THE values of gold and silver have dropped like a stone in international trading markets. Coffee futures are hovering near athree-year low. But the price of one commodity has been rising as if it were lighter than air — and in this case, well, it is.
The market value of refined helium gas has nearly doubled over the past five years, even as the Standard & Poor’s benchmark commodities index, the GSCI, has fallen by some 20 percent.
It’s not a bubble. That’s because the price has been driven up less by speculation than by old-fashioned fundamentals: there’s more demand for the gas than ever and supply has not been able to keep up. Call it, rather, “the helium balloon.”
The world, it seems, is running short of the second most abundant element in the universe — and that’s creating a major problem in a wide array of businesses.
You may think of helium as important only to birthday-party balloons and Frankie Valli impressions, but the gas has an extraordinary number of biomedical, industrial and national security uses, playing critical roles in the production or operation of M.R.I. machines, fiber-optic cables, flat-screen TVs, semiconductors, space launches, welding, military surveillance, air-to-air missile guidance and much else.
For many of those uses, moreover, there are no known substitutes. Helium’s low boiling and melting points, the lowest of any element, make it ideal for cryogenic applications. And as the second lightest element, it’s great for lifting things, from weather balloons to national-security dirigibles.
While abundant in the universe writ large, however, helium is not easy to capture. Much of the helium on earth leaks into space, and with only 5.2 parts per million in the air, it’s not economically feasible with current technology to extract the stuff from the atmosphere. Instead, most of the helium that is sold on the market originates in natural gas fields underground and is salvaged as a byproduct of natural gas. Even then, only a handful of fields have a high enough concentration of helium to make extracting it financially worthwhile.
What makes this market saga particularly quirky, though, is the role played by the United States government. For much of the 20th century, the federal government had a domestic monopoly on the production of helium, which was used for airships, missile guidance and other national security measures. In 1960, it began a program to stockpile the helium it was extracting in an underground reservoir near Amarillo, Tex., amassing a debt of $1.3 billion in the process.
When, in the mid-1990s, lawmakers decided to pay down that debt, the government gradually started to sell off its helium holdings. But Congress made some odd decisions in that regard.
Typically, when the government wants to sell a public resource or asset to the private sector — as with the wireless spectrum — economists advise holding an auction so taxpayers get the highest price that the market will bear.
At the time, though, Congress determined that the market price was too low to cover its debt, according to John R. Campbell, publisher of CryoGas International and president of J. R. Campbell & Associates, one of the world’s leading consulting firms on gases. So instead lawmakers just set a minimum price for the government’s helium — one that was about twice what buyers were paying on the open market at the time.
At first, buyers balked. But over the decade that followed, demand for helium in the private sector increased so much — particularly in places like Taiwan and Korea, where the gas is used in manufacturing electronics — that the government’s price inevitably became the market one. Today, the price — still set by a government formula — is, if anything, lower than what the market would otherwise bear.
Just look at what has happened to the price of refined helium, the form of the gas sold to M.R.I. manufacturers and the like, which has nearly quadrupled since 2000.
The sky-high refined helium prices have forced Tokyo Disneyland to suspend the sale of balloons and disrupted the work of academic scientists who use helium for research projects in cryogenics and nanotechnology. And the shortages are about to get worse.
That’s because, due to an odd technicality in the helium privatization law enacted in 1996, the government will effectively end sales from the reserve once its debt is paid off — something that could happen as early as October, even though there’s still a huge reservoir of helium left in the till.
Walter L. Nelson, director of helium sourcing and supply chain at Air Products and Chemicals, told a Senate committee earlier this month that “30 percent of the worldwide supply will be essentially locked up, causing prices to skyrocket.” That, he said, will leave some users with no ability to get the gas and will mean “chaos in the economic sectors that now rely on helium.”
Lawmakers are now considering revising the law to let reserve sales continue even after the debt is paid, which helium users say would give other private sources of the gas in places like Qatar enough time to finally get onstream. There is also talk of introducing regular auctions to allow the helium price to float up or down to wherever the “true” market price is.
But the bottom line, says David C. Mowery, a professor at the Haas School of Business at the University of California, Berkeley, is that “you’ve had lawyers doing natural resource economics. That’s almost never what you want.”
No doubt, plenty of TV manufacturers, aerospace technicians and sad clowns would agree.
An economics reporter for The New York Times.