
    views.
        [The prepared statement of Mr. Lynch follows:]

               Statement of Kevin Lynch, Senior Vice President,
                Specialty Gases & Helium, Matheson Tri-Gas, Inc.

        Chairman Hastings, Ranking Member Markey, distinguished Members of
    the Committee,
        My name is Kevin Lynch, and I am the Senior Vice President of
    Specialty Gases and Helium with Matheson Tri-Gas, a global leader in
    the industrial gases industry. I thank you for having this important
    hearing today, and for allowing me to testify on behalf of Matheson on
    an issue that so dramatically impacts the global supply of helium.
        Matheson was founded in the U.S. 1927, and is now a subsidiary of
    Tokyo-based Taiyo Nippon Sanso Corporation, which is the fifth largest
    industrial gases company in the world. Matheson has helium operations
    within the U.S. in Wyoming, Texas, Nebraska, California, Florida, and
    Pennsylvania, and we have retail locations in 40 states. We are the
    sixth-largest supplier of helium within the U.S., and globally.
        Matheson is a ``Non-Refiner'' of helium--meaning that we do not
    have a helium purification plant connected to the BLM crude helium
    pipeline system. Instead, we receive our refined helium through
    transactions with private parties that that are unconnected to the
    Federal Helium Reserve or the BLM Pipeline.
        Therefore, while we are a significant player in the global helium
    industry, our interests in the debate over the fate of the helium in
    the Federal Helium Reserve are slightly different from those of some of
    the organizations represented by my fellow witnesses today. Of course,
    like all industrial gases companies, we are concerned about global
    helium supply, and as a good corporate citizen we want a fair and
    efficient helium market worldwide. However, the fortunes of our company
    are not tied so directly to the continued operation of the Federal
    Helium Reserve and the Pipeline System.
        We hope this slightly different perspective allows us to look at
    any proposed legislation through a slightly different prism--not how it
    affects one company but how it affects the helium industry overall. In
    our view, any legislation that comes out of Congress dealing with the
    Federal Helium Reserve and BLM Pipeline system should lead to a fairer
    and more efficient helium market worldwide.
        As you know, today the operation of the Federal Helium Reserve and
    BLM Pipeline System is governed by provisions set out in the Helium
    Privatization Act of 1996.
        The 1996 Act has largely achieved its purpose of selling down the
    Federal stockpile of crude helium, and it has by and large created
    conditions of stability and predictability in the helium market. On the
    negative side, the global helium market has developed considerably
    since the passage of the 1996 Act. Shortages have pushed crude helium
    prices up globally, and the BLM's method for pricing its sales of crude
    helium has become detached from global market conditions. The 1996 Act
    has resulted in the existence of a cost advantage for the four
    companies buying crude helium from the Federal Helium Reserve for
    purification in their refining facilities along the pipeline. This
    represents a significant cost advantage by these helium Refiners, and a
    significant disadvantage for their competitors. Worse, it means that
    the American taxpayer is shortchanged as well.
        With the legislative authority in the 1996 Helium Privatization Act
    about to sunset later this year, Congress has a chance to ensure that
    sales from the Federal Helium Reserve are conducted in a fair and
    efficient manner following the passage of new legislation. Since the
    BLM Pipeline System supports two-thirds of world supply with nearly a
    third of global helium supply coming directly from the Federal Helium
    Reserve, the new legislation enacted this year will have a profound
    effect on the global helium industry for at least the rest of the
    decade.
        With respect to the H.R. 527, we offer the following comments.
        First, the stated goals of the legislation are to ``ensure
    stability in the helium markets while protecting the interests of the
    American taxpayer.''
        Matheson enthusiastically supports both of these goals.
        We believe that both of these goals will be advanced through the
    fostering of greater access by Non-Refiners to the Federal Helium
    Reserve, which is a concept that motivates several provisions of the
    bill.
        Matheson is also strongly in favor of the increased reporting
    requirements for the BLM as set forth in H.R. 527. The type of
    information that the BLM will be required to share more openly is of
    value to all market participants and should be made available to all
    industry participants at the same time it is made available to the
    helium Refiners. Today, important data is made available to the
    Refiners well before the rest of the industry, thus giving those
    companies yet another advantage over their industry competitors.
        It should be noted that Matheson feels so strongly about these
    provisions that we included them in the Petition for Rulemaking we
    filed with the U.S. Department of the Interior in January, 2010. We are
    pleased to see them included in H.R. 527.
        Unfortunately, despite its good intentions, we believe that H.R.
    527 as currently drafted subverts the goal of market stability and does
    not sufficiently address the issue of access by Non-Refiners to the
    Federal Helium Reserve.
        First, about market stability: The global helium industry is built
    on long-term sourcing and sales contracts with annual escalators and
    renegotiations that are generally spaced several years apart. Efficient
    distribution of helium requires investment in very expensive,
    specialized long-lived assets. In order to plan accordingly, buyers and
    sellers of helium need to have reasonable assurance that they will have
    access to helium from their supplier over the duration of a long-term
    contract.
        The auction system proposed in H.R. 527, under which all of the
    Federal Reserve's crude helium would be auctioned a minimum of twice
    per year, will create conditions of great uncertainty in terms of
    helium price and availability. How could a helium user confidently sign
    a long-term contract with a supplier, if that supplier may lose access
    to helium or pay a dramatically higher price for it every six months?
    How could a helium supplier confidently make the investments required
    in distribution assets and other infrastructure, if that supplier has
    only a six-month view as to how much helium he will have access to and
    at what price?
        In addition to the concerns about the sales of helium from the
    Federal Helium Reserve, another fact of the industry is that many of
    the largest private helium sourcing transactions are linked to the BLM
    Posted Price for crude Helium. Under the proposed price auction system,
    the BLM Posted Price would no longer exist, and those contracts would
    need to be renegotiated.
        For these reasons, we believe that the proposed auction system
    would result in much greater volatility in price and availability, and
    would be disruptive to world helium markets.
        In order to accomplish the worthy goal of increasing access to the
    Federal Helium Reserve's crude helium stockpile, H.R. 527 attempts to
    open the bidding to parties who can demonstrate that they have their
    own refining capacity or tolling agreements for refining in place.
        There are several factors to keep in mind here. First, to be
    commercially useful, virtually all helium sold into the market must be
    refined into pure helium. Second, practically speaking, the only
    companies who are positioned to convert Federal Helium Reserve crude
    helium into pure helium are the four Refiners who have purification
    plants linked to the BLM Pipeline. Third, those Refiners will be
    competing against the Non-Refiners for access to the Federal Helium
    Reserve crude helium. And fourth, there is no mechanism in this bill
    that either requires or strongly incentivizes the Refiners to offer
    tolling services at a reasonable price to companies who are competing
    against them for access to the Federal Helium Reserve crude helium.
    This is a significant flaw in H.R. 527.
        We submit, therefore, that commercially reasonable tolling deals of
    significant size will continue to be unavailable to Non-Refiners, and
    access to the Federal Helium Reserve will remain very strongly
    dominated by the helium Refiners. This is not the intention of H.R.
    527, but it will be its practical result.
        Matheson's views on this topic have been shaped from our own
    unhappy experience with third-party tolling. In 2007, Matheson
    successfully purchased crude helium from the Federal Helium Reserve. In
    2009, we subsequently attempted to purchase tolling services from all
    four of the helium Refiners and we received ``NO BID'' replies from
    each. Therefore, the crude helium that we purchased six years ago still
    sits in the Federal Helium Reserve and on Matheson's Balance Sheet as
    an unutilized asset today. Our unsuccessful attempt to secure third-
    party tolling is what gave rise to our decision in January, 2010 to
    file our ``Petition for Rule Making'' with the U.S. Department of the
    Interior which I mentioned a moment ago.
        Another way that the bill seeks to address the issue of access is
    to state that any party may build a helium refining plant attached to
    the BLM Pipeline, and gain access to crude helium on equal terms with
    the existing refining plants. This removes a structural impediment in
    the current system, which gives privileged allocation of helium to the
    existing plants.
        However, the legislation would not change economic reality. Helium
    purification plants cost tens of millions of dollars, and generally
    require a long life to generate acceptable financial returns. They
    typically take two years to build and commission and it is customary,
    as part of the investment decision, to have a long-term commitment in
    hand on a stable supply of crude helium for the facility.
        Any party building a new plant to attach to the BLM Pipeline would
    want to make sure this law was passed before he would begin building.
    Two years of construction time would put an optimistic on-stream date
    sometime in mid-2015. At current inventory levels and expected draw-
    down rates, that may give an expected useful plant life of five years.
    And, under the proposed auction system, there is a total lack of
    certainty as to whether the new plant's owner would ever have access to
    crude helium to refine, and if so, at what price. It is therefore
    highly unlikely that any new refining plants will be added to the BLM
    Pipeline which cannot even support the existing installed refining
    capacity. The existing Refiners will continue to have the only refining
    capacity on the BLM Pipeline until the stockpile is depleted.
        On a positive note, we believe the bill can be improved
    substantially to achieve the goals we all share. With some adjustments,
    H.R. 527 can achieve the goals of greater access and market stability,
    while still generating fair returns for the American taxpayer on the
    government's investment in helium infrastructure.
        The outline of a plan that we think would work looks like this:
          Continue with the concept of Allocated and Non-Allocated
    sales of Crude Helium, and a Posted Price. The ``Allocated'' amount of
    crude helium would be available only to the Refiners.
          The Allocated Sale percentage would be reduced from its
    current share of the total crude helium to a lower share. For
    discussion, let's say 80%.
          The Allocated Sale price would continue to be a Posted
    Price (or Market Price), with the Market Price determined by a robust
    market survey similar to the one described in H.R. 527. All Refiners
    buying under the Allocated sale would pay the same price for the BLM's
    crude helium, as they do today. But the posted price would be much
    closer to the current market price than the BLM Posted Price is today,
    ensuring greater fairness across the market and a greater return for
    the American taxpayer.
          The remaining portion of crude helium would be auctioned
    to all qualified bidders in a ``Non-Allocated'' sale. These bidders
    would include Non-Refiners and other qualified parties. In this
    example, the Non-Allocated portion would be 20%.
          The results of the Non-Allocated Auction would be
    considered as data points in the determination of the Market Price.
          As a condition of participation in the Allocated Sale,
    Refiners would be required to set aside sufficient capacity for tolling
    by Non-Refiners, who would be eligible to bid on crude helium in the
    Non-Allocated Sale.
          Third-party tolling services would be performed for Non-
    Refiners at a price which would allow the Refiners to earn a fair
    profit while enabling Non-Refiners to obtain pure helium without being
    priced out of the market.
          When a Refiner provides tolling services to a Non-
    Refiner, it would be allocated a like quantity of Crude Helium by the
    BLM during the same time period that the Refiner provides tolling
    services, in order to be ``kept whole'' on its Allocated Volume.
        This hybrid approach, utilizing both price surveys and auctions,
    would have several benefits--greater access to the Federal Helium
    Reserve, a fair return for the American taxpayer, and no disruptions to
    helium supply. It would ensure that the helium purchased at auction
    actually gets refined and is brought to market, and it would contribute
    to a fairer and more efficient global helium market.
        We at Matheson applaud the Committee for thinking creatively about
    how the federal government manages the continued sell-off of the
    Federal Helium Reserve. We suggest changes to H.R. 527 in the spirit of
    cooperation. We look forward to continuing our work with the Committee
    on this important legislation, in order to achieve the goals of
    fairness and equity--for the helium industry, for the federal
    government and for the American taxpayer.
                                     ______

               Response to questions submitted for the record by
                      Kevin Lynch of Matheson Tri-Gas Inc.

    Questions from Rep. Edward J. Markey
    1.  Mr. Joyner, Mr. Thoman, Mr. Lynch: The National Academies of
            Science have recommended that the ``BLM should adopt policies
            that open its crude helium sales to a broader array of buyers''
            and ``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.'' Do you
            believe H.R. 527 would incentivize tolling agreements to refine
            crude helium between your company and entities connected to the
            pipeline? Would your company support requirements for mandatory
            tolling agreements?
    Response from Kevin Lynch, Matheson Trigas:
        I do not believe that H.R. 527 would incentivize tolling agreements
    between Matheson Tri-Gas and the Refiners. In fact, I think H.R. 527
    would provide strong incentive for Refiners not toll for us, or for any
    non-Refiner.
        From a practical perspective, the Refiners are the only entities
    who can convert BLM crude helium, which has little or no commercial
    value to end users, into pure helium, which is what end users need and
    will pay for.
        Under the proposed auction system, 60% of the crude helium volume
    made available through auction would be made available only to entities
    who have adequate refining capacity of their own, or who have secured
    tolling agreements for refining the crude into pure. Only the Refiners
    have refining capacity of their own, and only the Refiners can toll
    crude for 3rd parties. I see no reason at all why Refiners would
    establish tolling agreements with non-Refiners, thereby increasing the
    number of bidders competing against them for 60% of the crude helium
    sold by the BLM. I think that they would refuse to enter into tolling
    agreements, thus limiting the bidders list to ``Refiners only'' for
    this tranche of volume.
        Another 20% of the helium made available through auction would be
    made available to ``persons the Secretary determines are seeking to
    purchase helium for their own use, for refining, or for delivery to end
    users.'' In theory, this expands the field of potential bidders to be
    quite numerous. In practice, I do not think it would expand the field
    of bidders much, if at all. Once again, the critical component to
    making this work is the willing agreement of Refiners to toll crude
    helium purchased by non-Refiners. One could argue along the lines of
    ``Well, if someone else already owns a block of crude and there is no
    longer competition by and among the Refiners to purchase that block for
    their own use, the Refiners would surely see it as in their interest to
    make some money tolling the crude with their spare plant capacity.''
    That would be a very short-term view of the situation, and I believe
    the Refiners will take a longer view. The longer view of the situation
    looks like this: After the first auction, some non-refiners may have
    purchased some BLM crude helium, which is held in storage by the BLM.
    Now, those non-refiners want to convert the crude helium into pure
    helium so they can sell it to end users, and they seek tolling
    agreements with the Refiners. The Refiners reply with ``no bid''
    responses, or with tolling prices so high as to be the commercial
    equivalent of ``no bid'' responses. (As noted in my earlier testimony,
    Matheson has seen this dynamic play out along these lines already.) Six
    months later, there is another crude helium auction. By that time, it
    is known in the industry that non-refiners who win crude helium at
    auction cannot convert it into pure helium because the Refiners won't
    agree to toll it for them. Instead, the non-Refiners' crude helium will
    sit in storage at the BLM, possibly incurring progressively higher
    storage fees. Since unrefined crude helium is commercially worthless to
    end users and to non-Refiner sellers of pure helium, non-Refiners will
    not bid in the BLM crude helium auction. The Refiners will have
    succeeded in limiting the field of bidders for this tranche of the
    crude helium to ``Refiners only'', just as they did with the 60% volume
    tranche.
        A third tranche of 20% would be governed by considerations similar
    to those applicable to the first two tranches, with a similar
    disincentive for Refiners to toll for third parties.
        Matheson would support requirements for mandatory tolling at
    commercially reasonable prices--or at least, a much stronger incentive
    for tolling than what H.R. 527 includes. Our submitted written
    testimony includes on its final pages a summary of a structure and
    mechanism that we think would sufficiently incentivize tolling as an
    alternative to an outright mandate. I refer you to that testimony for
    more information.
    2.  Mr. Joyner, Mr. Thoman, Mr. Lynch, Mr. Nelson, Mr. Haines, Mr.
            Kaltrider: H.R. 527 limits the amount of crude helium any one
            entity can purchase in a single auction to 30 percent, do you
            believe that would ensure sufficient competition and auction
            participation while also protecting against market
            manipulation?
    Response from Kevin Lynch, Matheson Trigas:
        I do not think that the provision limiting the amount of crude
    helium any one entity can purchase in a single auction to 30% would
    ensure sufficient competition and auction participation while also
    protecting against market manipulation.
        For one thing, I think the definition of ``entity'' could be
    interpreted such that, for example:
          Different subsidiaries of the same company could be
    construed as different entities, each allowed up to 30% of the volume.
          Different joint ventures controlled in whole or in part
    by the same company could be construed as different entities, each
    allowed up to 30% of the volume.
          One company could buy 30% of the volume in its own name,
    and additional volume through one or more third-parties from whom it
    has contracted to purchase some or all of the crude at cost or at some
    markup.
        There is already a situation in existence that may allow one
    Refiner access to 60% of the volume under the legislation as proposed.
        You may have noticed that sometimes people refer to 3 Helium
    Refiners, and sometimes people refer to 4 Helium Refiners. The
    situation is that there are 3 Industrial Gases companies (Air Products,
    Linde, Praxair) who control the output from all 6 helium refining
    plants connected to the BLM crude helium Pipeline. Five of those
    refining plants are owned directly by the Industrial Gases companies
    who are Refiners [Air Products (2), Linde (1), and Praxair (2)]. The
    sixth plant is owned by a third party, but 100% of the output is sold
    by long-term contract to one of the 3 Industrial Gases companies who
    are Refiners. Depending on whether you consider plant ownership or
    control of plant output, there are thus either 4 Refiners or 3 Refiners
    connected to the BLM Pipeline.
        Under the rules of H.R. 527, it is unclear to me whether the third-
    party refiner would be counted as a separate entity, eligible for up to
    30% of the helium sold by the BLM, and each of the Industrial Gases
    companies would also be counted as entities, with each eligible for up
    to 30% of the crude helium sold by the BLM. Or, would the third-party
    refiner be considered the same entity as the Industrial Gases company
    with which it has contracted to sell all of its plant's output of pure
    helium?
        If there are 4 entities involved here under the H.R. 527
    definition, then one Industrial Gases company would in effect be
    eligible for 60% of the volume sold by the BLM. And in that case, I
    could easily envision the Industrial Gases companies who are Refiners
    executing some legal transactions to replicate the same structure with
    other refining plants, in order to increase their allowed purchase
    volumes.
        If there are 3 entities involved here under the H.R. 527
    definition, that problem does not exist. However, I do not think the
    term ``entity'' is defined to support this interpretation in the
    current draft of H.R. 527.
        In any case, if the 30% limitation goes into effect, I think
    companies interested in purchasing greater volumes of crude helium will
    apply their energy in creative ways to form ``entities'' that allow
    them access to sufficient quantities of crude helium, such that the 30%
    limitation is no hindrance to their plans.
        The larger point I would like to make is that the real potential
    for market disruption stems from the implementation of a semi-annual
    100% volume auction in the first place. As I discussed in my full
    testimony, Matheson believes that a 100% volume auction will undermine
    the stability of pricing and long-term planning in the global helium
    market. We believe that the newly introduced unpredictability of supply
    will lead to uncertainty and disruptions for End Users, thereby
    contradicting one of the stated goals of the legislation, to ``ensure
    stability in the helium markets.'' I refer to the proposed outline at
    the end of my written testimony for details about what we believe would
    be a more judicious use of auctions on a smaller scale, to open up a
    reasonable amount of access to BLM crude helium to non-Refiners and to
    provide input into the pricing of BLM crude helium.
                                     ______

        Mr. Lamborn. OK, thank you for your testimony. We have just
    heard from the three distributors. Now we will hear from the
    three refiners.
        Mr. Nelson.

