helium investment thesis

Reaching Escape Velocity

Helium ($HNT) Could Be a Generational Investment

Don't let the market meltdown take the air out of your balloon🎈🎈.

Helium may actually succeed in bringing an end to AT&T someday (it only took 140 years!), and that alone makes this an incredibly exciting opportunity. It’s a fantastic business with a great macro story, the right trends supporting it’s continued growth, and trades at a cheap valuation. Around it has also emerged a powerful community of collaborators, builders, and thinkers that are very open to sharing their well reasoned opinions. The feedback I got reaching out to twitter anons building on the project was as good as anything I ever got during my time working in I-banking at Goldman! This willingness to share insight is in line with the values espoused by the incredible group of founders, employees, and investors that Helium has assembled, and is their biggest asset.

Additionally, Helium claims to allow new wireless networks to be built 100x cheaper than traditional TelCos.  It can be to wireless networks what Bitcoin was to money, and Ethereum was to compute. Whether you want to see this special project grow, make a ton of money, or just catalyze the eventual burning of AT&T to the ground, this one is for you. I’ve attached the full investment thesis (in slide/picture form directly below, and a short ~400 word summary below that. Reach out if you want the deck.

Helium achieved product-market fit years ahead of competing projects by pioneering a new approach of bootstrapping network creation using tokens, with the thesis that early network formation requires outsized rewards.

500,000 physical routers have now been deployed, growing more than 10x YE 2021, and continues to grow rapidly supported by massive production backlogs – these backlogs will be remedied with additional producers.

The solution Helium offers has a Massive addressable opportunity in multiple networks (LoRa, Cellular, 5G, WiFi)… Winning any one of these would deliver huge return, winning multiple could produce generational outcome.

ROI remains very high to new purchasers of miners, likely driving continued rapid network growth in the short term: tokenomics are well reasoned to support growth.

5G and Low-Power networks have underlying market growth rates of >30% for N5Y, physical infrastructure spending is largest growth constant, a solution helium offers.

Helium claims to offer a cost structure 100x cheaper than traditional mobile operators who are planning to invest $200bn of CapEx into 5G in the next four years (40x HNT fully diluted value). While on the high side, even if this results in 50% lower wireless costs, this is a winner.

There are some world class investors in the project, including Multicoin, Ribbit, FirstMark, GV, Andreesen Horowitz and others (including another HF behemoth in the latest round): investors have played a large role in distribution of Helium story.

Importantly, the community listens, and works together on solutions to problems: a number of initiatives are in place to drive community engagement. This further accelerates the Helium flywheel of increasing value creation.

And that Flywheel was pretty damn powerful to begin with.

Lastly, the project is blessed with a strong , long tenured management team acting as evangelizers that ate glass for the first 5 years of the Helium project and have unwavering belief in the project’s success.

Only missionaries, not mercenaries can succeed in creating something revolutionary at this scale.

To conclude, $HNT is tremendous value. It’s a fantastic business, with a great macro story, the right trends supporting it, at a cheap valuation, with fantastic people involved. If you win on this one, boy will you win big!

Special Thanks to:

Tushar Jain (Multicoin) who’s research was tremendously helpful along the way

And to Twitter Natives @Danconia.Eth, @RichhomeConE, @CharlieSandor for their feedback!

In case you were wondering, the 🎈🎈 is the symbol of the Helium community

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Economics, Helium, and the U.S. Federal Helium Reserve: Summary and Outlook

• Review Paper
• Open access
• Published: 05 December 2017
• Volume 27 , pages 455–477, ( 2018 )

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• Steven T. Anderson 1  

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In 2017, disruptions in the global supply of helium reminded consumers, distributors, and policy makers that the global helium supply chain lacks flexibility, and that attempts to increase production from the U.S. Federal Helium Reserve (the FHR) may not be able to compensate for the loss of one of the few major producers in the world. Issues with U.S. and global markets for helium include inelastic demand, economic availability of helium only as a byproduct, only 4–5 major producers, helium’s propensity to escape earth’s crust, an ongoing absence of storage facilities comparable to the FHR, and a lack of consequences for the venting of helium. The complex combination of these economic, physical, and regulatory issues is unique to helium, and determining helium’s practical availability goes far beyond estimating the technically accessible volume of underground resources. Although most of these issues have been analyzed since helium was recognized to be a valuable mineral commodity in the early 1900s, very few economic models have been developed that adequately consider the unique characteristics of helium and helium markets. In particular, there is a notable lack of recent empirical work to estimate the responsiveness of helium demand, supply, prices, and trade patterns to the ongoing drawdown and sale of helium reserves stored in the FHR. In general, existing models of helium either do not account for an oligopoly controlling supply, or they do not evaluate potential helium extraction and storage programs based on an intertemporal maximization of the value of the resource. Such models could be of very limited use to decision makers. This review found only one working paper with a helium market model that has incorporated both of these vital considerations. That and other economic studies along similar lines could be very useful in helping inform current helium policy discussions and decisions.

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Introduction

On June 5, 2017, neighboring countries initiated a trade embargo of Qatar, which had accounted for approximately 32% of the global helium supply prior to the blockade (Croce 2017 ; Kornbluth 2017b ). Even though the United States was the leading supplier of helium in the world, this international development raised concerns about helium shortages and price increases in the country, especially in the scientific research community (Butler 2017 ; Reisch 2017a ). On June 21, the U.S. House of Representatives’ Subcommittee on Energy and Mineral Resources held a legislative hearing to hear testimony on a discussion draft of the proposed Helium Extraction Act of 2017, which was reportedly aimed at encouraging the development of helium production projects on U.S. Federal lands (Kornbluth 2017a ; McDonald 2017 ; Reisch 2017b ; Subcommittee on Energy and Mineral Resources 2017 ).

With respect to production of an exhaustible natural resource (such as oil, natural gas, and most other minerals), a lower extraction rate leads to slower depletion and greater conservation (underground) as an asset that can accrue value and be available for use by future generations. Most mineral commodities discarded during the production of the main commodity of interest remain located somewhere accessible in or on top of the earth’s crust after production of the primary product. From an economics perspective, it is reasonable to expect that such minerals will be (re)extracted from the discard piles and produced whenever it becomes profitable to do so. Helium, however, escapes into the atmosphere during processing or combustion of helium-bearing natural gas, does not present an environmental hazard when it does so, and it could be prohibitively costly to extract from the air far into the future (National Research Council 2000 ), except in special circumstances (Clarke and Clare 2012 ). Currently, the predominant (economic) source of helium is that contained in natural gas. Thus, substantial volumes of helium resources could be effectively lost to both current and future consumers, whenever the host natural gas is produced and the helium content is vented (Nuttall et al. 2012 ).

