[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 [email protected]. 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

                                 
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