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

        Mr. Nelson. Mr. Chairman, Ranking Member Markey, Mr. Holt,
    and members of the Committee, thank you very much for the
    opportunity to participate in this important hearing. My name
    is Walter Nelson, Director of Helium Sourcing at Air Products,
    a global industrial gas company and the largest refiner of
    helium on the BLM pipeline system.
        For the record, I applaud the Committee for recognizing
    that maintaining access to the BLM's helium reservoir is very
    important to commerce. And with that, I would like to summarize
    my testimony by focusing on four key points.
        First, we don't own the gas fields or operate the natural
    gas plants that feed the helium into our refineries. Energy
    companies in that business extract the helium from natural gas.
    If the price of natural gas is low, and they slow production,
    or if there are outages at their plants, we are at their mercy.
    And it is for this reason that we are experiencing a helium
    shortage today.
        We understand the desire in Congress to do something to
    address the current helium shortage. But please understand that
    this legislation, or really, any legislation, will not do
    anything to bring additional molecules of helium onto the
    market.
        Second, most of our customers think of helium like a
    utility. Reliability and certainty of supply are paramount.
    Helium is indispensable to them. Think of energy-intensive
    industries: steel, aluminum, cement, chemicals. Their source of
    electricity is indispensable to them. Now, imagine that those
    industries did not know from one 6-month period to the next
    where their power was coming from, or from whom, or how much it
    would cost, or whether it would be there when they needed it.
    That is exactly the predicament customers--helium customers--
    would be in if this bill were to become law.
        There is more to the analogy. These companies don't really
    need to know how the power plant operates, or the type of fuel,
    or how the transmission lines work. They just need to know the
    light comes on when they flick the switch. Our helium customers
    are the same. They don't need to know or understand the process
    of refining helium, how the pipeline allocation works, or the
    conservation flywheel aspect of the BLM, or how the in-kind
    program ensures reliability of supplies for scientific
    research. But we do. We live with these critical intricacies
    all the time.
        We would not do anyone in Congress or industry any favors
    by staying silent in the face of legislative proposals that we
    are convinced would be unworkable in practice, and that would
    introduce supply uncertainty that would put Federal agencies
    and helium in real jeopardy.
        We fully support the goal of Congress to sell the remaining
    helium in the Federal reservoir at a market price. But we
    believe the proposed 100 percent auction will be disruptive and
    will negatively impact the reliability of supply to end users.
    We think you can get there another way.
        Today BLM sells most of its helium to the refiners as
    allocated volume. BLM sells the remainder to anyone who holds a
    BLM storage contract as the non-allocated volume. We see the
    wisdom of auctioning off the volume of helium that is non-
    allocated. Such an auction would indeed harness market forces.
    And the price of the winning bid could be used in conjunction
    with a comprehensive market survey to establish the BLM's price
    for allocated helium. This would give the best of both worlds,
    using the benefits of free market, but not interfering with our
    ability to act like a utility for our customers. Because it is
    the sanctity of our contracts with the BLM that in turn allows
    us to enter into long-term supply agreements with end users.
    And it is those guarantees that, in turn, allow end users to
    have meaningful production plans. Without that reliability, the
    entire system which underpins the U.S. economy starts to fall
    apart.
        Third, the bill speaks in many places about the process for
    selling helium, but there is less focus on delivering refined
    helium. And it is the refined helium that keeps our customers
    humming. It is crucial in any legislation that the system for
    selling and delivering helium be married, and that there are
    not many people outside the helium industry or the BLM that
    understands this complexity.
        But unless the legislation takes account all of these
    dimensions, what happens in the event of refinery outage? Who
    assures the DoD supply for scientific researchers? That process
    for delivering helium that is already remaining in storage? As
    introduced, we are convinced this marrying of selling and
    delivery, does not square up.
        Finally, I recommend that you not include forced tolling in
    the bill. We have heard this argument before. Congress needs to
    force those of us who invested millions in refining capacity to
    refine helium for companies who did not, bailing them out of
    their consequences of their decision not to build a refinery of
    their own. To us, that would be as if Hyundai came before
    Congress and said, ``We like selling Hyundai cars, but we would
    rather not invest in a Hyundai manufacturing plant. So, please,
    Congress, tell GM in statute that they must use some of their
    manufacturing capacity to build cars for us so we can sell
    them.'' That would be a laughable idea, right? Well, we think a
    similar response is warranted here. The Congress does not think
    much of bailouts, and this legislation is no time to alter that
    attitude.
        And let me wrap up with one closing remark. Letting the BLM
    helium reserve become off limits would be a major problem. But
    because we know the BLM system so well, we think it would also
    be a problem to enact legislation that is bound to have snags
    which will lead to uncertainties that our customers do not
    expect from their utilities, and should not expect from us.
        Mr. Chairman, thank you for calling this hearing. I look
    forward to your questions and the opportunity to work with the
    Committee to get this right.
        [The prepared statement of Mr. Nelson follows:]