Helium is an exhaustible natural resource for which there are limited or no substitutes including for its use as a coolant in military aircraft, certain types of nuclear reactors; the manufacture of optical fiber and semiconductors; providing low enough temperatures for superconducting magnets; enabling modern magnetic resonance imaging (MRI) technologies to operate; other cryogenic applications; and in other applications (Cai et al. 2012 ). Because of its unique properties, helium is expected to continue to be essential in enabling the development of such critical technologies in the future [APS Panel on Public Affairs and Materials Research Society (APS and MRS) 2011 ; American Physical Society, Materials Research Society and American Chemical Society (APS, MRS, and ACS) 2016 ]. Separation of helium from production streams of natural gas and storage underground can conserve it for potentially vital applications in the future. Currently, however, helium reserves previously stored in the U.S. Federal Helium Reserve (the FHR) are being extracted and sold without replacement, in order to fulfill requirements in the Helium Stewardship Act (HSA) of 2013 (Burton 2017 ).

Different approaches to addressing the issues with helium result in very different answers to the key questions of what the intertemporal allocation of helium resources should be, what the role of government should be, and how uncertain future demand for (and supply of) helium could evolve. Deciding how much helium to store in the FHR (or elsewhere) depends on the answers to these questions (Epple and Lave 1980 ). When the provisions of the 2013 HSA were being decided, only a few rigorous studies of the economics of helium were available, and their usefulness to decision makers is uncertain. Included in this review is a brief summary of a working paper by Massol and Rifaat ( 2016 ), in which the authors rigorously consider a more realistic representation of current helium market conditions than found in past studies. This and other new economic studies could help better inform potential future helium policy decisions.

The following section is a review of potentially applicable models from the field of natural resources economics. The subsequent sections detail the currently available data and information on helium resources, supply, demand, relevant institutions, and market structure, and provide some interpretation of what these imply for helium markets. This paper concludes with a discussion of the potential implications suggested by the findings of this review in the form of an outlook for helium markets and provides suggestions for future research.

Economics and Helium

The fundamental principle of the economic theory of exhaustible resources was derived by Hotelling ( 1931 ). This principle is often called the “Hotelling Rule”, and it is generally represented by some form of the following equation (Dasgupta and Heal 1979 ; Devarajan and Fisher 1981 ).

In Eq.  1 , P ( t ) is the (spot) price of one unit of the resource in period t , P 0 is the initial price (at t  = 0), and r is the rate of interest. Hotelling ( 1931 ) showed that the price of an exhaustible resource must grow at the rate of interest when the intertemporal extraction rate of the resource is efficient (such that the present value of the resource cannot be increased by reallocating its extraction among periods relative to the current extraction program) and the resource industry is in competitive equilibrium (Solow 1974 ). The key assumptions used to derive Eq.  1 were that the objective of the resource extraction firm is to maximize its net present value (NPV), the structure of ownership and production of the resource is perfectly competitive, and the interest rate is constant (Nuttall et al. 2012 ).

Imperfect Competition

Hotelling ( 1931 ) also considered the market structures of monopoly and oligopoly, and he showed that a monopolist would tend to extract the resource at a lower rate than a competitive firm (Devarajan and Fisher 1981 ). Since then, there have been many comparisons of optimal extraction rates across different ownership structures (e.g., Dasgupta and Heal 1979 ). Although some studies in the literature have described cases where a monopolist could be expected to extract an exhaustible resource at an efficient rate, extraction of an exhaustible natural resource is generally expected to be inefficient (and at a lower rate) if controlled by a monopoly or oligopoly, where the rate of extraction by a monopolist is expected to be the lowest. The rate of extraction under oligopoly is generally found to be greater than that of a monopolist, but it is expected to tend toward the monopolist rate the fewer the number of firms or the greater the extent of cartelization of the extractive industry (Tietenberg 2003 ).

Although helium production is not controlled by a cartel, the firms producing this exhaustible resource could still be considered an effective oligopoly (Cai et al. 2010 ). Generally, more than five producers have been deemed necessary for the market structure not to be considered an oligopoly (Nuttall et al. 2012 ). From 1937 to 1960, the U.S. Bureau of Mines (USBM) was the only (significant) producer of helium in the world (U.S. Government Accountability Office 2015 ), and fewer than five major producers have controlled the helium market since 1990 (Kornbluth 2015 , 2017c ). Helium is a byproduct of natural gas processing, and it may exist in small proportions (generally < 0.3% He) in most conventional natural gas fields (Cook 1979 ). Epple and Lave ( 1980 ) assumed that there could be many potential entrants into helium production, at least partially because there existed many private owners of helium-bearing natural gas deposits (at the time). Since then, however, the USBM and (subsequently) the U.S. Bureau of Land Management (BLM) have reported that only a very small percentage of major conventional gas fields in the United States have been estimated to contain > 0.3% He, which is generally considered to be the minimum helium content necessary for the separation and production of helium contained in natural gas to be profitable (APS, MRS, and ACS 2016 ).

Consideration of Storage

Given the unique properties of helium, the main adjustment that has been made to theoretical and applied models of exhaustible resources is to include the possibility of storing (rather than simply venting) excess helium. This complicates theoretical models by adding the decision of how much helium to store to the firm’s objective function, and applied models may then have to estimate the potential impact of the availability and costs of storage on the quantity of helium produced, consumed, exported, and so forth. The following is a review of how some authors have built upon Hotelling’s ( 1931 ) seminal work, or modified other models of exhaustible resources for application to the helium industry.

Maximizing the Value of Helium

In general, the objective of this class of models is to determine the rate of extraction that maximizes the present discounted value of the (utility of the) exhaustible resource. Epple and Lave ( 1980 ) extended existing models of the economics of natural resources to include the choices of storing the volume of extracted helium that is not currently used, or to produce it from the atmosphere (at a far higher cost) in the future. Their key assumptions were perfect competition in helium supply by private firms with access to secure storage at negligible costs, five potential sources [with costs ranging from $7 per thousand cubic feet (MCF) of helium extracted from natural gas to $1600 per MCF He extracted from air], and deterministic growth rates of demand of either 2% (low demand growth) or 3% (high demand growth). The most important variable in their model was the current productivity of capital (equal to the discount rate, r ), and they performed their analysis for a number of scenarios with alternative discount rates of 2, 5, and 10%, respectively. Their main result was that it is not optimal to separate and store helium that is not already being separated from natural gas (or could be separated very cheaply via existing helium production circuits in natural gas processing plants) unless the discount rate is zero. That is, zero venting of helium is not optimal in their model unless the estimated current productivity of capital invested in the economy (equal to the discount rate) is less than or equal to zero.