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

    Introduction
        Mr. Chairman, Ranking Member Markey, 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, at Air
    Products, based in Allentown, Pennsylvania, a global industrial gas
    company, one of the leading suppliers of helium worldwide and the
    largest refiner of helium with connections to the BLM pipeline system.
    Air Products is pleased to have the opportunity to contribute its views
    on helium and H.R. 527.
        We applaud Chairman Hastings and Ranking Member Markey for
    recognizing that maintaining access to the BLM's helium reservoir is so
    important to commerce. We appreciate the chance to share our expertise
    with the widely shared goal of prudent, effective legislation that
    represents a good deal for the taxpayer and for the U.S. economy.
        While we understand that auctioning off all the helium may be
    sensible as a theoretical matter, we believe that implementation will
    cause a level of uncertainty among end users that will be far more
    disruptive than any inconveniences they have experienced to date.
    Alternatively, a partial auction of the non-allocated volume of BLM
    helium would, in our view, optimize the return for the taxpayer without
    hampering some of the biggest names in manufacturing, federal users,
    and the scientific community.
    Air Products and its background in the helium market
        Air Products, with revenues of roughly $10 billion per year, is an
    American corporation with a global industrial gas business. The company
    provides hydrogen for oil refineries so they can produce 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 enable the manufacture of
    computer chips, and helium for MRIs and semiconductor manufacturing. In
    short, its core business is helping major industries operate more
    cleanly and efficiently. Air Products has more than 20,000 employees in
    50 countries.
        Air Products is one of the leading suppliers of helium worldwide,
    and the largest refiner of helium on the BLM pipeline system. Just to
    be clear, helium is a byproduct of natural gas. We don't own the gas
    fields or operate the natural gas plants. Energy companies in that
    business extract the helium, and it's through our refineries that we
    supply helium to a wide range of manufacturers. 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. That expertise was
    recognized 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 in the northern panhandle of Texas. The plant, designed
    and built by Air Products with proprietary technology, was first
    operational in 1982, expanded in 1985, upgraded in 2010 and continues
    to operate to this day. Air Products subsequently constructed two more
    helium refining plants adjacent to a third party natural gas processing
    plant near Liberal Kansas. The first plant started production in 1991
    and the second plant, when completed in 1999, 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 LNG (liquefied
    natural gas). More recently Air Products, through a joint venture with
    Matheson, constructed a helium refining plant in Wyoming. This plant
    was completed in 2011 and it is expected to begin production later this
    year when our supplier's natural gas plant becomes operational.
        In short, Air Products is one of the most experienced operating
    companies 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; indeed, most do not. The
    largest natural gas fields that are known to contain helium, other than
    in the United States, are in Algeria, Qatar, Australia, Iran and
    Russia.
        It is essential to keep in mind that no oil and gas extraction
    company goes out looking just for helium. No one! Helium is a unique
    commodity for this reason. There is little correlation between price
    and supply. We have been told that owners of LNG plants can make more
    from LNG sales in less than a day than they would make in helium sales
    in a year--a 400 to 1 ratio. Even if legislation resulted in the price
    of helium rising ten-fold--certainly nothing our customers think would
    be a positive development--that would have little bearing on the
    interest of large gas companies doing anything they are not doing today
    to identify helium reserves. Their gas fields are multi-billion dollar
    projects, and helium plants are a tiny part of them. They will not let
    the tail--or in our case the tip of the tail--wag the dog, so we are at
    their mercy for developing new helium projects.
        Fortunately, in the case of Air Products, we are doing just that.
    We have a joint venture with Matheson in Wyoming. We have already built
    our helium refining plant, but because the operators of the gas field
    have yet to complete construction and otherwise have not gotten their
    production system in final form, we have had to bide our time since our
    own plant was ready to be put into service over a year ago. This is a
    reminder that much as Congress wants to do something about the helium
    shortage--caused by outages and delays in bringing new plants on line--
    the single thing that will precipitate more helium being found is a
    higher price for natural gas.
        Air Products' role, like that of other industrial gas companies who
    are helium refiners, is to purchase crude helium from energy companies
    that are extracting it from natural gas, as well as to purchase helium
    from the federal government. 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 division 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, BLM's pipeline and storage system are an integral part
    of this global supply chain and infrastructure. Disrupt the BLM's
    pipeline, and it would be as if one-third of the world's supply of oil
    was instantly pulled off the market--chaos would ensue, and the price,
    in this instance specifically for helium, would skyrocket.
    End users view helium akin to a utility
        We ask the Committee to consider some essential facts. To our
    customers, helium is like a utility. Just like major electricity
    customers do not have to give much thought to how power is generated--
    they don't need to know about the fuel source or the power plant or the
    transmission lines, they just need to know the power is available when
    they need it--our customers have not had to know the helium business.
    All they have needed to know is that the helium is there when they need
    it, so they can manufacture their products on a just-in-time manner.
    They are entitled to their views on the wisdom of any legislation, but
    we feel a responsibility to make sure that whatever Congress does will
    be workable for end users from day one. Because, if it's not, we, and
    more importantly our customers, will experience intolerable
    disruptions. Because we understand the BLM system, and the implications
    of H.R. 527 or any other legislation, we feel an obligation to identify
    the implications in the real world. For us to instead stay silent in
    the face of a total overhaul in the way helium moves from the ground to
    our customers, one that introduces needless risk, seems unwise. We
    trust that this Committee will understand our recommendations in this
    light.
    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 29 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 450 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 recently
    acquired by Kinder Morgan). The CRLP was formed in July 2000 with the
    charter to support the federal government in fulfilling 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 the Interior in 2004.
        The BLM pipeline infrastructure today supports private industry by
    connecting six 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.
    What is causing the helium shortage, and when will it end?
        We estimate that helium production worldwide was operating in
    excess of 95% of capacity in 2011. Production was just sufficient to
    meet global demand; however, any blip in supply caused by a planned or
    unplanned outage anywhere in the world would have an immediate impact
    on the market by tightening up supply.
        Beginning in late 2011 and continuing thus far in 2013, the
    industry has seen crude helium supplies decline; at the same time there
    have been disruptions affecting most of the world's helium refining
    plants. These supply disruptions have been caused by many factors
    primarily outside the control of the helium refiners, resulting in
    reduced helium supply to consumers. In the United States we have seen a
    decline in helium production as energy companies focus their drilling
    plans on natural gas that is rich in liquids rather than the dry gas
    which typically has more helium.
        There have been planned and unplanned maintenance outages at
    natural gas processing plants, as well as continuing pipeline
    allocations on the BLM system during well maintenance that have
    restricted the supply of crude helium to the U.S. refiners. In Algeria
    and Qatar, production of helium has decreased due to the fragile
    worldwide economy, as well as maintenance work at gas plants. In
    addition, new helium refining projects have been slow to develop.
        Helium supplies will continue to remain tight through 2013 and into
    2014, until new helium production begins in Wyoming, Algeria and Qatar.
    The Wyoming project is expected to add an additional four percent to
    worldwide helium capacity, Algeria two percent, and the Qatar II
    project may add up to 18% capacity. Only after these three new plants
    are operational and existing plants are back running at full output
    will the global supply begin to fully stabilize.
        This recent history of supply problems proves one thing: if the BLM
    system is off limits as soon as 2013, current shortages will be
    considered modest compared to the dire situation that helium users will
    face.
    A 100% auction of BLM's helium may seem fine in theory, but we have
            concerns about it in practice
        H.R. 527 is very much a step in the right direction compared to the
    discussion draft that was circulated in December 2012. Still, a 100%
    auction represents a major change from the status quo, and introduces
    tremendous risk for our customers. Today, helium customers know that
    helium will be delivered when they need it. In a 100% auction world,
    all bets are off. We understand the desire of the Committee to assure
    continued reliability of helium supplies, but no one has a crystal
    ball. No one can forecast, with certainty, who might bid for what, and
    therefore there is no certainty that helium will be the ``utility''
    that our customers think of it as, today. Our comments, therefore, are
    offered because we know the Committee wants to get this right. Our
    concern is that there is no guarantee that we will avoid significant
    delivery disruptions, traceable to this legislation, if the bill were
    to be enacted. That is why we continue to seek considerable changes in
    the legislation.
        It is also very important to point out that this legislation (or
    any other) will not make more helium molecules available for end users.
    Almost like ``squeezing a balloon'', a 100% auction of BLM helium will
    redistribute the declining supply--simply creating supply uncertainty
    for end users without any upside potential for increased molecules.
    This uncertainty will serve to reduce effective supply to end users as
    all points in the value chain will need to be more conservative with
    their inventory management and scheduling.
        H.R. 527 will require new or amended BLM helium contracts.
    Actually, our current BLM helium purchase and delivery contract
    (Storage Contract) does not expire until October 1, 2015, so any new
    system implemented prior to that date would require the U.S. Government
    to either renegotiate and amend that contract, or break it. Breaking
    these contracts could create a legal mess, potentially causing
    disruptions within the helium supply chain. That said, BLM should be
    able to develop new regulations and contract amendments between now and
    then.
    Providing sufficient time to change the system and implement an auction
            is crucial
        H.R. 527 as written delays the effective date for the initial
    auction until one year, and potentially up to one and a half years,
    after the date of enactment. While we still have concerns about whether
    all the bugs will be worked out by then--we know that BLM conducts
    auctions of various things, but crude helium has unique characteristics
    quite different to typical commodities subject to a standard BLM
    auction--it is important to have as much time as possible to perfect
    the auction and delivery mechanisms. The risk of an imperfect system is
    that crude helium will not be reliably delivered or refined and put
    into commerce in a timely manner. If there are flaws in the system, and
    the helium cannot be delivered, U.S. manufacturers will pay the price.
    We believe that the optimal system would call for any new method for
    selling BLM's helium to be implemented coincident with the expiration
    of the current contracts between the BLM and helium refiners in October
    2015.
    We fear perfection being the enemy of the good
        Indeed, we have larger concerns that we are coming to the end of
    the ``useful life'' of the BLM helium reserve, at least for commercial
    purposes. As the chart attached to my testimony depicts, by the time
    H.R. 527 is to be fully implemented, BLM helium would be well down the
    steep and immutable decline curve. There would not be that many years'
    worth of commercial helium supplies as of then. We are concerned that
    we may be letting perfection be the enemy of the good here.
    ``Perfection'' would be some optimal price for the taxpayer. In the
    interest of achieving that, however, we may be causing instability
    regarding supplies for high-end manufacturing that will be
    destabilizing for those companies, and for the broader U.S. economy.
    ``Good'' is the ability to receive a market price for helium while
    maintaining a reliable supply of helium from the BLM reserve to our
    customers.
        While we understand the desire to improve on the 1996 Act, it would
    be unfortunate if we took a step backward with regard to the
    reliability that has been essential to so many large helium-dependent
    manufacturers, companies whose names are synonymous with success in the
    U.S. With so many risks facing the economy that we cannot control,
    this, which we can control, feels like a needless risk to us. That is
    why we think Congress should do everything it can to optimize price so
    that the taxpayer gets optimal return, but in balance with the effects
    on the helium-dependent customers being given suitable weight.
    Existing helium inventory in storage and priority for delivery must be
            addressed
        Regardless of whether the BLM helium is sold through an auction, a
    sale of allocated amounts as is the case today, or a combination of the
    two, there are a lot of moving pieces that need to be harmonized to
    make the system work, including assigning volumes to be owned and
    refined, applying storage charges, and penalties for non-delivery. For
    H.R. 527 to function without risk to end users, it will require new
    regulations, contracts, measurement systems, accounting and management,
    but these are not addressed in the legislation. Any new legislation
    must establish the rules for determining the priority of helium
    delivery from inventory in storage. Today there is about a one year's
    supply of privately owned helium already in storage. We recommend that
    Congress establish pipeline delivery protocols and implement the well
    established inventory accounting practice of FIFO (first in--first out)
    for the delivery of helium from storage. The first helium purchased has
    priority for delivery based on the capacity constraints of the system.
    An annual auction would pose less risk to end users than a quarterly or
            semi-annual auction
        Moving to a semi-annual auction, a change from the discussion draft
    to H.R. 527, is preferable to a quarterly auction, but we think an
    annual auction would be even better. Why? Because a quarterly auction,
    which would effectively represent a spot sale and would not provide the
    certainty and reliability of supply that manufacturers need. It would
    also create stresses on the supply chain, where on a quarterly basis
    manufacturers would have to adjust plant operations, inventory
    management and logistics activities. The molecule uncertainty will
    cascade through all these subsequent steps between the BLM and end
    users, who will not enter into contracts on a quarter to quarter basis.
    Helium end users insist that reliable long-term supply contracts are
    essential to their current business models. For the most part, the same
    is true for semi-annual auctions as well. If they could not know, from
    one half year to the next, where their helium would be coming from,
    they could not develop predictable business plans. We believe, however,
    that while a semi-annual auction is better than quarterly, an annual
    auction of the non-allocated helium provides the highest level of
    reliability and product supply certainty to end users.
    The Secretary needs the greatest possible discretion to avoid market
            disruption and to assure legitimate purchasers of BLM helium
        We applaud the discretion given to the Secretary to adjust the
    percentages to be auctioned so as to minimize market disruption while
    maximizing revenue. While we understand the objective of having bidding
    that is as active as possible, so too must Congress take full account
    of the need of helium end users to know they can get helium when they
    need it. The leeway provided to the Secretary in this regard is
    essential to sensible implementation of any auction.
        The provision in H.R. 527 that limits any one entity from
    purchasing more than 30% of the helium in an auction will, we believe,
    prove to be unworkably low. The purchasing limit should be raised to no
    more than 50%, along with the stipulation that the Secretary has the
    authority to adjust this limit accordingly to adapt to changing market
    conditions.
        Insisting that only qualified bidders, those with a demonstrable
    stake in the helium market, with the ability to receive the helium, be
    able to engage in the auction process is another improvement in H.R.
    527. We have concerns that speculators might see helium as the latest
    commodity that falls prey to investment instruments that would curl
    one's hair. We do not want an arbitrageur or a sovereign wealth fund to
    be able to have standing to bid. Taking every step possible to guard
    against that is critical.
    Selling and delivery of helium must be harmonized, and the In-Kind
            program should not be jeopardized
        As we enter the sunset phase of life for the BLM reservoir, where
    the amount of deliverable helium is declining at rates of 15-20% each
    year, the BLM must adapt its sales methodology and only offer for sale
    each year the amount of helium that can actually be delivered from the
    reservoir to consumers. This decline curve tends to exacerbate problems
    with a 100% auction. For example, a 100% auction is inconsistent with
    the federal In-Kind program, which provides essential helium to
    researchers and federal agencies. Today, helium refiners essentially
    ``loan'' helium to the In-Kind program for six to nine months. But
    without any certainty that helium refiners will have helium from one
    auction to the next, this ``loan'' will no longer be a certainty,
    exposing federal agencies to great risk. Worse, as the volume of BLM
    helium declines, there will be inevitable conflict between the In-Kind
    program and the bids by private companies for scarce BLM helium. An
    auction of nonallocated helium together with allocated sales can
    address this important objective, but that it is almost impossible for
    a 100% auction to be workable in this regard.
        The auction is also inconsistent with the so-called helium
    conservation ``flywheel'' that allows refiners to inject helium back
    into the BLM storage system during refining plant outages or during
    periods of excess global supply, rather than venting precious helium
    molecules to the atmosphere. If 100% of the BLM helium is auctioned,
    and if the auctioned helium is given first priority for delivery
    through the pipeline, we are concerned that we will have a hard time
    accessing the helium that we have conserved by re-injecting into the
    system. We believe a partial auction combined with an allocated sale,
    married to rules for pipeline deliveries, can address this concern.
        A major possible snag that we urge the Committee to avoid is a
    disconnect between the sale of helium and its delivery. Think of helium
    from the BLM reservoir as if it were water moving through a garden hose
    that was left running until the well ran dry. The winner of any auction
    would need to fill up its pail from that hose and then have its pail
    replaced by another winner's pail, and so on. In a 100% auction, the
    winners would need to take delivery of their helium prior to the next
    auction. Otherwise the bid winners would risk never being able to take
    delivery. Today, there is the ability to store helium because the
    refiners are not gambling on whether there will be helium available
    from one auction to the next, they purchase the helium that is offered
    for sale and then take regular deliveries of the helium to satisfy
    demand.
    New reporting requirements are an intrusion of privacy
        H.R. 527 imposes many new and comprehensive reporting requirements
    for the BLM, the owners of the helium enrichment plant, and the private
    refiners connected to the BLM pipeline system. While we agree that
    governmental proceedings should be as transparent as possible, these
    new reporting requirements create bureaucracy, will increase costs, and
    intrude on private, confidential business planning.
        Our helium refining plants are constructed adjacent to private
    natural gas plants (literally across the fence line). They are not
    dedicated exclusively to the BLM system. We have entered into long-term
    contracts with private natural gas producers under which we purchase
    all of the helium they may produce as a byproduct of natural gas
    production. We have constructed, installed and dedicated sufficient
    refining capacity at these plants to support these long-term contracts
    to ensure that we can receive and process all of the helium they
    produce today or into the future. Requiring the private refiners to
    report production, production capacities, future capacities and other
    commercial transactions unrelated to the purchase of crude helium from
    the BLM, and then posting that information on the Internet without
    restriction, is an intrusion of privacy that must not be legislated.
    There must be far less intrusive ways for Congress to understand how
    much refining capacity is available, especially since the amount of BLM
    helium is declining so rapidly.
    A partial auction of the BLM helium accomplishes all important
            objectives
        As the discussion around BLM helium has unfolded, there have been
    several important objectives that have been identified: (1) assuring
    transparency around how BLM sets a price for helium so it is no longer
    a ``black box; '' (2) optimizing return for the U.S. taxpayer on the
    sale of helium; (3) assuring reliability of supplies so that end users
    can enter into long-term contracts; and (4) providing an incentive for
    refiners to enter into tolling agreements, to refine helium purchased
    by nonrefiners. It is our view, based on experience with the BLM
    system, that auctioning off the nonallocated portion of BLM helium is
    the best method for achieving each of these objectives in a way that
    does not compromise any of them.
        We recognize that various independent sources have concluded that
    BLM is not charging high enough prices for its helium. While we think
    there is considerable evidence that undercuts this conclusion, we are
    prepared to stipulate that higher prices for the taxpayer are a
    legitimate objective for Congress. To us, the way to accomplish this is
    for full transparency regarding how the BLM arrives at its price. That
    includes a thorough market survey, outside experts with the statistical
    and economic expertise that BLM may not have, and the added component
    of a price to be derived from the auction of the nonallocated amount of
    helium the BLM currently puts on the market for purchase by
    nonrefiners.
        This has several advantages. Provided there is pipeline allocation
    dedicated to the auction of this nonallocated amount of helium, there
    will be fierce competition among bidders for this volume. Whether
    bidders are end users or nonrefiners, if there is pipeline allocation
    associated with this auctioned amount, there will be new competition
    and a change from the status quo that will undoubtedly prompt helium
    refiners to compete aggressively for that business. Tolling contracts
    between the parties, when commercially necessitated, will be
    facilitated naturally.
        But if there is no pipeline allocation, tolling is not an
    attractive enterprise. Imagine if a Burger Company A set up shop next
    to Burger Company B, and asked Company B to fry up burgers for Company
    A, so that A could sell them to its own customers. A would pay B for
    its efforts, but that would not be a good business proposition for B,
    allowing A to sell burgers to more of A's customers, increasing A's
    market share at the expense of B. Perhaps A could pay B a high enough
    price to fry those burgers to make it worth B's while, but that price
    would have to be high enough to compensate B for losing market share.
    Some nonrefiners are willing to pay that price for tolling agreements
    today, but some are not.
        Auctioning off only the nonallocated portion also provides
    certainty to helium end users. They will have the assurance that comes
    with long-term contracts, which themselves are predicated on contracts
    between refiners and BLM. They could continue, indeed, to think of us
    as a utility. The alternative--uncertainty about who will get helium
    from where, and how timely, each time the auction is conducted--is
    hardly a system upon which Fortune 500 companies, as well as the
    federal government and leading scientists, can predicate their
    enterprise.
    Legislation should not mandate allocations or tolling of helium, which
            is a bailout for companies that did not invest in their own
            refining capacity
        Some have been heard to argue that BLM has set up what is
    essentially an oligopoly, and that Congress, in statute, should
    therefore force refiners on the BLM pipeline to allocate a percentage
    of their refining capacity to process helium owned by non-refiners, at
    set fees. The answer to this is simple: 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 substantial investment in
    refining capacity with companies that have made their own strategic
    choice 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 2013 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 law stands
    in the way of any company entering into a tolling arrangement at a
    mutually agreed-upon price.
        Consider the analogy of a small petroleum company, lacking its own
    refinery, but looking to get its hands on petroleum out of the
    Strategic Petroleum Reserve and getting that to market as gasoline. If
    that small petroleum company petitioned Congress to force the large oil
    company, in statute, to use some of its refining capacity to process
    petroleum of its competitor, no one would conceivably take this
    position seriously, and it has no more merit in the context of helium.
    Of course, the small petroleum company could negotiate with the large
    oil company to have its petroleum refined at its plant. This has
    happened for years in the helium context. But forcing refiners to use
    scarce capacity for a competitor in statute? No one could possibly
    think this is an appropriate role for Congress.
        We have used another analogy as well to explain why we oppose the
    idea that Congress should force refiners to toll for nonrefiners, at a
    price set by Congress. Suppose that a small foreign car manufacturer
    approached Congress with the following proposition: we like selling
    cars in the U.S., but we would rather not invest in building the
    manufacturing plants that would allow us to make these cars, so
    Congress should force a large American manufacturer, at a price set by
    Congress, to use some of its manufacturing capacity to build cars for
    the foreign company. A laughable proposition, right? Yet that is what
    we hear some nonrefiners asking of Congress. Those of us with refining
    plants invested millions of scarce dollars at a time when the
    nonrefiners invested elsewhere. It appears that they now regret this
    decision. They could build a helium refinery on the BLM system today,
    and H.R. 527 quite explicitly provides that there is no barrier to this
    investment, and that they would be eligible for an allocation for BLM
    helium should they do so. But instead of doing this, they are asking
    Congress to bail them out from the consequences of a business decision
    they made many years ago, and by forcing a private party to toll for
    them at a price to be set by Congress. We doubt that there are many
    members of this Committee who thought that imposing federal price
    controls on a private industry was a desirable public policy when they
    ran for Congress. Congress should not take this idea seriously. This
    House objects to bailouts, and forced tolling would represent the
    ultimate in bailouts.
        The 1996 Act did not restrict access to the BLM pipeline or 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.
        The 1996 Act does not impose any restrictions on who can purchase
    helium from the federal government. Instead, the Department of the
    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. The 1996 Act and
    any successor statute does not and should not set the allocation level;
    BLM does, and for reasons that benefit the U.S. taxpayer and the users
    of helium.
    Conclusion: The time for Congress to act on helium is now
        We are encouraged to see action on the helium issue. This is not an
    issue where Congress can kick the can down the road or take action
    retroactively. There will be serious consequences to the American
    economy if the BLM reserve is off limits after the end of the current
    fiscal year.
        There is no need whatsoever to let this happen. This issue has been
    bipartisan in both bodies of Congress over the past year, and there is
    no reason that Congress cannot develop a workable, sensible bill that
    accomplishes the objectives that congressional leaders have identified.
    Air Products appreciates the opportunity to testify again on this
    issue, and will do everything we can with our know-how to advise
    Congress along the way to an outcome that everyone can be proud of.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      Response to questions submitted for the record by Walter L. Nelson,
                        Air Products and Chemicals, Inc.

    Questions from Chairman Doc Hastings
    1.  Mr. Nelson, the Government Accountability Office produced a chart
            showing the price of BLM crude helium selling at just under $80
            per thousand cubic feet, while the price of Grade A refined
            helium sells for approximately double that--$160 per thousand
            cubic feet. Please provide the committee with an estimate of
            the average price per thousand cubic feet of the last 5 helium
            contracts you have negotiated or renegotiated to sell crude
            refined helium.
        H1A: I am not familiar with the source of data used by the GAO to
    create the chart depicted in Figure 2 on page 8 of GAO-13-351T, however
    I believe the chart is misleading and inaccurate. It is impossible for
    the price of Grade A refined helium to be less than the price for crude
    helium as shown in this chart. The price of Grade A refined helium must
    always be higher because it includes crude helium storage and delivery
    charges, plant investments, processing costs, labor, energy costs,
    distribution equipment investments, transportation and logistics costs,
    fuel, taxes, permits, etc. The U.S. Government defines Grade A helium
    as 99.995% or better purity, however the cost/price of Grade A helium
    is largely dependent on whether the helium is sold as liquid or gas and
    the type/size of delivery container, as well as the transportation
    charges to/from the delivery point. Undoubtedly there is a product mix
    effect which makes it impossible to draw any conclusions from this
    chart. Air Products does not sell ``crude refined helium'', however in
    accordance with our response to the Governments IFO NO. BLM-2012-OMCHS-
    001: Air Products provided the BLM with our FY2011 average annual sales
    price for refined helium (FOB) for volumes in excess 1 million cubic
    feet and that price is below the $160/Mscf.
    2.  Mr. Nelson, is the GAO estimated price an accurate reflection of
            the price of Grade A refined helium?
        H2A: Air Products cannot vouch for the GAO estimated price. We do
    not know the basis for the GAO's estimate. Federal agencies procure
    helium every year, so the Committee should have no trouble obtaining
    the price paid by the various agencies and departments that use helium.
    Like any other commodity that is in short supply, the price of refined
    helium can fluctuate and depends on several factors, including the
    volume sought, the immediacy of delivery, and the history of commercial
    relations between the parties buying and selling helium.
    3.  Mr. Nelson, please provide the Committee with a list of the refined
            helium products (grade) you produce from the federal helium
            reserve? In each category, please provide some estimate of the
            current market price for each product.
        HA3: A complete list of helium products, specifications, container
    sizes and delivery options can be found on the Air Products website at:
    http://www.airproducts.com/products/gases/helium.aspx. As noted in the
    answer to the answer to question 2, there are many factors that enter
    into the price for helium, including the relative supply and demand at
    the precise moment of the transaction. Long-term prices are not the
    same as spot prices, for instance. We negotiate prices with our
    customers frequently, and this information is proprietary and
    confidential. Federal agencies themselves procure all grades of helium.
    We encourage the Committee to obtain this information from these
    agencies.
    4.  Mr. Nelson, the Committee is interested in understanding the
            capital costs related to the refining and distribution process.
            Could you please provide the Committee an estimate of your
            refining costs at the BLM connected facilities on a per
            thousand cubic foot basis? Could you please provide the
            Committee an estimate of the cost of distribution related to
            the products produced at the BLM facility on a per thousand
            cubic foot basis (if it can be broken down for different
            products or grades of product please provide that information)?
        H4A: Air Products has invested hundreds of millions of dollars in
    our helium business to construct helium refining plants and the supply
    chain infrastructure to support the business. Air Products began making
    capital investments in connection with the BLM pipeline system over 30
    years ago. Our first refining plant was first operational in 1982,
    expanded in 1985 and upgraded in 2010. Air Products subsequently
    constructed two more helium refining plants adjacent to DCP (Duke/
    Conoco/Philips) Midstream's natural gas processing plant near Liberal
    Kansas. The first plant started production in 1991 and the second plant
    in 1999. In 1995, Air Products partnered with Sonatrach in northern
    Algeria, and became the first company to design and build a helium
    refining plant that processed crude helium that had been extracted
    during the production of LNG (liquefied natural gas). More recently Air
    Products, through a joint venture with Matheson, constructed a helium
    refining plant in Wyoming. This plant was completed in 2011 and it is
    expected to begin producing helium later this year when our supplier,
    Denbury Resources, begins production at their new natural gas plant in
    Riley Ridge Wyoming. Air Products made investments in the CRLP to
    construct the $26 million crude helium enrichment plant that is
    currently operated by the BLM. The Cliffside Refiners Limited
    Partnership (CRLP) is 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 recently
    acquired by Kinder Morgan). The cost to operate these facilities varies
    greatly depending on the plant size, volume loading, technical
    complexity, the level of integration with the energy company's natural
    gas plant, physical location, cost of labor, cost of power, etc.
    Transportation and distribution costs are highly variable depending on
    whether the helium is delivered as liquid or gas, the size of the
    container, ownership of the container, the mode of transportation, etc.
    Due to these numerous variables it is impossible to provide a general
    or average estimate that is meaningful.
    Questions from Rep. Edward J. Markey
    1.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Please list the current
            refining capacity of each helium refinery connected to the BLM
            federal helium reserve pipeline owned by your company and what
            if any changes have been made to its refining capacity since
            2000.
        M1A: Air Products has constructed helium refinery plants adjacent
    to private natural gas companies in TX and KS (literally across the
    fence line on land leased from these companies). We've entered into
    long-term ``take-if-tendered'' contracts where we are obligated to
    purchase 100% of the helium they produce. The energy sector has forced
    all the delivery risk onto the refiners through these ``take or pay''
    contracts. In order to manage this we have constructed, installed and
    dedicated sufficient refining capacity at these plants to support these
    contracts to ensure that we can receive and process 100% of the helium
    that is produced by them today and into the future. Since 2000 Air
    Products has not added any plants, however we continue to upgrade our
    facilities to make them as efficient as possible. Our current installed
    refining capacity connected to the BLM pipeline system is nominally the
    same as it was in 2000.
    2.  Mr. Nelson, Mr. Haines, Mr. Kaltlider: Did any of the helium
            refineries connected to the BLM federal helium reserve pipeline
            owned by your company have spare refining capacity in any of
            the last years? If so, how much?
        M2A: Spare refining capacity is a relative term. As described
    above, Air Products has installed refining capacity at our plants to
    meet our contractual obligations. If a source of private crude helium
    is down or producing at reduce rates, there might be short-term excess
    capacity from time to time, however much of that capacity is already
    contractually committed and dedicated to the private natural gas
    companies.
    3.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: The National Academies of
            Science have recommended that the ``BLM should adopt policies
            that open its crude helium sales to a broader array of buyers''
            and ``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 clued
            helium, thereby allowing them to process the crude helium they
            purchase into refined helium for commercial sale.'' Do you
            believe H.R. 527 would incentivize tolling agreements to refine
            crude helium between your company and entities not connected to
            the pipeline? Would your company supply requirements for
            mandatory tolling agreements?
        M3A: As I have testified, Air Products has entered into tolling
    agreements, and with the right commercial conditions, we will do so in
    the future. ``Mandatory tolling'' is altogether different. We spent
    millions to build and maintain our helium refineries on the BLM system.
    Companies that want to sell helium but not refine it chose not to
    invest in their own refiners. Such companies, which are arguing for
    ``mandatory tolling,'' invested their capital elsewhere, but appear to
    be urging Congress to establish price controls over our equipment and
    investment. Any legislation that would dictate ``mandatory tolling''
    would represent a nationalization of a private asset, and would violate
    our constitutional and contractual rights. Considering that tolling
    arrangements can be and are entered into by parties operating on an
    arm's length basis, there is no reason for Congress to infringe our
    legal rights to accomplish this objective. Please include the attached
    legal analysis in the record. It describes at length the basis for our
    serious concerns about mandatory tolling.
    4.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: For each helium refinery
            connected to the BLM federal helium reserve owned by your
            company, what percentage of crude helium refined at that
            refinery was sourced from the federal reserve and what
            percentage came from private sources. Please provide this
            information for each of the last three years.
        M4A: Air Products reports monthly and annual helium production
    volumes to the BLM at the end of each fiscal year. BLM keeps all this
    information confidential. The information you are requesting is
    confidential and proprietary.
    5.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Mr. Nelson's testimony
            includes a graphic that projects the decline in production from
            the Reserve. That chart projects production from the Reserve
            fall by roughly 50 percent over the next 4 years and by
            approximately 85 percent in 10 years. Your company has spoken
            about wanting to have long-term contracts but isn't your
            company already voiding or adjusting long-term contracts
            because of inadequate supply? How are you going to meet your
            customers' needs if your own supply from the federal helium
            reserve is going to decline by 50-85 percent in the coming
            years?
        M5A: Air Products is very aware of the BLM decline forecast and we
    are developing supply strategies to compensate for this decline.
    Successor legislation is needed this year to extend the BLM operations
    and preserve 30% of the global helium supply, bridging the time period
    necessary for new announced natural gas and helium production plants to
    come on-stream.

    6.  Mr. Joyner, Mr. Thoman, Mr. Lynch, Mr. Nelson, Mr. Haines, Mr.
    Kaltrider: H.R. 527 limits the amount of crude helium anyone entity can
    purchase in a single auction to 30 percent, do you believe that would
    ensure sufficient competition and auction participation while also
    protecting against market manipulation?

        M6A: As stated in my testimony, ``the provision in H.R. 527 that
    limits any one entity from purchasing more than 30% of the helium in an
    auction will, we believe, prove to be unworkably low. The purchasing
    limit should be raised to no more than 50%, along with the stipulation
    that the Secretary has the authority to adjust this limit accordingly
    to adapt to changing market conditions.''
                                     ______

        Mr. Lamborn. OK, thank you.
        Now, Mr. Haines.

     STATEMENT OF NICK HAINES, HEAD OF HELIUM SOURCE DEVELOPMENT,
                       LINDE NORTH AMERICA, INC.

        Mr. Haines. Mr. Chairman, Ranking Member Markey, and
    Committee members, I appreciate the opportunity to testify
    today. I am Nicholas Haines, head of Helium Source Development
    with Linde Global Helium. We are a division of Linde North
    America, Inc., headquartered in New Jersey, which has more than
    15,000 employees in the U.S. Linde is a leading global
    industrial gases and engineering company.
        We have an extensive investment in the helium business that
    is fully integrated, from production to distribution and retail
    sales. We own and operate a helium refinery in Otis, Kansas,
    where we produced the first commercially available liquid
    helium in 1964. We own and operate multiple other helium plants
    around the world, and have invested over $400 million in
    refining capacity, transfills, regionally based and cryogenic
    ISO containers for distributing helium around the world. Linde
    supplies helium to a wide variety of customers, including
    producers of semiconductors, MRIs, and other high-tech
    products.
        Firstly, I would like to compliment you for recognizing the
    urgency of passing legislation this year to continue the BLM
    helium program. You have made this a priority, and we
    appreciate that. And we agree with you in some areas of your
    proposed bill.
        Second, we agree on the need to create an ongoing funding
    mechanism that will allow the BLM to both continue operations
    and invest in technology upgrades for the Cliffside Reservoir.
        Third, we agree on the need to improve the system for
    determining market prices and provide improved returns for
    taxpayer, whilst minimizing market disruptions. These are a
    good foundation to build upon.
        Now, to address the areas of our disagreement. Our basic
    disagreement is over your proposal to auction 100 percent of
    the BLM's helium. We believe this will disrupt the market and
    create tremendous uncertainty with regard to continued helium
    supplies. As a business, we don't benefit from a higher or
    lower price of helium. However, we do lose if the market
    suffers from dramatic price swings or supply disruptions. So do
    our customers and so do our consumers, as the price uncertainty
    arising from these periodic auctions makes it more complex for
    customers to predict their costs and manage their businesses.
    We have heard also about price spikes and disruptions. You are
    designing a system that will make these spikes and disruptions
    worse.
        Let me speak about certainty for a minute. This is a phrase
    you have heard not just from us, you have heard it from large
    end users. You have also heard it from small customers. To be
    able to maintain this investment, we need to have long-term
    contracts with our suppliers and our customers. If we are
    unable to obtain these long-term supply agreements, we may be
    forced to reduce investments in costs, as well as contracts
    with our customers.
        Our customers, in turn, need the reliability of long-term
    supply contracts. When the Nation's largest supplier of crude
    helium auctions 100 percent of its supply, we can't be sure on
    a periodic basis if we will have helium to supply our
    customers. Long-term contracts will become a thing of the past.
    Everyone, from large manufacturers of semiconductors to small
    welding shops and balloon shops will basically be operating in
    a spot market.
        Think about someone who needs an MRI at a local clinic, and
    who may not be able to have that, due to the unavailability of
    helium supplies for servicing that MRI. This could result from
    the proposed auction process. Furthermore, Federal agencies
    using helium could also suffer.
        Now let me speak about market disruption. For years, the
    Cliffside Reservoir has provided 50 percent of the U.S. supply
    of helium, and has been used as the industry's swing capacity,
    enabling plants there to be turned down during periods of
    excess supply. It would be invaluable to maintain this
    capability for as long as possible in order to avoid
    unnecessarily venting product from other existing sources. The
    reservoir is now in decline, and it will reach the proposed
    strategic reserve of 3 billion cubic feet in 5 to 8 years.
        There are new large supplies of helium coming online around
    the world in Qatar, Algeria, and Wyoming. But their timing is
    uncertain, and there are currently shortages which is creating
    these price spikes and the volatility in the market. To
    transition the Cliffside Reservoir to a pure auction system
    will make that price and supply volatility dramatically worse.
    It will not result in any new sources of helium being
    developed.
        The Cliffside Reservoir has, frankly, been a source of
    stability in a very difficult environment, and has benefitted
    consumers for decades. It has benefitted high-tech industry
    here, in the U.S. and it has fostered innovation, which are
    things we should be trying to preserve.
        Let me close by saying that we understand the desire to get
    a fair deal for taxpayers. That is commendable. We agree that a
    better job can be done determining a fair market price. We also
    believe, justifiably, that a sea-change to a pure auction will
    jeopardize the stability and reliability that this global
    helium supply chain depends upon. We think that it is possible
    to create a process to determine a fair-market price and still
    preserve some certainty for our customers with minimal market
    disruption. Unfortunately, the approach you have proposed will
    not achieve that. We are ready to roll up our sleeves and work
    with you to get this done.
        Thank you for allowing me to testify, and I would be happy
    to answer any questions.
        [The prepared statement of Mr. Haines follows:]

       Statement of Nicholas Haines, Head of Helium Source Development,
                              Linde Global Helium

        Mr. Chairman and Ranking Member Markey--I appreciate the
    opportunity to testify today. I am Nicholas Haines, Head of Helium
    Source Development, with Linde Global Helium.
        Linde Global Helium is a division of Linde North America, Inc.
    We're headquartered in New Jersey and we have more than 15,000
    employees in the United States. Linde is a leading industrial gas and
    engineering company. We operate in more than 100 countries, with more
    than 61,000 employees globally.
        We have an extensive investment in the helium business that is
    fully integrated from production to distribution and retail sales.
    Linde owns and operates a helium refinery in Otis, Kansas, where we
    produced the first commercially available liquid helium in 1964. We
    also own and operate a number of other helium plants around the world
    and have invested hundreds of millions of dollars in refining capacity,
    regional transfill stations, and cryogenic ISO containers for
    distributing helium around the world to its points of use. Linde
    supplies helium to a wide variety of customers, including producers of
    semiconductors, MRI machines and other high-tech products.
        Firstly, I would like to compliment all of you for recognizing the
    urgency of passing legislation this year to continue the BLM helium
    program. You've made this a priority, and we appreciate that and we
    agree with you on some areas of your proposed Bill. Second, we agree on
    the need to create an ongoing funding mechanism that will allow the BLM
    to both continue operations and invest in technology upgrades for the
    Cliffside Reservoir. Without this funding, the reservoir will not
    continue to operate. Third, we agree that we need to improve the system
    for determining market prices and provide improved returns for
    taxpayers, whilst minimizing market disruption. These are a good
    foundation for us to build on.
        Now to address the areas of our disagreements. Our basic
    disagreement is over your proposal to auction 100% of the BLM's helium.
    We believe this will disrupt the marketplace and create tremendous
    uncertainty with regard to continued helium supplies. I would like to
    note at the outset that, as a business, we don't benefit from a higher
    or lower price of helium. We do lose, however, if the market suffers
    from dramatic price swings or supply disruptions. So do our customers,
    and so do consumers. The price uncertainty arising from periodic
    auctions makes it more complex for customers to predict their costs and
    manage their businesses.
        Let me speak about certainty for a minute. This is a phrase you've
    heard not just from us. You've heard it from large end-users. You've
    heard it from small customers. Refining and delivering helium is a
    high-fixed-cost business. Helium has to be stored and distributed cost
    effectively in bulk form at -452 degrees Fahrenheit, and that's a real
    challenge.
        To be able to maintain this investment, we need to have long-term
    contracts with our suppliers and customers. If we are unable to obtain
    long term supply agreements, we may be forced to reduce investments and
    costs, as well as contracts with our customers. Our customers in turn
    need the reliability of long-term contracts as well. I think you've
    heard this from them directly. When the nation's largest supplier of
    crude helium auctions 100% of its supply, we can't be sure on a
    periodic basis if we'll have helium to supply to our customers. Long-
    term contracts will become a thing of the past. Everyone from large
    manufacturers of semi-conductors to small welding shops will basically
    be operating in a spot market. As I'm sure you've heard, the spot
    market is not a place you want to be right now. Think about someone who
    needs an MRI at a local clinic, and who may not be able to have that
    due to the unavailability of helium supplies for servicing that MRI,
    which could result from the proposed auction process.
        Let me speak about market disruption for a moment. For years, the
    Cliffside Reservoir has been providing 50% of the U.S. supply of helium
    and has been used as the only ``swing capacity'' in the industry,
    enabling plants there to be turned down during periods of excess
    supply. It would be invaluable for the industry to maintain this
    capability for as long as possible, in order to avoid unnecessarily
    venting product from other sources. The Reservoir is now in decline and
    it will reach the proposed strategic reserve of 3 bcf in 5 to 8 years.
    There are large new supplies of helium coming on line around the world.
    In Qatar. In Algeria. In Wyoming. But their timing is uncertain. This
    transition is creating shortages. It's creating tremendous price spikes
    on the spot market. It's creating a lot of volatility. To transition
    the Cliffside Reservoir to a pure auction system will make that price
    and supply volatility dramatically worse. In this environment, it will
    encourage speculation and hoarding and will not result in new sources
    of helium being developed.
        The Cliffside Reservoir has frankly been a source of stability in a
    very difficult environment. The reliability and stability of this
    operation has benefited consumers for decades. It's benefited the high-
    tech industry here in the U.S. and it's fostered innovation. Those are
    things we should be striving to preserve.
        One of the objectives of the National Academies of Sciences report
    of 2010 was to encourage recovery and recycling, however with supply
    uncertainty, customers may be less likely to consider this technology,
    which typically requires long term investments.
        Let me close by saying this. We understand the desire to get a fair
    deal for the taxpayers. That's commendable. We agree that a better job
    can be done determining a fair market price. We also believe,
    justifiably, that a sea-change to a pure auction will jeopardize the
    stability and reliability that this global helium supply chain depends
    upon. We think that it's possible to create a process to determine a
    fair market price and still preserve some certainty for our customers,
    with minimal market disruption. Unfortunately the approach you have
    proposed will not achieve that. We're ready to roll up our sleeves and
    work with you to get this done.
        Thank you again for allowing me to testify today. I'd be happy to
    answer your questions.
                                     ______

      Response to questions submitted for the record by Nicholas Haines,
             Head of Helium Source Development, Linde Global Helium