If private helium producers do not have access to secure storage (for example, at the FHR near Amarillo, Texas), then Epple and Lave ( 1980 ) suggested that the Government could have a role in contributing to helium market efficiency by just providing helium storage capacity at cost, but that the Government could distort market efficiency if it were also determining helium prices or levels of storage. Pindyck ( 1982 ) extended their argument to show that there should be no stockpiling of helium (or any other exhaustible resource) for purely economic reasons, even in the presence of ongoing demand uncertainty. The underlying assumption is that the Government should not be able to store resources more cheaply than private (competitive) firms. An example of a situation where such an assumption might hold could be in the event that there is nothing geologically unique about the Bush Dome reservoir in the Cliffside field near Amarillo, Texas (the storage location of the FHR). In this case, every helium-producing firm in the United States could theoretically reinject any unsold helium onsite (storing it in the reservoir where it was originally extracted from), and re-extract it as needed.

Regarding their deterministic model, Epple and Lave ( 1980 ) warned that the estimates of demand growth that they used were subject to a great deal of uncertainty, including uncertainty about the development of game-changing technologies (like development of commercially viable nuclear fusion technology), which could cause demand for helium to increase at far greater rates than they assumed. Hughey ( 1989 ) included this type of demand uncertainty in her model and showed how competitive owners of helium-rich natural gas reserves could choose to conserve both resources underground in anticipation of far greater returns to extracting the joint resource after a jump in the price of helium (owing to development of a technology that would substantially increase demand for helium). Uncertainty in her model was only regarding the timing of this expected jump in demand of helium, not in the magnitude of the sudden increase in quantity demanded at that time. Pindyck ( 1982 ), however, assumed that there would be random fluctuations in the quantity of helium demanded continuously over time.

In their recent working paper, Massol and Rifaat ( 2016 ) rigorously considered the oligopolistic nature of the helium industry in their model, and treated the FHR and the few other major helium producers in the world as players in a dynamic non-cooperative game. They simulated the major helium suppliers’ behavior under two different policy scenarios, one meant to represent fulfilling the requirements of the 2013 HSA [including depletion of the FHR to 3 billion cubic feet (BCF) and ceasing commercial operations by end-2021 (Hamak 2016a )], and an alternative policy that would allow the FHR to be operated as a profit-maximizing enterprise until about 2034. Based on results from a variety of simulations of their model, the authors suggest that the alternative policy could increase Federal revenue, lower helium venting, and increase global welfare compared to that under the 2013 HSA.

Social Versus Private Discount Rates

The type of demand uncertainty that Hughey ( 1989 ) assumed led to the helium resource owners in her model effectively using a lower rate of discount than in the deterministic case. In their sensitivity analysis, Epple and Lave ( 1980 ) found that the current productivity of capital (= the private discount rate of perfectly competitive firms, r ) had the greatest impact on the results of their model. The recent study by Massol and Rifaat ( 2016 ) was the only one found in this review that allowed different helium producers to have different discount rates. In their model, the authors assumed that (potential) producers in OECD countries had a discount rate of 7%; in non-OECD countries, 10%; and the BLM’s discount rate was equal to a social discount rate of 3%. In general, the results of economic models of exhaustible resources depend critically on the authors’ assumptions regarding the discount rate. The social rate of discount may be approximately equal to the private discount rate of perfectly competitive firms (Baumol 1968 ), but there are instances where they are likely to be quite different, such as in the presence of significant differences between social and private risk (Jensen and Bailey 1972 ; Tietenberg 2003 ).

The higher the social rate of discount, the greater is the value to society of current extraction and use of an exhaustible resource relative to that of leaving it underground (or storing it) for use by future generations. The lower the social rate of discount, the greater is society’s economic incentive to conserve more of the current stock of the resource for future use. If the current productivity of capital invested in the economy ( r ) is an appropriate proxy for the social rate of discount, then (Epple and Lave 1980 )’s results suggest that the return to current investment would have to be approximately zero in order for it to be optimal to separate and store all helium contained in extracted natural gas. As a result of the study of 13 energy critical elements (ECEs), however, the APS and MRS ( 2011 ) recommended that the United States should maintain a stockpile of helium (alone), and not of any of the other ECEs. Other scientists and economists (e.g. Pigou 1929 ; Daly 1977 ) have even suggested that it could be immoral to vent helium, because it could prohibitively increase the cost to future generations without even being utilized by the current generation (Cook 1979 ). If helium is really unique, this could imply that society should apply an effectively lower discount rate for optimal management of helium relative to that applied in the use of other exhaustible resources.

Some authors have mentioned a few policy approaches that could potentially reduce the discount rate resource owners apply to helium production and conservation decisions. For example, Page ( 1977 ) suggested that a severance tax could be implemented to encourage greater conservation, and Epple and Lave ( 1980 ) suggested that a policy like decreasing the profit tax rate applied to profits from helium production could reduce the private discount rate with respect to helium production. Three different subsidies (a helium sales subsidy, a helium storage subsidy, and a helium separation subsidy) were compared by Hughey ( 1991 ), and she suggested that (of these three subsidies) a helium sales subsidy could have the greatest benefit to helium markets net of estimated adverse effects on natural gas markets.

Empirical Work

Empirical studies of helium markets (e.g., Howland and Hulm 1974 ; Liu 1983 ; Uri 1986 ) are still too few and very dated. Empirical estimates of the responsiveness of helium demand and supply to price, demand growth rates, and other characteristics of helium markets have contributed to the calibration of theoretical models. For example, Howland and Hulm ( 1974 ) estimated that the quantity of helium consumed might decrease by only 3% if producers’ increased price by 10% (and prices were below $100 per MCF of helium to begin with). Uri ( 1986 ) tried to improve on earlier studies by identifying the inter-dependent relationships among demand, supply, and the volume of helium in storage. He found that helium supply could be significantly more responsive to changes in helium price than the results of earlier empirical studies might suggest.

The responsiveness of helium demand to price can be measured as the price elasticity of demand ( ε ), which is defined as the percent change in quantity demanded divided by the percent change in the price. It is commonly written in the form of the following equation:

where p is the price (of helium), q is the quantity demanded, Δ q is the change in the quantity demanded, and Δ p is the change in price. Using Eq.  2 , Howland and Hulm ( 1974 )’s estimate of the responsiveness of helium demand to a change in price could be expressed as ε  = − 0.03/0.1 (which is equal to an estimated price elasticity of demand for helium of − 0.3). If the demand elasticity is less than one in absolute value, then demand is defined as inelastic (Varian 1990 ). In general, empirical estimates of the price elasticity of demand for helium suggest that the demand for helium is highly inelastic, which could be mostly owing to a lack of substitutes. Given time, consumers could theoretically find more substitutes, and the long-run elasticity of demand for a normal good is generally expected to be greater than in the short run. In addition, technological innovations can occur over time that increase efficiency of use, and less-helium-intensive technologies can be substituted for current ones. However, Uri ( 1987 ) estimated the long-run elasticity of demand for helium to only increase to 0.63 (in absolute value) compared with a short-run elasticity estimate of 0.5.