    Questions from Chairman Doc Hastings
    1.  Mr. Haines, the Government Accountability Office produced a chart
            showing the price of BLM crude helium selling at just under $80
            per thousand cubic feet, while the price of Grade A refined
            helium sells for approximately double that--$160 per thousand
            cubic feet. Please provide the committee with an estimate of
            the average price per thousand cubic feet of the last 5 helium
            contracts you have negotiated or renegotiated to sell crude
            refined helium.
    Answer:
        Linde does not sell crude helium. We sell only refined helium
    products. As a general rule, we do not publicly release details of
    contracts with our customers due to their proprietary nature and anti-
    trust concerns.
    2.  Mr. Haines, is the GAO estimated price an accurate reflection of
            the price of Grade A refined helium?
    Answer:
        Prices for Grade A refined helium can vary widely. Important
    factors that affect the price include quantity sold, length of
    contract, delivery distance, type of container (cylinders, liquid, tube
    trailers), supply and demand in the region, etc.
        Without having more details behind the prices cited by the GAO, it
    is difficult to comment on their accuracy. Generally speaking, we
    believe that the prices cited by the GAO for refined helium are
    significantly higher than industry-average prices for refined helium
    sold under long-term contracts in the U.S. during those time periods.
    3.  Mr. Haines, please provide the Committee with a list of the refined
            helium products (grade) you produce from the federal helium
            reserve? In each category, please provide some estimate of the
            current market price for each product.
    Answer:
        In the U.S., Linde produces:
          Grade 5.0 Conformance Grade Helium
          Grade 5.0 Analytical Grade Helium
          Liquid Helium
        As a general rule, we do not publicly release pricing details due
    to their proprietary nature and anti-trust concerns.
    4.  Mr. Haines, the Committee is interested in understanding the
            capital costs related to the refining and distribution process.
            Could you please provide the Committee an estimate of your
            refining costs at the BLM connected facilities on a per
            thousand cubic foot basis? Could you please provide the
            Committee an estimate of the cost of distribution related to
            the products produced at the BLM facility on a per thousand
            cubic foot basis (if it can be broken down for different
            products or grades of product please provide that information)?
    Answer:
        The costs of refining, distributing and filling liquefied helium
    are substantial, due in part to the fact that the helium must be
    maintained at a temperature of -452 degrees Fahrenheit.
        Costs for each of these factors can vary, depending on the
    circumstances. Also we do not generally release actual cost figures.
    However, we could offer these rough estimates of the ranges of costs
    experienced by the industry:
            Estimated Refining Costs: $20/mcf-$30/mcf.
            Estimated Distribution Costs: $20-$40/mcf.
            Estimated Filling Costs (at transfills): $15-$20/mcf.
    Questions from Rep. Edward J. Markey
    1.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Please list the current
            refining capacity of each helium refinery connected to the BLM
            federal helium reserve pipeline owned by your company and what
            if any changes have been made to its refining capacity since
            2000.
    Answer:
        Linde's Helium refinery plant is located at Otis, Kansas.
        Refining Capacity in 2000 was approximately 1,100 mmcf annually--
    26% of total system capacity, as posted on the BLM web site.
        Current Refining Capacity is the same--1,100 mmcf annually.
    2.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Did any of the helium
            refineries connected to the BLM federal helium reserve pipeline
            owned by your company have spare refining capacity in any of
            the last three years? If so, how much?
    Answer:
        Over the last three years Linde has had spare refining capacity at
    Linde's Otis, Kansas, plant.
        Excess capacity is the direct result of insufficient feed-gas
    availability. In other words, because of the diminishing volume of
    helium in the reserve and insufficient compression, the system has not
    been able to deliver a volume of helium sufficient to maximize refinery
    capacity on the pipeline.
    3.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: The National Academies of
            Science have recommended that the ``BLM should adopt policies
            that open its crude helium sales to a broader array of buyers''
            and ``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.'' Do you
            believe H.R. 527 would incentivize tolling agreements to refine
            crude helium between your company and entities not connected to
            the pipeline? Would your company support requirements for
            mandatory tolling agreements?
    Answer:
        Linde is strongly opposed to mandated tolling. We believe such a
    policy would constitute an unconstitutional government taking of
    private property. In addition, we believe that a mandated tolling
    policy would unjustifiably reward companies that chose not to invest in
    helium refinery capacity at the expense of those that did make such an
    investment. A mandated tolling scheme would certainly create strong
    disincentives for ongoing investments that are necessary to maintain
    the infrastructure to refine and deliver helium.
        We believe that the most significant step the government could take
    to incentivize tolling agreements is to increase the delivery capacity
    of the reservoir and related infrastructure.
    4.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: For each helium refinery
            connected to the BLM federal helium reserve owned by your
            company, what percentage of crude helium refined at that
            refinery was sourced from the federal reserve and what
            percentage came from private sources. Please provide this
            information for each of the last three years.
    Answer:
        This information is competitively sensitive and proprietary in
    nature, and Linde does not generally release it.

    5.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Mr. Nelson's testimony
    includes a graphic that projects the decline in production from the
    Reserve. That chart projects production from the Reserve to fall by
    roughly 50 percent over the next 4 years and by approximately 85
    percent in 10 years. Your company has spoken about wanting to have
    long-term contracts but isn't your company already voiding or adjusting
    long-term contracts because of inadequate supply? How are you going to
    meet your customers' needs if your own supply from the federal helium
    reserve is going to decline by 50-85 percent in the coming years?
    Answer:
        We have not voided long-term contracts with our customers due to
    recent shortages in helium supply. When shortages have occurred, we
    have allocated product to our customers on a fair and proportional
    basis. We continue to believe that long-term contracts have a great
    deal of benefit for industries that depend on helium, and consumers.
    These contracts provide a degree of certainty and stability that
    maximize efficiency and enable innovation in high-tech products and
    services.
        (I would like to note that Linde has not allocated--or provided a
    reduced amount--of helium to our federal in-kind customers. Even when
    we have been compelled to allocate helium to our commercial customers,
    we have continued to provide the full amounts under contract to federal
    customers.)
        There is no question that the BLM reservoir is depleting and that
    there is an urgent need to replace this volume of product over the next
    10 years. The industrial gas industry, including Linde, is investing
    significant resources in developing new sources of helium around the
    world, including in Algeria, Qatar, Australia, and other locations. It
    is our hope and expectation that these new sources will enable us to
    reliably continue to supply our customers under existing long-term
    contracts. However there is uncertainty about when these new sources
    will begin producing, and what quantity of helium they will ultimately
    produce. For this reason, we continue to rely on the BLM as a stable
    source of helium in the near term.
        For these reasons, we have argued that one of the goals of your
    legislation, in addition to realizing a fair market price for the
    government's helium, should be to preserve some of the stability and
    certainty provided by the BLM helium supply. We believe that both of
    these objectives could be met with a hybrid system that combines a
    partial auction of the BLM's helium with a continuation of the current
    allocation formula for the remainder of the helium, using the auction
    price as a significant component of the pricing formula. Such a hybrid
    system would help to prevent market disruptions, while ensuring fair
    market prices.
        One final point: The BLM system has historically been able to
    provide industry turn-down capacity. This capacity has been vital in
    the past in preventing the venting of unclaimed helium. We believe this
    capacity should be maintained in order to avoid potentially venting
    this critical resource in the future. We fully realize that while this
    turn-down capability will diminish, having it available is vital.
    6.  Mr. Joyner, Mr. Thoman, Mr. Lynch, Mr. Nelson, Mr. Haines, Mr.
            Kaltrider: H.R. 527 limits the amount of crude helium any one
            entity can purchase in a single auction to 30 percent, do you
            believe that would ensure sufficient competition and auction
            participation while also protecting against market
            manipulation?
    Answer:
        We do believe that the current helium marketplace is vulnerable to
    manipulation, and that measures are necessary to prevent hoarding and
    price speculation. We support measures to prevent speculation. Possible
    measures that would help achieve this goal include limiting lot sizes,
    or limiting the total quantity any one party could purchase at auction.
    Determining the appropriate limitation for any one party is
    challenging. We tend to believe that 30% may be too low.
                                     ______

        Mr. Lamborn. OK, thank you for your testimony.
        And now we will hear from Mr. Kaltrider.

        STATEMENT OF SCOTT KALTRIDER, VICE PRESIDENT, BUSINESS
                  MANAGEMENT AND HELIUM, PRAXAIR, INC.

        Mr. Kaltrider. Good morning, Mr. Chairman, other
    distinguished members of the Committee. My name is Scott
    Kaltrider, I am the Vice President of Business Management and
    Helium for Praxair. For those of you that aren't aware, Praxair
    is the largest industrial gas company in North and South
    America. We are headquartered in Danbury, Connecticut. We have
    over 10,000 employees in the U.S., over 500 facilities. We
    operate, employ, or have customers in all of the States
    represented on the Committee. I certainly appreciate the
    opportunity to be here today and express Praxair's views on the
    proposed bill.
        We think the proposed bill is a good starting point, and we
    are hopeful that, with some of the recommendations that I am
    about to make in my testimony, we can get the bill to a piece
    of legislation that would be supported by all stakeholders.
        Upon reviewing the bill, it is apparent that there are two
    overriding priorities that the bill would like to address, the
    first being the creation of some market-based pricing mechanism
    for adjustment of the BLM price to ensure competitively priced
    product, crude product out of the BLM, the second being
    ensuring continuity of supply from the BLM to end users during
    the implementation of the bill.
        It has been spoken about through other testimony, but I
    think it is worth repeating. Today, the notion of a BLM or a
    market-based pricing mechanism, to describe that as circuitous
    would probably be the most accurate definition. It is kind of
    like a dog chasing its tail. Every year the BLM will issue a
    new price for its posted price in October, and the refined
    sources around the world since 2008 have basically incorporated
    that pricing mechanism into their annual escalation.
        So, the notion that the BLM will ever catch up with or
    leapfrog, from a market standpoint, the global refined helium
    sources is--that is not going to happen under the current
    scenario, and for good reason. It is a crude product versus a
    refined product. There is, as Mr. Spisak testified, a
    tremendous difference in those two.
        Having said that, a 100 percent auction is a very high-
    stakes play, we feel, at this point in time. It is coincidental
    that this legislation is coming up and the funding of this
    program is coming up at a time where we are probably seeing the
    most exacerbated shortage, globally, that we have seen in the
    last two decades.
        And so, I think, we, at Praxair, would caution the
    Committee in taking very great care to make sure that we are
    not setting up a process during a time of duress, where the
    supply demand equation is heavily favoring demand. Because, in
    fact, this will correct itself. There will be more supply
    coming online in the next 6 to 18 months. And it is not
    inconceivable that, as this bill gets implemented, you could be
    in a situation where supply is the overriding factor in the
    supply demand equation. And when the BLM goes to auction
    product, no matter how much it is, there may not be as much
    interest as you might think today. So we would caution that.
        Regarding continuity of supply, 100 percent auction will
    increase and introduce a high degree of instability into the
    market. An auction every 6 months will likely cause our end
    users to go and either change suppliers or change slates of
    suppliers. Today, many, the vast majority of the end users
    single source their product, and they do it in a very rigorous
    manner in selecting their supplier. So it will create, in
    essence, a perpetual spot market that will make it very
    difficult for companies to strategically plan, make investment,
    and specifically, make investment for growth and jobs.
        Further, the bill's provision, by limiting a maximum of 30
    percent to any one party that can gain a bid, we feel creates
    an indirect tolling mandate on the refiners and, frankly,
    subsidizes access to the reserve, via the capital investment
    that we and the other refiners have made in the past.
        However, regarding this same provision, probably more
    concerning to the Committee is that the 30 percent cap
    significantly reduces the amount of helium that Praxair would
    get today, and thereby jeopardizes our ability to meet our in-
    kind requirements under the in-kind Federal program. And so,
    those agencies such as NASA and NIH and Lawrence Livermore and
    those entities, would be at risk of not being reliably
    supplied.
        Finally, there is a provision in the bill that would allow
    for up to 24 months of crude being processed. And we feel that
    would result in stranded helium molecules in the reserve that
    couldn't be recovered, and further exacerbate the global supply
    situation.
        In conclusion, consistent with my written testimony,
    Praxair recommends a much more measured approach. It is a
    three-element proposal. You can see it in my written testimony.
    It does call for a logical, orderly draw-down in a three-phase
    fashion of the BLM reserve. It does provide for an auction of a
    piece of the reserve, an annual auction of a commercially
    significant quantity. And it does provide for access to the
    bidders that are non-refiners to refining capacity, to ensure
    they could bring product to market.
        At the end of the day, our customers have expressed to us
    that jobs are on the line here, and it is very important that
    we get this done in a responsible manner. Praxair really
    appreciates the opportunity to be here, and is willing and able
    to work with the Committee to come up with a mutually
    acceptable piece of legislation.
        [The prepared statement of Mr. Kaltrider follows:]

                 Statement of Scott Kaltrider, Vice President,
                  Business Management & Helium, Praxair, Inc.

        Good morning Chairman Hastings, Ranking Member Markey and Members
    of the Committee. My name is Scott Kaltrider and I am the Vice
    President of Business Management & Helium for Praxair, Inc., the
    largest industrial gas company in North and South America and one of
    the largest worldwide. Praxair is headquartered in Danbury, Connecticut
    and 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, and metals among others. We have operations, employees,
    or customers in every state represented on this Committee.
        Praxair has been in the helium business for nearly 100 years
    serving both private and federal government users. We supplied the
    helium used by NASA to launch space shuttles into orbit, the helium-
    oxygen breathing mixtures used by Navy sailors while performing deep-
    dive operations, and the helium used by the Air Force each time a Delta
    4-Heavy is launched to provide our intelligence community with the
    information necessary to protect our citizens.
        Our long-term planning coupled with investments in a robust supply
    chain and a diverse set of crude and refined helium sources have made
    us a world leader in refined helium production and distribution. We
    have about $500 million invested in plants and equipment required to
    access, process, refine, and deliver to market helium sourced from the
    Federal Reserve operated by the BLM.
        I would like to thank this Committee for the opportunity to appear
    at today's hearing on the Responsible Helium Administration and
    Stewardship Act (RHASA). I would also like to thank the Chairman for
    directing his attention to the important work of reauthorizing the
    Federal Helium Program. Many vitally important industrial, medical, and
    scientific processes depend on reliable helium supplies. Since the
    Federal Helium Reserve currently accounts for 50-percent of the U.S.
    helium supply and will likely be depleted by 2018-20, it is critically
    important that the program be concluded in a careful and thoughtful
    manner. While program improvements are surely necessary, any
    improvements should be practically grounded and serve the best
    interests of manufacturers who rely on a predictable supply of helium.
        As a threshold observation, I am sure that there is unanimous
    agreement that any legislative proposal must (1) obtain fair market
    value of federally sourced crude helium and (2) do so through a
    transparent mechanism that will avoid disrupting the helium supply
    chain. While I believe that RHASA was drafted with this intention
    squarely in mind, its effect would be to place counterproductive limits
    on the role of helium refiners. Its practical effect would be to
    disrupt the helium industry's ability to meet the helium demands of our
    hundreds of customers throughout the country. It is my hope that
    through my testimony today, and the many subsequent conversations with
    you and your staff that will undoubtedly take place, we will be able to
    fashion a policy that avoids these pitfalls.
        The Federal Helium Program was created in 1925 to guarantee the
    availability of helium for national defense purposes. As a result, the
    United States constructed a helium extraction and purification plant
    outside of Amarillo, Texas that began operations in 1929. In the
    1960's, as the demand for helium increased, Congress responded by
    encouraging private natural gas producers to separate crude helium from
    natural gas and sell it to the government. The Federal government ended
    this program in 1973 and opened the reserve to private capital and
    development. This action spurred the creation of a private helium
    sector in which certain industrial gas companies made the decision to
    invest in liquid helium refining facilities. Praxair did make such
    investments and other companies opted not to do so. By the mid-1990s,
    private demand for helium became significantly greater than government
    demand because of advances in research, technology and medical
    diagnostic equipment.
        In 1996, under the Republican-led House and Senate, Congress passed
    the Helium Privatization Act, which directed the federal government to
    exit the helium market. The Privatization Act 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
    Privatization Act provided minimum selling prices, adjusted for
    inflation, for crude helium so that adequate revenue would be generated
    to repay the government's investment in the Reserve and the
    construction costs of the related infrastructure. The Secretary of the
    Interior was provided the discretion to increase price over the minimum
    price set by the Privatization Act. The price charged for BLM helium
    has been a point in controversy. Without assessing the validity of
    claims that price was set too low, let me just say that neither Praxair
    nor any refiner has had any role in making BLM pricing determinations.
        Pursuant to regulations adopted to implement the Privatization Act,
    the BLM sells crude helium from the Federal Reserve in two annual
    phases or ``sales.'' In the first sale (called the Allocated Sale), 94%
    of the crude helium is offered for sale in set percentages to each
    company that has refining capacity on the reserve system. This includes
    Praxair. The percentage allocated to each refiner is based on that
    refiner's refining capacity. Refining capacity is, of course, a
    function of the respective capital investments in plants and equipment
    made by each refiner. It is important to note that the helium sold
    during the Allocated Sale is explicitly meant for current consumption.
    By prioritizing and contractually guaranteeing set volume to the
    refiners, such as Praxair, it ensures that refined product will be
    delivered to the end market in real time and, therefore, minimize
    market disruptions. Critically, this provides the market with the
    certainty necessary to execute long-term contracts with end users and
    to provide them with the confidence of knowing that their helium needs
    will be met. Thousands of jobs depend on our customers' abilities to
    secure a constant and stable supply of helium. The Act and its
    regulations recognize the essential role that the refiners play in the
    effective operation of the BLM helium system.
        While the Privatization Act envisioned the entire reserve being
    sold by 2015, this has not yet occurred. Rather, reserves continue to
    exist such that the BLM can continue to sell helium for medical and
    commercial purposes for approximately 5-7 more years based on current
    consumption. That is, of course, why we are discussing the program
    today. To be clear, there is no new helium to be sourced from the BLM's
    reserve. The supply is finite. It is in the nation's interest to
    promote the orderly wind-up of the government's role in the helium
    business.
        RHASA fails to recognize the refiners' critical role. As described
    in more detail below, the proposal will result in a 15.5%-100%
    reduction in the amount of helium that Praxair could purchase. Similar
    reductions would be imposed on all other refiners. This would
    effectively undermine the value of our investments totaling $500
    million made to efficiently process, refine, and distribute the helium
    to our customers. It is important to note, that the BLM's value to the
    public is maximized by having efficient refining and distribution
    capability. In 1996, Congress explicitly designed the program to ensure
    that helium is apportioned and efficiently brought to market to the
    benefit as many end users as possible. Refiners perform this function
    by drawing from a variety of public and private helium sources--thus
    not relying exclusively on the BLM. RHASA undermines this imperative by
    establishing a program under which a distributor can be awarded 100% or
    more of the helium required for their customers which will result in
    total reliance on the BLM system and the stranding of helium in
    inefficient places. American manufacturers cannot operate on the
    resulting supply volatility risked by RHASA.
        The proposal specifically seeks to reform the Helium Program
    through a 100% semi-annual auction that contains additional layers of
    governmental administration, such as significant private reporting and
    recordkeeping mandates, none of which had previously existed. For
    example, H.R. 527 grants the Secretary of the Interior unlimited
    authority to develop a helium market surveillance program and does not
    guarantee adequate that sensitive commercial information will be
    protected. Under the label of ``equal pipeline access,'' RHASA
    threatens to disrupt pre-existing contracts relating to pipeline
    allocation that Praxair has negotiated with the BLM and do not expire
    for many years. While I question the prudence of materially reinventing
    the program in the twilight of its existence, I am deeply concerned
    with the construction of the experimental auction system that will
    ultimately lead to significant disruptions in the global helium market
    adversely impacting federal agencies like NASA and the Air Force,
    medical research and service providers, and manufacturers.
        A 100% auction is impractical. Only a few companies made the
    necessary and prudent business decisions to invest in helium transport
    logistics. Indeed, only 5 companies have the ability to take delivery
    of 10% or more of the BLM's helium supply from a liquid helium pipeline
    plant in Texas, Oklahoma, or Kansas to an end user in Idaho or North
    Carolina or a launch pad in California. Failing to take into account
    supply chain capabilities when designing any auction, let alone a 100%
    auction, will result in stranded helium and deprive U.S. manufacturing
    and service providers of an important feed stock.
        RHASA is described as a ``free-market plan to prevent a global
    helium shortage'' but in reality it is something very different. It
    will not bring any new or additional helium molecules to the market
    that will mitigate the current supply and demand imbalance that exists.
    Rather, in an effort to increase the number of bidders at each semi-
    annual auction to maximize price, RHASA redistributes the same volume
    of helium to a wider group of purchasers--purchasers who have not
    invested in the infrastructure to process, refine, and distribute
    helium to those end users who need helium to support their operations.
    Although an auction may appear on its surface to be rooted in free
    market principles, the design and scale of this particular auction
    would compromise stability in the global helium supply chain while also
    breaching public/private contracts, and, most importantly, make U.S.
    manufacturers less competitive on a global basis.
        There have been allegations that America's private helium industry
    has not diligently identified and developed new and private sources of
    helium. This is not correct. Since the Helium Privatization Act was
    passed, there have been robust private helium extraction projects
    developed to meet demand. Further, the equivalent of about 30% of the
    current global helium capacity will come online this year from new
    projects in the U.S. and abroad. Praxair has and will continue to
    invest tens of millions of dollars in the United States to to develop
    additional helium supply. As with all projects of this scale and
    complexity, these ambitious plans face headwinds which this bill should
    address, like permitting difficulties and delays. The key to increasing
    helium supplies is in the development of additional natural gas
    reserves, specifically those containing helium, since as we all
    recognize a majority of natural gas reserves don't contain helium.
    Without an incentive to co-develop the natural gas, the feasibility of
    helium sourcing is compromised.
        Praxair is committed to working with the Committee to accomplish
    our shared goal--reauthorization of the Federal Helium Program in a
    manner that brings fair market value to the U.S. taxpayer and does not
    disrupt the global helium supply chain. We believe this can be done. We
    have been working with a broad array of stakeholders to modify the
    proposed auction in a way that would be acceptable to all interested
    parties.
        A 100% auction is not necessary to arrive at a fair and transparent
    price. What is feasible and effective, however, is that a commercially
    significant amount of helium be sold through an auction in blocks that
    are truly useful and deliverable.
        It is imperative for the auction to be meaningful and well
    designed. A meaningful and well designed auction will attract potential
    buyers that are knowledgeable, qualified, and possess the capital
    capacity to manage the resulting award. Further, a valid auction must
    have a market-based mechanism to obtain a fairly priced tolling
    agreement from a pipeline refiner. Congress can drive competition among
    pipeline refiners for a tolling agreement by working with the refiners
    to set aside a portion of the current pipeline allocation for access by
    parties bidding on the blocks of helium ultimately set aside. Congress
    should not promote access to pipeline refining through a mandate,
    whether direct or indirect.
        The contours of our proposal are:
          A 3-phase draw down of the Federal Helium Reserve to
    prevent disruption in the global helium market.
          Sale price supported by the combination of an annual
    auction of commercially significant blocks of helium, data collection
    and analysis of private helium transactions.
          A pro rata ``special pipeline allocation'' equal to the
    percentage awarded through an auction that ensures that winning bidders
    who do not have refining capacity will be able to take possession.
        An auction must have guard rails to ensure that federal agencies
    and grantees, manufacturers and medical service providers are not
    injured. An auction design must therefore ensure a predictable and
    prudent drawdown while other new domestic and/or international sources
    of helium can be brought to market. It must also ensure supply chain
    stability so that end users can enjoy the certainty of long-term
    contracting with their suppliers.
        We thank the Committee for considering our views. RHASA is a good
    starting point for discussion and we are confident that with the types
    of modifications outlined earlier we will have a product that can be
    supported by all stakeholders.
                                     ______

      Response to questions submitted by Scott Kaltrider, Vice President,
                  Business Management & Helium, Praxair, Inc.

    March 18, 2013
    Dear Chairman Hastings:
        Thank you for providing Praxair, Inc. with the opportunity to
    testify at the February 14, 2012 hearing on ``The Past, Present, and
    Future of the Federal Helium Program'' and we appreciate the additional
    questions you have presented.
        As an initial observation, many of the questions presented assume a
    set of facts and circumstances that are not supported by the reality of
    Praxair's experience in the refining and sale of helium. In addition,
    many of the questions request information that is of a confidential and
    commercially sensitive nature, which we, as you can understand, cannot
    answer.
        Consistent with Praxair's interest in providing helpful factual
    information to the Committee, we have answered your inquiries as best
    we can.
    Answers to Questions from Chairman Doc Hastings
    1.  Mr. Kaltrider, the Government Accountability Office produced a
            chart showing the price of BLM crude helium selling at just
            under $80 per thousand cubic feet, while the price of Grade A
            refined helium sells for approximately double that--$160 per
            thousand cubic feet. Please provide the committee with an
            estimate of the average price per thousand cubic feet of the
            last 5 helium contracts you have negotiated or renegotiated to
            sell crude refined helium.
        A: This question is ambiguous. The meaning of ``crude refined
    helium'' is unclear as it is used in this question and is not a
    commercially recognized term. In answering your question we have
    assumed that what was intended was to ask about helium we refined and
    sold. If we have correctly gleaned the intent of the question, we can
    advise the Committee that Praxair's prices per thousand cubic feet vary
    greatly since price in any given transaction is determined as a result
    of a number of unique factors including without limitation, the terms
    and conditions of sale, delivery mode, volume, grade, distance from
    plant, as well as time of purchase.
    2.  Mr. Kaltrider, is the GAO estimated price an accurate reflection of
            the price of Grade A refined helium?
        A: Our response to this question, due again to the ambiguity of the
    question, is a limited one. Specifically, regarding the price paid by
    customers for helium refined and sold by Praxair we would reiterate our
    response to question 1 above.
    3.  Mr. Kaltrider, please provide the Committee with a list of the
            refined helium products (grade) you produce from the federal
            helium reserve? In each category, please provide some estimate
            of the current market price for each product.
        A: The following is a list of the helium products (grades) Praxair
    produces from the federal helium reserve.
        The majority of helium produced at refineries is liquid helium
    conforming to CGA Grade P with limited sales of High Purity Gas (4.7 or
    BOM Grade A). Currently, Praxair has the only refinery producing USP
    Gaseous Helium. Most other grades are packaged and verified at
    redistribution centers.
        As we explained above, we are unable to provide ``current market
    price'' for each product with any reasonable degree of certainty since
    price in any one given transaction is determined by a variety of
    factors.
    4.  Mr. Kaltrider, the Committee is interested in understanding the
            capital costs related to the refining and distribution process.
            Could you please provide the Committee an estimate of your
            refining costs at the BLM connected facilities on a per
            thousand cubic foot basis? Could you please provide the
            Committee an estimate of the cost of distribution related to
            the products produced at the BLM facility on a per thousand
            cubic foot basis (if it can be broken down for different
            products or grades of product please provide that information)?
        A: Praxair, Inc.'s capital costs related to the refining and
    distribution process are confidential and commercially sensitive and
    for that reason we are unable to provide further information in
    response to this question.
    Answers to Questions from Rep. Edward J. Markey
    1.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Please list the current
            refining capacity of each helium refinery connected to the BLM
            federal helium reserve pipeline owned by your company and what
            if any changes have been made to its refining capacity since
            2000.
        A: The current refining capacity of each helium refinery connected
    to the BLM federal helium reserve pipeline is publicly available online
    at the following website: http://www.blm.gov/pgdata/etc/medialib/blm/
    nm/programs/0/helium_docs.Par.80517.File.dat/
    FY2011%20open%20mkt%20wrksht%20qtr%202.pdf
    2.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Did any of the helium
            refineries connected to the BLM federal helium reserve pipeline
            owned by your company have spare refining capacity in any of
            the last three years? If so, how much?
        A: Yes, this information is publicly available online at the
    following website: http://www.blm.gov/pgdata/etc/medialib/blm/nm/
    programs/0/helium_docs/statistical_reports2.Par.74609.File.dat/
    Stat%20Sep2010%20post.pdf
    http://www.blm.gov/pgdata/etc/medialib/blm/nm/programs/0/helium_docs/
    statistical_reports2.Par.69270.File.dat/Stat%20Sep2011%20post.pdf
    http://www.blm.gov/pgdata/etc/medialib/blm/nm/programs/0/helium_docs/
    statistical_reports2.Par.36814.File.dat/Stat%20Sep2012%20post.pdf
    3.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: The National Academies of
            Science have recommended that the ``BLM should adopt policies
            that open its crude helium sales to a broader array of buyers''
            and ``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.'' Do you
            believe H.R. 527 would incentivize tolling agreements to refine
            crude helium between your company and entities not connected to
            the pipeline? Would your company support requirements for
            mandatory tolling agreements?
        A: No, we do not believe H.R. 527 would incentivize tolling
    agreements to refine crude helium. In addition, Praxair does not
    support requirements for mandatory tolling agreements since such
    requirements raise legal and Constitutional issues under the Takings
    Clause of the Fifth Amendment.
    4.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: For each helium refinery
            connected to the BLM federal helium reserve owned by your
            company, what percentage of crude helium refined at that
            refinery was sourced from the federal reserve and what
            percentage came from private sources. Please provide this
            information for each of the last three years.
        A: This information is publicly available online at the following
    website: See above as well as http://minerals.er.usgs.gov/minerals/
    pubs/commodity/helium/mcs-2013-heliu.pdf
    5.  Mr. Nelson, Mr. Haines, Mr. Kaltrider: Mr. Nelson's testimony
            includes a graphic that projects the decline in production from
            the Reserve. That chart projects production from the Reserve to
            fall by roughly 50 percent over the next 4 years and by
            approximately 85 percent in 10 years. Your company has spoken
            about wanting to have long-term contracts but isn't your
            company already voiding or adjusting long-term contracts
            because of inadequate supply? How are you going to meet your
            customers' needs if your own supply from the federal helium
            reserve is going to decline by 50-85 percent in the coming
            years?
        A: In anticipation of the gradual draw down of the federal helium
    reserve to 600 million cubic feet pursuant to the Helium Privatization
    Act of 1996, we have invested in a robust supply chain which utilizes
    multiple helium sources.
    6.  Mr. Joyner, Mr. Thoman, Mr. Lynch, Mr. Nelson, Mr. Haines, Mr.
            Kaltrider: H.R. 527 limits the amount of crude helium any one
            entity can purchase in a single auction to 30 percent, do you
            believe that would ensure sufficient competition and auction
            participation while also protecting against market
            manipulation?
        A: No.
                                     ______