Other Helium Models

Cai et al. ( 2010 ) used the methodology of industrial or systems dynamics (Forrester 1951 ; Sterman 2000 ) to describe the dynamics of the helium market and potential responses to changes in policies. In their analysis of an integrated system that included a production model, an investment model, a market model, a demand model, and other submodels, the authors tried to account for many factors that could be important to the evolution of helium markets, including the effects of changes in the production of conventional natural gas, the development of helium-intensive technologies, and the rates of helium being vented during natural gas processing and combustion on the rate of depletion of helium resources. Their analysis suggested that helium production could accommodate increasing consumption until about 2030, plateau until depletion of helium resources forces a gradual reduction in production (possibly not until after 2060, depending on the amount of venting), and decrease more or less steadily until natural gas fields with extremely low He content and the atmosphere become the primary sources of helium by about 2100. Nuttall et al. ( 2012 ) suggested modifications to the demand submodel of Cai et al. ( 2010 ) to better tie aggregate demand to the behaviors of individual agents.

Instead of modeling helium markets using a systems dynamics approach, which relies heavily on feedback effects at an aggregate level to define the state of the system (Macal 2010 ), Riddle et al. ( 2016 ) developed a prototype agent-based model of the helium market, which used the attributes and behaviors of individual agents (including the BLM and private helium producers) to derive responses of the entire system in various scenarios. Their model could also be used to consider a market structure of oligopoly in helium supply. The preliminary results from their prototype model suggest that helium stored in the FHR could be mostly depleted by about 2029, but that the United States could still be a significant exporter of helium (owing to increasing production by private U.S. helium producers).

Nuttall et al. ( 2012 ) suggest that a systems dynamics approach is well suited to consider market structures like oligopoly, for which it might not be possible to derive analytical solutions using a (more narrow) microeconomics approach. However, the authors did note some issues with Cai et al. ( 2010 )’s model of helium markets, including the lack of an endogenous component to account for short-term helium market shocks. A recent example of this type of shock on the supply side could be the 2017 trade embargo on Qatar (Croce 2017 ; Reisch 2017a ). In addition, Nuttall et al. ( 2012 ) suggested that Cai et al. ( 2010 )’s model did not include a component to analyze the impacts of some longer-term structural changes (such as ongoing developments in the production of shale gas, which generally does not contain significant amounts of helium [Clarke et al. 2013 ]). Similarly, the prototype agent-based model of Riddle et al. ( 2016 ) accounted for the impacts of expected pricing behaviors of just a few producers on helium markets, but did not account for potential impacts of significant short-term or extended shortfalls in supply from the major domestic or foreign sources of helium. The authors did recognize this issue and suggested some model improvements and data needs to address it.

In the late 1980s, Uri ( 1987 ) argued that there was a great need for more empirical studies of helium markets that should be soundly based on current data and institutional considerations. Recently, Massol and Rifaat ( 2016 ) noted that more empirical work on helium economics is still much needed and that there is a severe lack of applied theoretical work and other economic studies of the global helium market. With respect to resources and production, Mohr and Ward ( 2014 ) argued that more accurate projections of the future availability of helium supplies are needed. The 2013 HSA directed the BLM, the U.S. Geological Survey (USGS), and other entities to complete a national assessment of helium resources, provide current information on the expected future availability of domestic supply, assess current and projected trends in domestic and global helium demand, and provide other updates to data and information about current and future helium resources and markets (U.S. Government Printing Office 2013 ; Brennan et al. 2017 ).

Helium is mostly found in low concentrations within natural gas, another exhaustible natural resource. Although they can be found in the same geologic traps, the two commodities originate from different sources. Common helium (helium-4) is formed as a result of radioactive decay of uranium and thorium (Brown 2010 ), while natural gas (thermal methane) is a fossil fuel that is gradually released from hydrocarbon source rocks. Thus, natural gas production by hydraulic fracturing of those source rocks (shales, and so forth) instead of conventional production by extracting it from geologic traps will not generally result in significant helium production or additional access to helium resources (Whiticar 1994 ). Like helium-4, helium-3 forms as a result of radioactive decay, but the most common source of helium-3 is as a byproduct of maintenance operations on nuclear weapons. Helium-3 occurs in extremely low concentrations in nature, even lower than helium-4 (Shea and Morgan 2010 ).

Classification of Helium Resources

The following definitions from USGS Circular 831 (U.S. Bureau of Mines [USBM] and U.S. Geological Survey [USGS] 1980 ) on principles of resource and reserve classification are important to consider in a discussion of the current state of helium resources (USGS 2017 ).

Resource —A concentration of naturally occurring solid, liquid, or gaseous material in or on the Earth’s crust in such form and amount that economic extraction of a commodity from the concentration is currently or potentially feasible.

Reserve Base —That part of an identified resource that meets specified minimum physical and chemical criteria related to current production practices, including those for grade, quality, thickness, and depth.

Reserves —That part of the reserve base which could be economically extracted or produced at the time of determination. The term reserves need not signify that extraction facilities are in place and operative.

Economic —This term implies that profitable extraction or production under defined investment assumptions has been established, analytically demonstrated, or assumed with reasonable certainty.

In addition, guideline 16 in USGS Circular 831 (USBM and USGS 1980 ) concerning the classification of mineral byproducts is very important to classifying helium resources. “In classifying reserves and resources, it is necessary to recognize that some minerals derive their economic viability from their coproduct or byproduct relationships with other minerals. Such relationships must be clearly explained in footnotes or in an accompanying text.”

As a byproduct of the production of natural gas (methane) from conventional reservoirs, the economics of helium production depends on that of the other components in the gas stream in a complicated way. Markets for those other potential commodities (including CO 2 , nitrogen, sulfur, and the methane, itself), availability of adequate storage capacity, and other factors can all influence what part of the helium content of that natural gas is considered a viable resource. To evaluate all of these factors and estimate the current volume of helium that can be considered as resources or reserves is a very formidable task, especially at a national or regional scale (National Research Council 2000 ; USGS 2017 ).

Helium in the Atmosphere

Venting of helium during the production of natural gas is unlike possibly analogous decisions to discard potential byproducts that are not currently economic from mineral production streams. For example, a zinc producer could revisit discard piles or tailings of indium-containing zinc mine output that were not economic to process (with respect to producing either the zinc or indium) when it was initially mined. The mined material remains available (often at a very low storage cost), until it is profitable to (re)process the discard piles at some future time (e.g., when there is a sufficient increase in the price of indium). As such, the currently subeconomic indium content of the discard piles could still be considered as a potentially economic source of indium (APS and MRS 2011 ).