        Mr. Lamborn. OK, thank you. And I want to thank each of the
    panelists for being here. This is an extremely important issue,
    and it is also a very complex issue. Helium is a unique
    product. And the structure that has been built up containing
    public elements and private elements is a unique mixture that I
    haven't seen in any other industry in our country, how the
    public and private has blended together. So it is very
    complicated. And your testimony has been very helpful for that.
        I will just start out. We will have multiple rounds of
    questions. There is only several of us who are here right now.
    Hopefully we can get through that and take advantage of the
    expertise that we have sitting on this panel before us right
    now.
        OK, I asked a question at the very beginning of the
    government witnesses concerning ownership. You probably heard
    their answers. Basically, I hope I state this correctly, but
    the government owns the helium that is under the ground. And at
    such time that it is sold, and I am a little hazy on when that
    is, if it is at delivery where that enters into the equation,
    but upon a complete sale, then it becomes the property of the
    person purchasing. Is there any disagreement with a working
    definition like that that any one of you might have?
        Mr. Nelson. Mr. Chairman, if you don't mind, I will take
    that question. I left with Sophia earlier some diagrams that
    might help with the answer to that question. I don't know if
    they have been distributed or not.
        Mr. Lamborn. We can throw it up on the screen. Is it this
    one, right here?
        Mr. Nelson. Yes, Mr. Chairman.
        Mr. Lamborn. OK.
        Mr. Nelson. It is a wire diagram explaining the BLM system
    and how it interfaces with private industry.
        Mr. Lamborn. OK, I have it in front of me. We will
    distribute it to the members of the Committee who are currently
    present. But please go ahead while we are----
        Mr. Nelson. And we might refer to this diagram throughout
    the question and answers----
        Mr. Lamborn. Yes, please proceed.
        Mr. Nelson. But to answer your question very specifically,
    in the lower left-hand corner of the diagram there is a cloud
    which depicts the raw gas that is thousands of feet below the
    surface, which is the BLM helium reservoir that we all talk
    about. When a sale of BLM helium takes place, the sale is
    actually selling the helium in the ground, in-situ, where it is
    a combination of natural gas and helium combinations, and it is
    effectively a ledger entry, as Mr. Spisak had indicated,
    whereby the government is managing on a ledger book the amount
    of helium that is in that reservoir. And as they sell it off on
    some periodic basis, they transfer some of it from the
    government's storage account into a private storage account,
    almost like managing a passbook savings account at the bank.
    But that is where the sale takes place. It is not refined
    helium or crude helium. It is actually in-situ, in the ground.
        Mr. Lamborn. OK, thank you. Anyone else that would have a
    different take on that?
        Mr. Haines. Mr. Chairman, I would like to just continue the
    point Mr. Nelson was making, and that is that in order to
    actually get delivery of that helium at our various facilities,
    what happens is that helium is then removed from the reservoir,
    it passes through the helium enrichment unit at Cliffside, and
    then is pumped down the BLM pipeline system. And it is metered
    at our various plants. And that is where we actually take
    physical possession of it through our facilities. But until
    that point it sits in, as Mr. Nelson said, the bank account
    underground in the Cliffside Reservoir. There is a big
    distinction.
        So, a portion of the helium underground is currently owned
    by people who have paid and taken technical ownership of that
    helium, but we only receive delivery substantially later in our
    plants down the pipeline.
        Mr. Lamborn. OK, thank you.
        Mr. Haines. There is a metering system there, and that is
    where all the accounting is reconciled.
        Mr. Lamborn. OK, thank you. Moving on----
        Mr. Joyner. And, Mr. Chairman, if I could add just a----
        Mr. Lamborn. Certainly.
        Mr. Joyner [continuing]. Clarification point----
        Mr. Lamborn. Yes.
        Mr. Joyner [continuing]. And tie it back to legislation,
    that is where the disconnect occurs, is that buyers can
    purchase helium in the ground, but it is only a fraction of
    that gross gas. It hasn't been separated yet. So you can't
    utilize that until it has gone through the enrichment unit and
    been processed and then delivered in the pipeline.
        So, that is where the recommendations come in to link your
    purchase with the delivery of the actual helium in the
    pipeline. Because if you don't have that access, just buying
    the fraction of the percentage of helium that is in the ground
    is something you can't utilize.
        Mr. Lamborn. OK. Well, that----
        Mr. Haines. Sorry, Mr. Chairman.
        Mr. Lamborn. Yes?
        Mr. Haines. Just one more point about that, and that is the
    rate of delivery of gas from the field is now declining. So the
    ability for the BLM to deliver gas over the next 8 years is
    going to be diminishing quite substantially. And that is one of
    the issues here about would new investments take place, et
    cetera.
        Mr. Lamborn. Mr. Kaltrider, continuing on here, in your
    testimony you said the 30 percent cap would threaten the
    delivery to in-kind users. Since the in-kind distribution is
    separate in the bill from the auction process, can you explain
    why the 30 percent cap would have an impact on your ability to
    serve in-kind users?
        Mr. Kaltrider. Well, today, the way it functions today, you
    basically use inventory. A refinery uses its own inventory to
    satisfy in-kind requirements for the purpose of the Federal
    Government.
        In the future, there will be a couple of things going on.
    At 30 percent, because it is less than what we get today, we
    won't have enough inventory floats to satisfy all of our
    customers. And the way this happens is you use your inventory
    and then the government replenishes your inventory at a later
    date. And with the depletion of the reservoir and the fewer
    molecules coming in to the reservoir, that depletion rate is
    such that we will not be able to get our inventory back up over
    time, like we have in the past when there has been a perfectly
    acceptable amount of flow into the reservoir.
        Mr. Lamborn. OK, thank you. At this point I would like to
    recognize Mr. Holt.
        Dr. Holt. Thank you. Thank you, Mr. Chairman. You know, as
    we seek to put more transparency and more market forcing into
    the process, I am still left with concerns about whether we
    have done an adequate job in guaranteeing the supply that will
    be needed by Federal users and to meet other domestic needs,
    commercial domestic needs too, and whether we are doing enough
    to address long-term supply issues. It may take other
    legislation to do long-term supply, or maybe there are ways to
    build it into here. But those are certainly a couple of
    concerns that I hope we can address over coming weeks.
        Let me go down the line to users, distributors and
    refiners. Do you agree with the conclusion of the National
    Academy of Sciences, that ``The 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 more transparent''?
        Yes. Let's just go left to right--my left to right. Yes, if
    you would, please.
        Mr. Joyner. OK. Thank you, sir.
        Dr. Holt. Thank you.
        Mr. Joyner. Yes, we agree with that recommendation for a
    number of reasons. One, it helps you, the legislation, achieve
    the goal of getting a fair market price and return on the
    taxpayer's investment. Second, it promotes competition, and
    competition is the basis of what is driving our economy, not
    captive access to the U.S. resource. So it really triggers that
    competitive factor that drives the benefit for the end user to
    get reliable supply and get competition to gain their business.
        Dr. Holt. Yes, next?
        Mr. Thoman. Similarly, we agree with the National Academy
    of Sciences report. It recommends for greater access and a fair
    price. We think with greater access, we are very focused on a
    secure domestic supply. There is the helium available to create
    a secure domestic supply. And with a fair price for that
    helium, perhaps more of that conservation will take place, as
    well. And the pressure on the helium that is being produced----
        Dr. Holt. Thank you. Mr. Lynch?
        Mr. Thoman [continuing]. From our BLM fields, won't be
    exported.
        Dr. Holt. Sorry, yes, Mr. Lynch?
        Mr. Lynch. Yes, we agree.
        Dr. Holt. Yes? OK.
        Mr. Lynch. In short. The question is, does the bill
    adequately achieve those goals, and as I testified, we think it
    has severe shortcoming in that regard.
        Dr. Holt. Yes. Mr. Nelson?
        Mr. Nelson. Mr. Holt, we agree with the portion of the
    recommendation that the BLM should be sold at a market-based
    price. What we do not agree with is that the current bill
    addresses all of the other issues of reliable supply to
    customers.
        Dr. Holt. Right, as you testified. Mr. Haines for Linde?
        Mr. Haines. Yes, Mr. Holt, we agree in regard to opening up
    the price to a market price. We are very comfortable with that.
        Mr. Kaltrider. Again----
        Mr. Haines. Sorry. And as far as opening to a wider array
    of buyers, we think that could be accommodated properly if the
    legislation were written in the right way.
        Dr. Holt. Thank you.
        Mr. Kaltrider. Again, consistent with our testimony--with
    my testimony--I think Praxair has put forth a proposal that
    would endorse an auction of a commercially significant amount
    of helium. I would like to stress that access to the BLM does
    not create additional helium molecules, and that if you really
    are interested in----
        Dr. Holt. And so let me--yes, let me----
        Mr. Kaltrider. If you are really interested in expediting
    investment and that, in finding more helium and that, you
    probably need to look at streamlining permitting requirements
    and other things that can aid in----
        Dr. Holt. Well, with about 10 seconds each of you, do you
    agree with the National Academy of Sciences' finding that BLM's
    pricing of crude helium may slow efforts to aggressively pursue
    alternative helium sources and negatively impact the evolution
    of the helium market?
        Mr. Joyner. I think beyond the pricing, the capacity of the
    reserve has driven some of the other producers to not pursue
    other sources, because they have exclusive access to one of the
    world's largest sources, as opposed to others who have been at
    the forefront of pursuing, as Air Liquide has, other sources
    here and globally, as a result of not being able to have
    access. It is more of an access issue, I think, than driven by
    price.
        Mr. Thoman. Yes. Folks like us who don't have the access to
    the fields are forced to look for other sources and the higher
    pricing will stimulate alternative sources.
        Dr. Holt. Since we have run out of time--I am sorry--let me
    jump to, I guess, Mr. Haines, so we have some input from the
    refiners on that.
        Mr. Haines. Thank you, Mr. Holt. We do not really believe
    that the price, the crude price of helium, really will drive
    new helium resource development. We believe that is largely
    because of natural gas, because most helium discoveries are
    related to natural gas. And it is actually the natural gas
    resource development that is key for helium resource
    development.
        Dr. Holt. Thank you.
        Mr. Lamborn. OK. Representative Lummis.
        Ms. Lummis. Well, thank you, Mr. Chairman. I want to ask a
    question of Mr. Kaltrider and Mr. Lynch, because you have
    warned us about disruptions to supply chain and price
    stability. And both Praxair and Matheson have considerable
    investments in my State of Wyoming.
        So, obviously, that is not the intent of this bill, to
    cause supply chain and price instability. So I am curious. Can
    you help me understand why you are concerned about that?
    Because we didn't hear that from the end users and we didn't
    hear that from our first panel that were mostly government
    folks. So just curious about why that is.
        Mr. Lynch. OK. Well, as I mentioned, the helium industry is
    very capital-intensive, and it requires very expensive,
    specialized equipment that requires a large investment and it
    takes a long time to earn the money back on it. And the helium
    supply and sourcing contracts, as the industry has developed,
    have developed to be of a long-term nature, so that companies
    can make long-term investments to earn the money back
    appropriately.
        If we were talking about a very small amount of helium
    being put up for auction every 6 months, there is always room
    for a bit of spot market. But you are talking about a huge
    proportion of the world's helium supply being chased after
    every 6 months, meaning no supplier will know if he is going to
    have access to the helium he needs to fulfill contracts 6
    months from now. No buyer will know if the supplier he is
    dealing with will be able to provide him helium 6 months from
    now, or at what price. That makes long-term investment and
    planning impossible.
        Ms. Lummis. Yes. So if you were designing this system, and
    you could have a portion be spot market subject to auction and
    another portion be withheld from that auction system, what
    percentage would you choose?
        Mr. Lynch. Well, we have put forward a proposal of 80
    percent: 80 percent would be run similarly to the way it is
    today, allocated to the refiners, the only difference being the
    price would be a market-based price derived from a survey; 20
    percent available to non-refiners.
        But the key to making that work, as we have mentioned, is
    it does no good to bid on crude helium if you can't turn it
    into pure helium. So any auction system that allows greater
    bidding that doesn't somehow include a mechanism to incentivize
    the refiners to purify it is a dead end, and nobody is going to
    bid on it once they realize that, like us, they will have crude
    helium sitting in the ground for 6 or 7 years with nowhere for
    it to go.
        Ms. Lummis. A question about price. And I want to give you
    a chance to answer that same question, but I want you to add
    another into the mix, and it is this. You know, earlier we saw
    this GAO chart that shows that grade A helium is priced around
    $160. Is that price range reflective of what you charge your
    customers? Anybody.
        Mr. Kaltrider. That is obviously very confidential
    information, right?
        [Laughter.]
        Mr. Kaltrider. But it is not--and there are different
    levels of customers, right? There are very extremely large
    users, there are retail users. So it is very difficult to say
    whether that is representative of what you would call the ``end
    market,'' because there is a very wide variation in the end
    market.
        Ms. Lummis. And is the end market buyer buying a different
    quality of product that would differentiate price?
        Mr. Kaltrider. In some cases. In most cases, the end market
    buyer is buying, if it is an extremely large user, they are
    really paying for reliability, continuity of supply----
        Ms. Lummis. Yes, I----
        Mr. Kaltrider. OK. Diversification of your sources as a
    supplier is very important to the end use buyer.
        In the case of Mr. Page and his customers that are
    primarily using for balloons, there is a way you can provide an
    intermediate grade of helium that is not five nines and that
    product, if it were available, could be sold at some type of a
    price in between, I am assuming. So it does vary widely in the
    packaging, the commercial investment, the quantity, the length
    of time, the criticality of the product. Many, many, many
    things.
        Ms. Lummis. OK. Does anybody else want to comment on my
    price question?
        Mr. Nelson. If I can just add, please, that I am not
    specifically familiar with the data that is represented in the
    graph, but based on the comments of Mr. Spisak earlier, it does
    appear that the graph is comparing unlike substances. I don't
    want to call them apples and oranges, but there is a comparison
    between crude helium sold in the ground, that we described
    earlier, with end refined products that could be in cylinders
    or multiple different packages. I think if you drew a similar
    graph comparing the price of crude oil to maybe the price of
    gasoline sold at a pump, you might see a similar type of a
    relationship.
        Ms. Lummis. OK. Anyone else want to weigh in on any of this
    series of questions?
        Mr. Haines. In terms of that graph, so we are talking about
    crude helium at the bottom versus a retail price. Now, we have
    very extensive infrastructure, as Mr. Lynch mentioned, which
    enables us to remove the helium from our facilities to its
    points of use around the world. So we have a very, very complex
    supply chain comprising of hundreds of very specialized
    cryogenic ISO containers that transport the helium in a liquid
    form to a number of transfills. At that transfill the liquid is
    then vaporized into a gaseous form, it is repackaged into
    cylinders or dewars or some other form--tube trailers, perhaps.
    Then it is delivered the customer. So, there is a tremendous
    value chain----
        Ms. Lummis. Yes.
        Mr. Haines [continuing]. That takes that product from the
    crude helium that is purchased at the BLM facility to the end
    customer that could be in New York City.
        Ms. Lummis. Can you tell me whether this proposed auction
    system----
        Mr. Lamborn. Representative, let me remind you that we are
    going to have one more round.
        Ms. Lummis. Oh, OK.
        Mr. Lamborn. OK.
        Ms. Lummis. Thank you. I got carried away. I will----
        Mr. Lamborn. OK, but save that question. OK. And, Mr.
    Cartwright, and then we will start our second and, I think,
    final round.
        Mr. Cartwright. Thank you, Mr. Chairman. Mr. Nelson, in
    your testimony you indicate a preference for a partial auction
    of the BLM helium. Is that correct?
        Mr. Nelson. That is correct, sir, yes.
        Mr. Cartwright. And I want to say Mr. Lynch just testified
    about an 80/20 split. Was that the same topic?
        Mr. Nelson. I believe the proposals are similar, yes.
        Mr. Cartwright. Yes, and I wanted to ask you, Mr. Nelson,
    was that about the proportion you were thinking, 80/20?
        Mr. Nelson. My proposal is that today we have an allocated
    volume and a non-allocated volume. The non-allocated volume
    today is 6 percent of the BLM. The BLM has had the authority to
    change that volume over time. They started at 10 percent. All
    of the helium wasn't sold. They lowered it to 5 percent for a
    while, and then they ultimately raised it to 6 percent, and it
    has been at 6 percent now for quite some time.
        Today, as we discussed earlier, there is a shortage of
    helium today. And that 6 percent effectively today is not a
    guaranteed product for any of the refiners. So our proposal is
    that you would start by auctioning off the non-allocated helium
    at the percentage that it is today. And potentially, as new
    sources of helium come on, that percentage could change. But
    changing the percentage today will disrupt existing supply
    contracts. Because, effectively, it is a redistribution of a
    fixed amount of helium that exists today.
        Mr. Cartwright. All right, so that the percentage that you
    are comfortable auctioning off at this point would be the non-
    allocated, in other words, the 6 percent, but that percentage
    could go up.
        Mr. Nelson. That percentage could change, as new volumes of
    helium come on the marketplace, in order to minimize
    disruption.
        Mr. Cartwright. All right. And the other question I--thank
    you for that. The other question I had was about the production
    of helium. Helium is a byproduct from natural gas. Those of us
    in Pennsylvania know a lot about hydraulic fracturing, which
    produces an awful lot of natural gas.
        I asked this of the last panel, who were the end users of
    helium and didn't know a lot about how to mine helium from
    natural gas. But I did hear the statement that, really,
    fracking, or hydraulic fracturing, doesn't produce usable
    helium. Is, and I will throw this open to the whole panel, is
    that true? Are there things that we can to do take advantage of
    the burgeoning field of hydraulic fracturing in the helium
    industry?
        Mr. Kaltrider. Yes, I think I can speak to that. Hydraulic
    fracking, obviously, is a very efficient preferred method of
    extracting natural gas, natural gas liquids, and, in some
    cases, petroleum from unconventional shale reserves. OK?
        Up to this point, helium has not been discovered in shale
    deposits, OK? Helium is typically found in natural gas deposits
    that have a high nitrogen content. In some cases it is found in
    deposits that have a high CO2 content. In some
    cases, as in Wyoming, it is found in a reservoir that has a
    very high CO2 content. Extremely complex gas to
    separate, costs billions of dollars of investment, as Exxon has
    made. It is pretty complex. But at this point, it has not been
    found in shale gas and shale reserves.
        Mr. Cartwright. I thank you for that. And, of course, the
    other effect of this discovery of the shale gas and the
    fracking industry has been to lower the price of natural gas.
    And can you comment on how the lower price of natural gas
    overall impacts the helium industry?
        Mr. Joyner. I can speak to that. At this stage it hasn't
    affected the availability of helium. There is still a lot of
    natural gas being extracted outside of the shale gas, so we
    haven't seen reduced levels there. It could affect exploration
    of more traditional natural gas, where we do tend to find the
    higher concentrations of helium over time.
        On the flip side, with the existing natural gas producers,
    monetizing the helium should become more and more attractive to
    express some joint interest between those producers and the
    helium industries to work together to develop even lower purity
    streams in those situations.
        Mr. Haines. I would like to add to that. Unfortunately, as
    the natural gas price has come down, exploration for, as we
    say, conventional gas reservoirs has actually declined
    substantially. If you look at the rig counts for natural gas,
    they have diminished substantially. And on the counter to that,
    oil rigs have increased as the oil price has gone up.
        Unfortunately, this means that the reservoirs that are
    likely to contain helium are just not being explored that much.
    But that is a function of the natural gas price. It is not a
    function of the helium price. And I think we have tried to draw
    that distinction.
        Mr. Cartwright. Well, I thank you for your comments.
        Mr. Lamborn. OK. I want to thank the panel so far for their
    patience and for the expertise that they have shared with us.
    We will do our final round of questions here, assuming we can
    get through everything we need to, and I think we are to that
    point. I will start.
        For the three refiners, in regards to tolling agreements
    you may have heard, but there was some testimony earlier about
    how some people have attempted to enter into tolling agreements
    but have not been successful. So what is the basis that you use
    for deciding whether to honor these requests for tolling
    agreements? And why have some of these people who testified
    earlier been unsuccessful in those attempts? For any or all
    three of the refiners.
        Mr. Kaltrider. In the past I can speak plainly that we have
    entered into tolling agreements. And, in fact, some of those
    have been longer term, meaning a year or more. The reason we
    were able to do that was there was sufficient supply coming
    from the BLM, such that our allocation was met, and that we had
    additional molecules that the non-refiner who was asking us to
    toll that had access to those molecules--so, in other words,
    our allocation from the BLM would not have been impacted, and
    we were able to process the molecules they had access to. And,
    in fact, we did that.
        The problem recently in this last year to 18 months, with
    the exacerbated shortage, has been the BLM has been unable to
    even meet the 3 refiners' requirements in their nominations.
    And, therefore, there is no capacity, there is tolling
    capacity, there is refining capacity, but there is not enough
    molecules to even meet the minimal demands that the refiners
    have contractually with their customers.
        Mr. Lamborn. Thank you. Either of you other two? Anything
    to add to that, or a different----
        Mr. Nelson. Yes, Mr. Chairman. That explanation was very
    good. Air Products has had tolling agreements with both
    customers as well as competitors in the past. But during this
    recent shortage period, we just have not had the capacity to
    enter into any tolling agreements.
        Again, there was refining capacity available at our plants,
    but no ability to move crude helium to the plants. So, without
    that ability to move the crude helium, we cannot enter into any
    agreement.
        Mr. Joyner. Would you like a non-refiner perspective on
    that?
        Mr. Haines. Mr. Chairman?
        Mr. Lamborn. Yes, but one second. Let the gentleman from
    Linde speak also, and then we will hear from you.
        Mr. Haines. Yes. So we have had tolling agreements in the
    past, as well, as Linde. And for us, it is about two things. It
    is about access to molecules, it is also about ensuring that it
    is the right commercial terms. That means it has to make sense
    for both parties in this buy-sell arrangement.
        We have come up with a proposal that we believe would help
    the bill, to encourage refiners to toll. And that is we have
    talked about allocating product to go with product sold. And
    that would mean that then refiners would be indifferent to
    this, and they would actually be prepared to compete for
    tolling services. And we think that is a good idea. And we just
    don't think it is going to be as much of a problem as you
    believe it will be. But this is a change from how you have
    currently structured it.
        Mr. Lamborn. OK, thank you. Mr. Joyner, did you want to say
    something?
        Mr. Joyner. Yes. Thanks, Mr. Chairman. The way the
    structure was set up with the captive access and the
    allocations going entirely to the refineries, it actually set
    up a disincentive for them to toll. By not tolling, it allowed
    them to not only get the 94 percent, but then nobody else was
    going to buy the other 6 percent because they couldn't utilize
    it and get it out of the reserve. So it is somewhat of a self-
    fulfilling policy in that situation.
        So the key, again, is linking that delivery access and
    encouraging and incentivizing tolling, as we had proposed,
    similar to what the BLM MOU process is today that I talked
    about earlier.
        And it might be a good time to just quickly address the
    analogy about the car manufacturer, which is clever, but
    clearly irrelevant to this situation. That is private
    manufacturers, they are purchasing private materials. It is
    private transportation to produce cars. So to even draw a
    parallel between that and a government reserve, you would have
    to consider a situation where the government owned a third of
    the world's engines, and it gets farther and farther removed
    from being a relevant analogy at all, as compared to helium.
        Mr. Lamborn. OK, thank you. Last, for the three refiners,
    you saw this chart earlier that GAO put out. And the estimate
    in there is that it is roughly 60 or so dollars per thousand
    cubic feet versus an estimated price received by the refiner of
    around $160 to $180. So there is about a 2.5-to-1 ratio, if I
    am reading those numbers correctly. And yet GAO is estimating
    because they don't really have access to market prices between,
    admittedly, confidential contracts.
        Can you comment on whether or not this GAO estimate is
    correct? Would you be willing to comment on that?
        Mr. Haines. Mr. Chairman, I don't think the crude price is
    accurate, actually. It is----
        Mr. Lamborn. Excuse me?
        Mr. Haines. The crude price, Mr. Chairman, is over $80
    currently.
        Mr. Lamborn. OK. Well, it is for 2012, so it is only
    through last year, or until last year, 2012. So this year is
    not even on there.
        Mr. Haines. Again, I think the explanation that I made
    about when you deliver the product to the end customer there is
    a tremendous amount of extra cost involved in refining it,
    processing it, repackaging it, delivering it, there is a lot of
    extra cost involved. Plus there is a profit margin. So,
    absolutely. To compare crude helium to a delivered product, I
    think, is literally not the correct comparison.
        Mr. Lamborn. And given that, is the GAO estimate in the
    ballpark, in the light blue at the top there? And I am not
    trying to squeeze propriety information out of folks. And I do
    honor the need to recoup costs and have a legitimate profit.
    There is no question about that. But----
        Mr. Nelson. Mr. Chairman, thank you very much for
    recognizing that the six of us are sitting here as competitors,
    and disclosing market-based----
        Mr. Lamborn. Yes, and this is a very sensitive question I
    am asking.
        Mr. Nelson [continuing]. Pricing is very difficult for us
    to do. I would offer, and again, I know the government panel
    testified first. And I am not sure if the GAO looked at this
    information or not. But today, and I think starting back in
    2011, the BLM began to change their policy for selling crude
    helium each and every quarter. And as part of the process of
    bidding on that helium, private industry, the allocated
    purchasers, not the allocated, so on this side of the table, we
    had to actually answer questions, a confidential survey by the
    BLM on pricing, how much we are paying for the average price of
    crude, how much we are selling liquid helium for, in an attempt
    to gather that market data to help them determine how to set
    the market price.
        So, some of that information is certainly available to the
    BLM. I am not sure if the GAO had looked at that and had
    incorporated any of that data into this chart or not.
        Mr. Lamborn. Well, thank you very much. Thank you all very
    much.
        Mr. Kaltrider. If I cold just----
        Mr. Lamborn. Mr. Kaltrider?
        Mr. Kaltrider [continuing]. Add one thing, Mr. Chairman, I
    think Mr. Nelson had made a very important point, in that we
    participated as well in that and did not give index data, but
    actual data on the changes in our slate of crude suppliers to
    us, which encompass both BLM and private. And that, in fact, is
    the best, probably the closest proxy that the Committee could
    use to determine whether the BLM is charging the ``market
    price'' for crude product today, rather than coming up with
    some theoretical refined price and then back-extrapolating into
    that. If I could make that comment.
        Mr. Lamborn. OK. Thank you very much. Now, Mr. Holt.
        Dr. Holt. Thank you, Mr. Chairman. Your exchange there just
    shows, really, how far we are from a transparent market-based
    system here.
        You know, at least one of the companies here announced
    publicly, I guess, as I understand it, a 30 percent increase in
    prices over the last year or so, whereas the crude changed by,
    I guess, 10 percent or less, which suggests that maybe the
    price of crude is not the principal ingredient in calculating
    the distributed price.
        In any case, let me move to something that I am really kind
    of puzzled about and I want to make sure that this legislation
    handles this matter correctly and that is the matter of the
    semi-annual auctions and the long-term contracts. As I
    understand it, what we have proposed here, I mean what we
    intended to propose here, is that there would be fairly
    frequent auctions, 6 months or so, but you could take delivery
    over some period of years.
        Let me ask, I will choose a couple of you. Let me ask what
    do you mean by a long-term contract? Is it much longer than a
    couple of years? Doesn't that provide the predictability that
    the customers need as well as the suppliers? Let me ask Mr.
    Nelson and Mr. Lynch--or, well, OK, I guess Mr. Thoman wanted
    to speak to that.
        Mr. Nelson. Certainly, Mr. Holt. When we talk about long-
    term contracts, it again will depend on the customer and the
    relationship, but they could be anywhere from 3 to 5 to 7 years
    are typically what we would gauge as a long-term contract.
        Dr. Holt. But isn't it going to be affected as much by the
    declining volume of the reservoir and what you call the sticky
    molecules or whatever, as much as it is how often the auctions
    are held?
        Mr. Nelson. I really appreciate you highlighting this
    point, and I tried to bring it out both in my written and my
    oral testimony. Going forward, the sale of helium needs to be
    married with the delivery of helium, whether it is an allocated
    sale or even an auction of helium. The delivery has to be
    married with the sale activity.
        I use the analogy of a garden hose. You have a garden hose
    and there is water flowing out of it and it is flowing until
    the well runs dry. If you win product in an auction, you run to
    the garden hose with your pail and you fill it up and then the
    next guy fills up his pail. You can't just let the helium sit
    in the ground and try to pull it out 1 year or 2 years later,
    because whoever has won the subsequent auction is going to want
    to remove their helium, and so forth. And the BLM has limited
    capacity, just like a garden hose has limited capacity.
        So, in the legislation today it doesn't really square up,
    the sales activity with the delivery. And it absolutely has to
    be addressed.
        Dr. Holt. Mr. Thoman?
        Mr. Thoman. Yes, this is clearly a----
        Dr. Holt. Or Thoman, I beg your pardon.
        Mr. Thoman. That is OK. That is all right. It is a
    strategic resource that is in short supply. The frequent
    auctions every 6 months, you will have an ebb and flow because,
    as Mr. Nelson just said, you wouldn't buy this product and be
    able to over-buy and then be able to siphon off at some
    percentage of what you bought to satisfy your demand. You would
    be bidding in auction for the amount that you need to satisfy
    your demand. And with an ebb and flow of whether you are going
    to win or you are not going to win, you are going to get the
    volume that you need or something less, would create a lot of
    supply uncertainty.
        Dr. Holt. But does this legislation introduce any more
    problems? There is already, I think, a 1-year backlog or more.
    It seems to me that is going from purchase to extraction and
    delivery. Isn't that going to become worse for physical
    reasons?
        Mr. Thoman. I think it----
        Dr. Holt. I don't know whether ``worse'' is the right term.
    Isn't that going to become longer for physical reasons?
        Mr. Thoman. The four points that we mentioned in our
    testimony, those four points needing to come together in the
    bill will create more supply security than there is today. As
    constructed today, our industry has changed a whole lot since
    the last years, since the 1996 bill was enacted. For example,
    Airgas bought the packaged gas businesses, the cylinder and
    dewar-type businesses, from two of the refiners. So we have the
    customers, the mode of supply that the customers use helium in,
    however we don't have access to the supply.
        Mr. Kaltrider. The reality is there is a physical reality
    to your question. If you allow non-refining bidders, or any
    bidder to access in an auction, and allow them a 24-month
    period to bring that crude to market, which is what this bill
    suggests, what you will end up having happen is, as the
    reservoir depletes, the reservoir pressure is depleting, you
    will physically be unable to deliver those molecules.
        So, you will be able to deliver some, but you won't be able
    to deliver probably what the bidder bid on, OK, because there
    is just not enough pressure. It is depleting. And so the number
    of helium molecules----
        Dr. Holt. That is sort of what I was getting at. So as we
    move----
        Mr. Kaltrider. Yes, and so when I use----
        Dr. Holt. As we move forward, long-term contracts become
    less and less meaningful.
        Mr. Kaltrider. No, I would respectfully disagree. Again, we
    are talking about percentages, very large percentages, and this
    is actually suggesting a 100 percent auction. Now, if we arrive
    at a much more commercially reasonable amount of auction, then
    I agree. The impact of the more frequent auctions is lessened.
        Dr. Holt. It is complicated, isn't it, Mr. Chairman?
        Mr. Lamborn. It is not only complicated, but it is unique.
    For instance, I am struck by the fact--where is that chart,
    Mandy? Oh, here it is, the diagram that Mr. Nelson gave out.
    The Cliffside helium plant is privately owned and government
    operated. And I have said this before. I have heard of a lot of
    operations that are government owned and private operated, but
    I have never heard of any other facility in the country that is
    privately owned and government operated.
        So it is a unique industry, it is a unique commodity. Thank
    you for coming today and lending your expertise. We appreciate
    your testimony.
        Members of the Committee may have additional questions that
    they would ask you in writing. I would ask that you would
    respond to those, should you get such a question.
        I would also, with unanimous consent, like to put into the
    record a document, a statement received from the Gases and
    Welding Distributors Association.
        [No response.]
        Mr. Lamborn. Seeing no objection, that will be put into the
    record.
        [The statement submitted by the Gases and Welding
    Distributors Association, Inc., follows:]