It is technically feasible to extract helium from the atmosphere using currently available cryogenic technologies. Thus, it is conceivable that helium vented during the processing of natural gas could still be considered as a technically accessible source of helium. A possible analog for how to classify helium in the atmosphere could be how to classify lithium present (in low concentrations) in the ocean. Both are technically feasible to recover, but far enough removed from being commercially viable to only be classified as subeconomic ( APS and MRS 2011 ; Martin 2015 ; Jaskula 2016 ; USGS 2017 ). At some point, the costs of transforming resources into marketable commodities enter into the classification of the resource, and it is highly uncertain when or if a major cost-reduction will take place to be able to consider it economic to extract helium from the air as a primary product. In addition, changes in demand could possibly increase users’ willingness to pay for helium enough to make it economic to extract helium from the air.

The equilibrium concentration of helium in the atmosphere is about 5 parts per million (ppm). According to Zahnle and Catling ( 2009 ), helium leaks out of earth’s atmosphere, but it is replaced by evaporation from the Earth’s crust at a rate sufficient to maintain this equilibrium concentration. Anthropogenic releases (venting) of helium have not been found to have had a significant impact on the 5 ppm atmospheric helium level (Clarke and Clare 2012 ). At such a low level of concentration, extraction of helium from the air as a primary product is generally considered to be prohibitively expensive and could remain so far into the future (National Research Council 2000 ; Clarke et al. 2012 ). As such, helium in the atmosphere is not likely to meet the USGS definition of a resource (USBM and USGS 1980 ) any time soon, unless it is being considered as a potential byproduct of other gases (including argon, neon, krypton, xenon, and others) that could be considered profitable to extract from the air (National Research Council 2000 ; Clarke and Clare 2012 ).

Helium is formed underground by radioactive decay (of uranium and thorium) and can become trapped along with methane and other natural gases (including CO 2 and nitrogen) if the caprock is impermeable enough to trap tiny helium molecules (as is the case with the Bush Dome reservoir in the Cliffside field). The natural gas contained in these traps comes from a different source (the hydrocarbon source rock) (Whiticar 1994 ). Even where helium generated by decay of nearby radioactive elements is caught in the same trap as hydrocarbon gas, the share of helium in the total volume of trapped gasses is extremely low (Brown 2010 ). Still, it could be economic to separate and produce even extremely lean helium content (as low as 0.04% He, or even 0.015% He), if the natural gas were to be used to produce liquefied natural gas (LNG) (National Research Council 2010 ; Waltenberg 2013 ; Brennan et al. 2017 ). Thus far, reports of even such miniscule levels of helium content in natural gas that has been produced directly from hydrocarbon source rocks by hydraulic fracturing are not available (Clarke et al. 2013 ), and increasing use of this “shale gas” to produce LNG is not likely to result in any significant additions to helium resources.

Helium Resource Estimates

In 2017, the BLM reported in the annual USGS Mineral Commodity Summaries (MCS) chapter on helium that total estimated helium resources in the United States were about 20.6 billion cubic meters (based on data available as of December 31, 2006). This resource estimate did not consider helium in the atmosphere. It just included the estimated helium content of conventional natural gas reservoirs. The BLM has also estimated total helium resources in the rest of the world to be about 31.3 billion cubic meters, so helium resources in the United States accounted for about 40% of the world total. The other leading locations for helium resources in the world were Qatar, which was estimated to contain 10.1 billion cubic meters of helium resources (about 19% of the world total); Algeria, 8.2 billion cubic meters (about 16%); and Russia, 6.8 billion cubic meters (13%). No other country was estimated to contain more than Canada’s 2 billion cubic meters of helium resources (about 4% of the world total) (Hamak 2017 ).

In an attempt to account for the higher costs of producing helium contained in lower concentrations in natural gas, Cook ( 1979 ) multiplied the volume of helium identified in natural gas reserves by the estimated concentration level of helium in that natural gas in order to derive what he labeled as helium resource value units (HRVUs). Without including helium resources for the Tip Top field (which Cook suggested could contain more HRVUs than he estimated for the rest of the United States, combined), he found that the United States could have accounted for about 52% of the total HRVUs in the world in 1978. Cai et al. ( 2010 ) applied Cook’s method of estimating HRVUs to more recent reserves data from the MCS (Pacheco 2008 ) and estimated that the country could have accounted for about 36% of the world’s total helium resources (as measured in HRVUs) in 2003.

USGS and BLM Helium Information

The same estimate of total U.S. helium resources and reserves has been reported in the MCS since 2009 (Pacheco 2009 ) and is reportedly based on data as of December 31, 2006 (Hamak 2017 ). As part of the requirements of the Helium Stewardship Act of 2013, the USGS was required to complete a national-level assessment of subsurface helium resources in the United States. As an initial component of the assessment process, the USGS has compiled a publically available database of helium concentrations and locations based on a compositional analysis of discovered subsurface gas in the country, with a majority of the data taken from the USGS geochemical database and from the BLM natural gas database. The new database includes all gas analyses with measured values of helium. Those with measured concentrations of < 0.005% He are listed as “TRACE”, and those with ≥ 0.005% He were rounded up to 0.01% He in the new database. The helium concentration values in this database are based on analyses of gas samples from wells, and they do not necessarily represent the concentration of helium in the entire reservoir (Brennan et al. 2017 ). Although the wells are geolocated in the new database, more information is needed to estimate the volume of helium in each reservoir, and the geographical distribution of helium resources (by volume) in the United States.

Until more information becomes available, the map in Figure  1 roughly reflects the current understanding of the regional distribution of helium resources in the country (APS, MRS, and ACS 2016 ). Figure  1 is based on helium discovered as of the mid-1970s, and it is not clear whether the gas fields on the map that contain less than 0.3% He have high enough helium concentrations to be economic to produce it as a byproduct of LNG production. Data and information on more recent helium discoveries and developments are included in the MCS helium chapter (Hamak 2017 ) and in the helium chapter in the USGS Minerals Yearbook (Hamak 2016a ).

Major gas fields of the United States. Image courtesy of the U.S. Bureau of Land Management, at https://www.blm.gov/nhp/300/wo310/images/major_gasfields-US.jpg

Helium Reserves

Based on data as of December 31, 2006, Hamak ( 2017 ) reported a total of about 4.25 billion cubic meters of measured helium reserves in the United States, and he reported a slightly lower estimate of about 3.9 billion cubic meters of helium reserves contained in the natural gas fields that currently account for most of the helium produced in the country. According to the MCS, the country has the leading volume of helium reserves in the world. However, the USGS does not directly measure mineral reserves (even in the United States), and neither companies nor governments directly report mineral reserves to the USGS. In addition, different countries apply different criteria and use slightly different definitions for mineral reserves data. So, mineral (including helium) reserves data are difficult to compare across countries, even if they are reported (USGS 2017 ).

Qatar has the third-ranked volume of conventional natural gas reserves in the world (behind Russia and Iran) and could be presumed to have large helium reserves as well (Flower 2012 ). According to Hamak ( 2017 ), data on Qatar’s helium reserves are not available. Since Qatar produces helium as a byproduct of LNG, the country can profitably produce helium present in natural gas at concentrations as low as 0.04% He. How much of this helium can be considered reserves is difficult to estimate. Hamak ( 2017 ) does report an estimate of 1.8 billion cubic meters of helium reserves in Algeria (which also produces helium as a byproduct of LNG), 1.7 billion cubic meters in Russia, and 0.025 billion cubic meters in Poland.

Nondepleting Helium Reserves

The National Research Council ( 2000 ) of the National Academy of Sciences (NAS) reported that the BLM estimate of 6 billion cubic meters of measured U.S. helium reserves as of December 31, 1996 (Gage and Driskill 1998 ) included nondepleting helium reserves (known He content of natural gas that was not being developed because of a lack of marketability of any of the components of the gas) and helium that was being vented or expected to be vented (either during the purification of helium-bearing natural gas for use as fuel, or as a result of the combustion of that fuel). The National Research Council ( 2000 ) attempted to account for both of these important factors using a resources-reserves classification scheme like that used in the petroleum industry (Society of Petroleum Engineers 2017 ) and suggested that proven helium reserves in 1996 in the United States could have been only about 4 billion cubic meters (two-thirds of the BLM estimate).

Newell et al. ( 2009 ) defined low-British thermal units (BTUs) natural gas as having less than 950 BTUs per standard cubic foot (scf) (about 33,500 BTUs per cubic meter). The term “nondepleting” applies to helium reserves contained in low-BTU natural gas (Gage and Driskill 1998 ). The National Research Council ( 2000 ) suggested that the nondepleting helium reserves contained in low-BTU gas fields in the Riley Ridge area of Wyoming were not likely to be produced in the foreseeable future. Since then, however, Exxon Mobil Corp. (ExxonMobil) has increased production of low-BTU gas in the area [including for the purpose of extracting the CO 2 in the gas to be utilized for enhanced oil recovery (EOR)] (Carbon Capture and Sequestration Technologies 2016 ), and the company’s Shute Creek plant that processes the gas has become the leading helium production facility in the United States (Sears 2012 ; Exxon Mobil Corp. 2016 ). The National Research Council ( 2000 ) suggested that its motivation for trying to estimate the level of proved helium reserves was that the terminology used by BLM (Gage and Driskill 1998 ) to classify resources and reserves made it difficult to understand how much helium could be ‘potentially available.’ Since the timing of development of projects such as ExxonMobil’s LaBarge gas project near Riley Ridge is highly uncertain, it could be preferable to include nondepleting reserves in estimates of helium reserves, but still describe what part is depleting and nondepleting. This is what Gage and Driskill ( 1998 ) did, and this appears to be consistent with guideline 16 in USGS Circular 831 (USBM and USGS 1980 ) for classifying reserves and resources of potential byproducts.

Storage and Venting

In general, helium is a very minor component of natural gas production streams and cannot be managed separately according to the market conditions for helium unless there is availability of storage capacity with adequate seals to prevent leakage of helium for an extended period of time (National Research Council 2000 , 2010 ). For the few helium resource owners with access to the FHR, helium storage and re-extraction costs could be quite low, but storage costs could be much higher for most of the world’s helium producers. Helium is an extremely inert element. It does not cause significant problems to consumers if it is left in natural gas (in low concentrations) to be vented into the atmosphere upon combustion of the gas, and helium in the atmosphere does not cause any environmental concerns. Natural gas processing plants already have purification circuits installed to separate and vent helium (if necessary) during purification of the gas into a marketable commodity. As such, large volumes of helium that have not been needed to supply current market demand have frequently been vented rather than stored (Clarke et al. 2013 ).

The National Research Council ( 2000 ) argued (in effect) that helium that is expected to be vented should not be included in estimates of reserves (or separately accounted for as depleting reserves), even if it is originally present in high enough concentrations in natural gas for it to be potentially economic to produce. In addition, Tietenberg ( 2003 ) noted that the level of potential helium reserves crucially depends on how much of it can be expected to be stored (instead of vented). Whether helium destined to be vented is accounted for in reserves estimates or not, the lack of consequences for helium venting and the limited availability of long-term helium storage to (potential) producers are important issues to consider in order to project the future availability of helium (Mohr and Ward 2014 ).

So far, the FHR is reportedly the only large-scale, long-term helium storage facility in the world, and the ability to store helium there is a vital factor in determining the potential level of helium reserves in the United States (National Research Council 2010 ). To conserve (rather than vent) helium in order to be able to re-extract it in the future, it could be possible for natural gas producers to inject extracted natural gas (containing helium) or just the (separated) helium itself back into the natural gas reservoir to be stored there until the helium price rises enough to make it profitable to re-extract. However, reports of injection of extracted gas onsite for the purpose of storing helium are not available, which could indicate that injection of extracted helium on private sites to store it for future re-extraction is generally not economic. Construction of a rival helium storage facility that would be of comparable scale to the FHR also does not appear to have been economic at any time since the FHR became fully operational in 1962 (Sears 2012 ), even given no reason to expect that the geologic characteristics of the Bush Dome reservoir that allow storage of helium at Cliffside field are unique in the world.

In 2016, Air Liquide S.A. commissioned a small-scale helium storage facility in a salt cavern in Germany to be able to streamline near-term deliveries (Healy 2016 ), but this temporary storage of helium for delivery would not be counted as helium reserves in the country. Gazprom plans to construct helium storage facilities in eastern Russia (Gazprom 2017 ), but the timeline for development of this project is uncertain (Garvey 2017 ). New development of a large-scale storage facility capable of securing helium for an extended period of time and the infrastructure for (potential) helium producers to access that storage capacity could be prohibitively costly (APS, MRS, and ACS 2016 ). Leading up to completion of the FHR in the early 1960s, U.S. demand for helium increased rapidly, including the quantity demanded by the U.S. military for applications such as liquid fuel rockets for defense and space exploration (Sears 2012 ). Since then, sufficient market (and political) forces have not conspired to be able to overcome the huge investment hurdle and incentivize development of a helium storage complex comparable to the FHR anywhere else. This could be at least partially owing to periods of accelerated sales of helium from the FHR, which could have resulted in some suppression of helium price increases at various times during the existence of the FHR, including during implementation of the Helium Privatization Act of 1996 (National Research Council 2010 ). The unrivaled existence of the FHR could be mostly owing to first-mover investments in the pipeline, refineries and other facilities that form the complex system, and not that dependent on the geologic characteristics of the site.

Even if the ownership structure of U.S. supply of natural gas is considered perfectly competitive, that of the supply of helium in the country could be far less so (Uri 1986 ). The costs to obtain the rights to develop the limited potential of economic production of helium from only a few natural gas reservoirs (Fig.  1 ) could combine with significant capital costs (to begin separation, transportation, and storage of helium contained in natural gas) to create substantial barriers to entry. Since the early 1960s, when the U.S. Government ceased being the only significant supplier of helium in the world, the historical tendency of global helium supply has been that 4–5 (or even fewer) major helium producers supplied 80% (or more) of global and U.S. consumption (Liu 1983 ; Kornbluth 2015 , 2017c ). This evidence suggests that the structure of the helium industry may be best characterized as an oligopoly, at least at some points along the value chain from resource to refined helium (Cai et al. 2010 ; Nuttall et al. 2012 ).