                   Statement submitted for the record by the
             Gases and Welding Distributors Association (``GAWDA'')

        Mr. Chairman and Members of the Committee:
        The Gases and Welding Distributors Association (``GAWDA'') is a
    national trade association representing the interests of some 500
    companies that distribute compressed and liquefied gases and related
    welding equipment, and includes some 300 additional companies that
    supply products or services to the gases and welding industry. GAWDA
    distributor members sell a variety of products, including helium,
    oxygen, argon, nitrogen and carbon dioxide, as well as specialty gases
    and mixtures, to customers involved in manufacturing, construction,
    welding, research, health care, and biomedical engineering.
        Most GAWDA members are small businesses. Approximately 85 percent
    of GAWDA distributors have less than $10 million in annual gross
    revenue, so they have limited leverage in negotiating supply agreements
    for products. In the vast majority of cases, GAWDA distributors will
    contract exclusively with a single manufacturer (or in the case of
    helium, a refiner) for a comprehensive menu of gas products. The
    contract generally will provide all of the distributor's needs for all
    of those gases.
        In addition, the distributor will generally contract with its
    customers in an exclusive ``requirements'' arrangement to supply all of
    the customer's needs for a variety of gases as well. A small
    distributor might have a couple of dozen contracts to supply helium and
    other gases to customers, while a large distributor might have several
    hundred or more of these requirements contracts.
        The GAWDA distributor will typically purchase bulk helium in
    gaseous form from a refiner; the distributor will then repackage the
    helium into compressed gas cylinders and deliver them to customers for
    their use.
        GAWDA appreciates the efforts that the committee has made to
    develop legislation to complete the privatization of the Federal Helium
    Reserve outside of Amaillo, Texas. We understand the urgency of
    reauthorizing the sale of helium by the Bureau of Land Management by
    October of this year to keep the program from expiring, and GAWDA does
    not want the domestic supply of helium, which amounts to some 50
    percent of the U.S. domestic supply and 30 percent of the entire world
    supply, to go untapped.
        GAWDA also understands that the BLM has not obtained market rates
    of return for the sales of helium to date, and we appreciate that the
    federal government should earn an appropriate return for the sale of
    this asset in the marketplace. We agree that any revision to the BLM
    sales program should include a structure to generate market pricing for
    crude helium to refiners, and GAWDA does not oppose the provisions in
    H.R. 527 to develop a truly market-based pricing mechanism.
        GAWDA distributors are concerned, however, about the effect of the
    remedies fashioned in H.R. 527 on the stability of the existing market
    for helium, particularly as they affect the ability to meet contractual
    obligations for product supply. Section 3(a) of the bill would revise
    section 6(a) of the Helium Act, 50 U.S.C. Sec. 167d, to state that the
    BLM shall carry out the sale of crude helium from the Federal Helium
    Reserve ``with minimum market disruption,'' but we remain concerned
    that a quarterly or periodic auction approach as envisioned in H.R. 527
    will interfere with current contracts between refiners and
    distributors, and between distributors and their end user customers.
        By establishing a periodic auction mechanism under which any party
    may bid, at least for certain tranches of product, the BLM would set up
    a spot market for helium. If an established refiner is not able to
    secure all of the crude helium that it requires to meet the supply
    obligations set out in its contracts, then some distributor customers
    will receive less than their contractual allotments of helium, or
    perhaps none at all. The distributor will be forced to seek other
    sources of supply, presumably only if a force majeure clause in the
    agreement allows the distributor to obtain replacement product from
    another supplier.
        But the contracts between distributors and gas suppliers are
    exclusive for all of the gas products together, and it is difficult to
    predict how a disruption in the ability to supply the required amounts
    of helium in one quarter will affect the distributor's contractual
    obligation to purchase, and the manufacturer's contractual obligation
    to sell, all of the other gases contemplated in the agreement.
        Similarly, the distributor unable to obtain all of its requirements
    for helium in a quarter in turn could end up defaulting on its
    contracts to supply helium to its customers. The distributor's
    customers might be forced to seek alternative supplies of helium for at
    least part of their needs for that period, and to pay above market
    prices to the winning auction bidder(s) to ensure a continuous supply
    of product. This also raises questions of the effect on the contractual
    obligations to sell and purchase the other gases in the contracts.
        The same scenario could be replayed each quarter when the auction
    is renewed. Refiners, distributors and end users will not know which
    parties will have adequate supplies of helium to meet existing
    contractual demands. This will generate legal questions about contract
    default, partial product allocations, mitigation of damages, and
    obligations to cure, as well as commercial questions about which
    parties may be able to meet supply obligations on a consistent basis.
    The distributor will have to resolve these issues with each customer
    for that auction period; when another auction takes place, and
    different sales volumes of helium are awarded by BLM to new bidders,
    the distributors will have to go through the same legal and commercial
    exercise to ensure that each of their customers will receive enough
    product to meet its requirements.
        An unreliable product stream for helium will make it difficult for
    any distributor to entertain long-term, exclusive supply arrangements
    with customers that foster stable commercial relations and support
    economic growth.
        GAWDA appreciates that the sponsors of H.R. 527 have attempted to
    moderate some of the disruptive effects of the auction. For example,
    the bill would requiring all bidders on the first tranche, for 60
    percent of the volume to be sold, to show that they either have
    adequate refining capacity or tolling agreements for refining in place
    should their bids be successful. But the second tranche of helium
    sales, for 20 percent of the volume to be sold, is open to ``any
    person.'' These bidders are not required to certify that they have
    refining capacity or contracts in place; they are merely required to
    state that they are ``seeking to purchase helium for their own use, for
    refining, or for delivery to users.'' Section 3(a) of H.R. 527,
    amending section 3(d)(3)(B)(i) of the Helium Act. This could allow
    investors to purchase and hold helium for speculation or to remove it
    from the U.S. market entirely. Moreover, regardless of which parties
    are allowed to bid on or purchase helium, a quarterly auction with
    varying winning bidders will force distributors to find replacement
    product in a spot market if their suppliers are not successful bidders.
        GAWDA fears that an unstable auction mechanism affecting upwards
    half of the domestic U.S. helium supply could create havoc not merely
    for refiners and distributors, but also for the industries that rely
    heavily on helium as a component of their operations. Health care
    providers, manufacturers of semiconductors and other high tech
    products, metal fabricators, universities and other research
    facilities, and even party balloon suppliers, will no longer have a
    consistent and stable source of helium from their distributors.
        As this legislation moves forward, GAWDA asks that the committee
    consider its potential disruptive effect on the markets for both crude
    and refined helium and the end users that rely on this product. We
    support the committee's efforts to pass legislation this year to
    continue the sale of the Federal Helium Reserve, and at fair market
    prices, but we remain unconvinced that a periodic auction approach as
    outlined in H.R. 527 will encourage a sufficiently reliable supply of
    helium for the U.S. economy.
    Respectfully submitted,
    Craig Wood, President
    Gases and Welding Distributors Association, Inc.
    8669 Doral Blvd., Suite 130
    Doral, Florida 33166
                                     ______

        Mr. Lamborn. And if there is no other further business
    before the Committee, without objection the Committee stands
    adjourned.
        [Whereupon, at 1:27 p.m., the Committee was adjourned.]

        [Additional material submitted for the record follows:]

            Statement of The Honorable Raul Ruiz, a Representative
                    in Congress from the State of California

        Thank you Mr. Chairman. I am pleased to be here today with my
    colleagues and have the opportunity to attend this hearing. It is
    important that we address ways in which we can prevent the continuing
    helium shortage. I hope today, we get some further insight from our
    witnesses on how we can work together to address this concern. Helium
    is a mainstay in the medical industry. Helium is used to cool MRI
    scanners, as a doctor I can assure that this need is critical to
    provide life-saving medical imaging and to prevent an increase in costs
    for patients. I look forward to working with my colleagues in a
    bipartisan manner on this and other issues that come through the
    Committee. Finally, I look forward to discussing H.R. 527, the
    Responsible Helium Administration and Stewardship Act. Thank you and I
    yield back the balance of my time.
                                     ______

        The documents listed below have been retained in the
    Committee's official files.

    Mr. Page:

          Helium and Balloons Across America Letter to the
    BLM 11 28 07
          BLM Office Made Improper Deals With Helium
    Refiners, Washington Post Article, Friday, August 22, 2008
          Office of the Inspector General's Audit of the
    BLM's Helium Program, November 2012

    Mr. Nelson:

          Air Products Constitutional Analysis of H.R. 527