Crude Helium

In 2015 (the latest year for which data were available), total sales of helium produced in the United States amounted to about 88 million cubic meters, including the withdrawal and sale of about 22 million cubic meters of helium that had been stored at the FHR; in 2014, total sales of helium produced in the country was 101 million cubic meters, of which 22 million cubic meters was also withdrawn from the FHR. In 2015, total sales of U.S. helium accounted for about 56% of the world’s supply (by volume) during the year compared with about 62% in 2014, and the U.S. share of the global helium supply is estimated to have decreased again (slightly) in 2016 (Hamak 2016b , 2017 ). At the beginning of the trade embargo on Qatar in 2017 (which caused a suspension of helium exports by the country), analysts expected that the FHR would not be able to ramp up extraction of helium enough to be able to replace more than a very small portion of the sudden shortfall in global supply (Croce 2017 ; Reisch 2017b ).

Injection of crude helium into the Bush Dome reservoir at Cliffside field reportedly began in 1945 (Sears 2012 ), but programmatic storage (conservation) of helium there was minimal until amendments to the 1925 Helium (Conservation) Act were enacted by Congress in 1960 (and came into effect in 1961). The 1960 amendments to the 1925 Helium Act required the U.S. Government to undertake an extensive helium conservation program at the FHR (Cai et al. 2010 ). Since then, empirical studies (e.g., Liu 1983 ; Uri 1986 , 1987 ) indicate that operation of the FHR (including purchases, storage, and sales of helium) has been a very important (if not the most important) component of the global supply of crude helium (Kornbluth 2015 ).

In 2016, the posted price for allocated and non-allocated sales of crude helium from the FHR continued to serve as the primary benchmark for a majority of worldwide sales of liquid and crude helium, and the BLM has used the average auction price result to set the posted price since the BLM helium auctions began in 2014. Thus, sales of helium from the FHR continued to be the leading factor in determining worldwide helium prices, despite the decreasing U.S. share of global supply (Kornbluth 2016 ). In July 2017, the BLM held probably its penultimate auction of helium from the FHR, and the average auction price (set equal to the posted price for allocated and non-allocated sales later in the year) was $119 per MCF, which was 11.2% (about $12 per MCF) higher than in 2016. Since the auction in 2018 will likely be the final one, helium industry analysts expect the average auction price (and therefore the allocated sales price) to be incrementally higher (Garvey 2017 ).

In 2014 (the latest date for which these data were available), the main companies that owned or operated plants that produced helium and were attached to the BLM helium pipeline included DCP Midstream LLC (Midstream), Linn Energy LLC, and Pioneer Natural Resources Co. The main source of production of crude helium (not re-extracted from storage) for the pipeline and the facilities attached to it was the Hugoton gasfield, which stretches across Oklahoma, Kansas, and Texas. In 2014, other (potential) sources of crude helium under or around the BLM pipeline included the Cliffside, Fain, and Panhandle West fields in Texas; the Keyes field in Oklahoma; and the Greenwood, Panoma, and Reichel fields in Kansas (Hamak 2016a ). Helium reserves in the Hugoton field are reportedly in decline (Clarke et al. 2013 ). Estimated helium reserves and resources in all U.S. gasfields are likely to change pending the results of the forthcoming USGS national helium gas assessment (Hamak 2017 ).

In 2016, the leading helium production facility in the United States was ExxonMobil’s Shute Creek processing plant in Wyoming. The Shute Creek plant is part of the company’s LaBarge natural gas production and processing facilities. The company extracts the feed gas for the Shute Creek plant from the Tip Top, Madison, and Hogsback gasfields (Sears 2012 ; Exxon Mobil Corp. 2016 ). In addition to the price of helium, the economics of the natural gas extraction and processing operations at LaBarge also heavily depends on the market value of the methane and CO 2 present in the extracted gas. A portion of the extracted CO 2 is sold for use in nearby enhanced oil recovery (EOR) operations (Carbon Capture and Sequestration Technologies 2016 ). The LaBarge operations are not attached to the BLM helium pipeline, and the crude helium separated there is refined on site to produce Grade-A helium for transportation in containers.

Another U.S. helium production operation that is not attached to the BLM pipeline is Air Products and Chemicals, Inc. (APCI)’s Doe Canyon operation in Colorado, where helium is separated from a natural gas stream that consists mostly of CO 2 (Air Products and Chemicals, Inc. 2015 ). Kinder Morgan Inc. transports the natural CO 2 from Doe Canyon to New Mexico and West Texas to be used for EOR (Kinder Morgan Inc. 2017 ). Thus, the economics of the Doe Canyon natural gas extraction and processing operation also depend on revenue streams from sales of other commodities in addition to that of helium. Analysis of two gas samples taken near St. Johns, Arizona suggested that the predominantly CO 2 gas there could contain potentially commercial amounts of helium (Rauzi 2003 ; Clarke et al. 2013 ). In 2014, Kinder Morgan planned to develop the St. Johns field mainly as a CO 2 -source for EOR. In 2015, however, Kinder Morgan suspended development of the St. Johns field, reportedly because of poor CO 2 -EOR market conditions related to low oil prices (Kinder Morgan Inc. 2015 ; Passut 2015 ).

In general, natural gas resources have not been developed with the primary intent of extracting the helium. Unique opportunities to sell natural CO 2 for EOR in the United States have led to the development of a few low-BTU gas operations that produce helium, but helium may not have been the primary target even in these cases. Instead, the economics of these operations often depend on the relative concentrations and prices of all the components of the low-BTU natural gas. The Harley Dome low-BTU gas reservoir in eastern Utah was reportedly designated as (part of) “Federal Helium Reserve No. 2” by the President of the country in 1934, but IACX Energy LLC (IACX) first reported marketable production of helium there in 2013. The company estimated that the helium content was relatively high (about 7–8%), but that the rest of the gas was mostly nitrogen. Despite the high estimated levels of helium in Harley Dome and expectations of increasing helium prices during earlier phases of the project, it was still necessary for IACX to complete development of a small-scale, low-pressure helium extraction technology to be able to profitably produce the helium (Cockerill 2013 ; Oil and Gas Journal 2013 ).

Liquefied Natural Gas

Cai et al. ( 2010 ) noted that the distribution of global helium production was shifting strongly toward helium extracted during the processing of natural gas to produce LNG. Since their study, global helium production has shifted significantly toward a greater share that is associated with production of LNG. In 2016, Algeria and Qatar (where helium is entirely a byproduct of LNG production) accounted for about 40% of the world’s total estimated production of helium (Hamak 2017 ), compared with about 15% in 2007 (Pacheco 2009 ).

On February 24, 2016, the United States exported its first shipment of LNG produced in the lower 48 States, and there are additional U.S. natural gas liquefaction plants and LNG export terminals currently under construction, proposed, or pending approval of permit applications with the Federal Energy Regulatory Commission. There was no reported helium production associated with this new production of LNG in 2016, and it could be that very little (if any) new helium production will result from these planned increases in production of LNG in the country. The new U.S. production of LNG for export is in response to increasing production of shale gas in the country since 2006, which has helped to lower domestic prices for natural gas relative to foreign prices. Together with new legislation allowing U.S. exports of LNG, this has encouraged development of new LNG production and export infrastructure (U.S. Energy Information Administration 2016 ). However, the feed gas for this new LNG production is expected to mostly (if not exclusively) consist of shale gas, which does not generally contain even the minimal content of helium (0. 015–0.04% He) that is likely necessary for profitable helium production during natural gas processing to produce LNG (Clarke et al. 2013 ).

The Backstop

If the economics of production of He-containing natural gas warrant it, natural gas producers may extract, process and transport the natural gas solely in response to market conditions for natural gas; independent of consideration of current or future demand for any helium contained within. In this case, all of the helium content could be vented into the atmosphere as a natural gas impurity during processing or eventual combustion of the fuel (National Research Council 2000 ). The last resort to bring that helium back into the supply chain requires extracting helium from the open air. Economists often call such a production technology of last resort a “backstop” (Nordhaus 1973 ).

The cost of producing helium by itself from the air has been estimated to be anywhere from $1000 per MCF to $9000 (or more) per MCF of He (Cook 1979 ). Epple and Lave ( 1980 ) assumed $1600 per MCF for extracting helium from the air as the cost of the backstop supply in their model. The cost of the backstop in their model was 15 times as high as producing helium from very lean-He natural gas and about 230 times greater than for producing helium from He-rich gas. More recently, Clarke and Clare ( 2012 ) suggested that newer technologies could produce a small amount of helium (about 1–2% of 2012 global helium production) from the atmosphere at a cost as low as about $200 per MCF He, but only if helium were a byproduct of the production of argon, neon, krypton, xenon, or other gases in the air. In addition, this would not contribute significantly to satisfying helium demand. Helium extraction from the atmosphere to only produce helium or to produce in volumes commensurate with expected demand is not generally considered economic with current technologies (Cook 1979 ; National Research Council 2000 ; 2010 )

Refined Helium

Crude helium is present in varying concentrations in the FHR, and it has to be further refined to be marketable. There are only six helium refineries that straddle the BLM helium pipeline, and they supply Grade-A helium after extraction and processing crude helium extracted from the FHR. A provision in the 2013 HSA requires these “refiners” to make excess refining capacity available at commercially reasonable rates to “non-refiners” (companies that do not own refining capacity on the BLM pipeline), but the 2013 HSA does not require refiners to report information on negotiations with non-refiners that do not result in signed agreements to lease out excess refining capacity. As a result of one BLM helium auction and two subsequent sales during the summer of 2014, only refiners purchased crude helium from the FHR, and complete information on negotiations to make excess capacity available to non-refiners was not available. At least through 2014, only refiners on the BLM helium pipeline appeared to supply Grade-A helium produced from crude helium that was extracted from the FHR (U.S. Government Accountability Office 2015 ).

Production Capacity

Reported data on the total current helium refining capacity on the BLM pipeline were not available, but Kornbluth ( 2016 ) suggested that production capacity of those refineries could have been about 4 billion cubic feet per year (BCF/year) of liquid helium at one time. In July 2014, refiners on the BLM helium pipeline reported that they expected to have a total of about 790 million cubic feet (MMCF) of excess refining capacity during fiscal year 2015 (FY2015), although they were not required to fully disclose how much excess capacity they had unless they actually succeeded in contracting it out to non-refiners (U.S. Government Accountability Office 2015 ). All of the approximately 93 MMCF of helium sold during BLM’s auction in July 2014 for distribution in FY2015 was purchased by refiners on the pipeline (U.S. Bureau of Land Management 2014b ). In addition, refiners purchased about 835 MMCF of helium via BLM’s posted-price sale for delivery through the pipeline in FY2015 (U.S. Bureau of Land Management 2014a ).

As of December 31, 2014, Hamak ( 2016a ) reported that there was an estimated total U.S. Grade-A helium production capacity of 132 million cubic meters (× 36.053 cubic feet per cubic meter = approximately 4.76 BCF). Of this total U.S. refined helium production capacity, ExxonMobil’s Shute Creek plant reportedly had the capacity to produce at least 4 MMCF of helium per day (Sears 2012 ), which could amount to about (4 × 365 =) 1.46 BCF/year. If so, the production capacity of the refineries on the BLM pipeline could have been only about 3.3 BCF/year, and the Shute Creek plant alone could have accounted for about 30% of the reported Grade-A helium production capacity in the United States. Any other helium refineries not attached to the BLM pipeline are relatively small, including APCI’s Doe Canyon plant in Colorado, which reportedly had a designed capacity to produce about 230 MMCF per year (MMCF/year) of helium (Air Products and Chemicals, Inc. 2015 ; Garvey 2017 ).

Ownership Structure

In 2015, APCI was the world’s leading helium supplier, and other major suppliers to the global helium market include Linde Global Helium Inc. (Linde), Praxair Inc. (Praxair), and ExxonMobil (Goldberg 2015 ). Available data and information suggest that these four companies also own most of the U.S. capacity to produce Grade-A helium (Hamak 2016a ), and the ownership of helium production capacity in the United States (and the world) will become even more concentrated if the planned merger of Linde and Praxair is approved (Capitol Forum 2016 ; gasworld Business Intelligence 2017 ; Trager 2017 ). At least through 2016, the annual posted-price sales of crude helium from the FHR were allocated to the few refiners that have a direct connection to the BLM helium pipeline according to their share of the total helium refining capacity attached to the pipeline. According to BLM data on allocated sales in August 2015, APCI owned about 36% of the total helium refining capacity on the BLM crude helium pipeline; Praxair, 34%; Linde, 26%; and Midstream, 4% (U.S. Bureau of Land Management 2015 ). According to BLM data on allocated sales in August 2016, IACX’s new helium plant near Otis, Kansas, also had access to the BLM helium pipeline. This recent addition only added about 1% to the total refining capacity on the pipeline in 2016 and did not significantly change the shares controlled by the existing refiners (U.S. Bureau of Land Management 2016 ).

The few major firms producing Grade-A helium could maintain an oligopoly if the costs of entry are high enough. Like for most mineral resources projects, the costs of discovering and developing new helium resources are substantial, and it takes a number of years from the time of discovery and verification of the resource to be able to produce a marketable commodity. In the meantime, markets fluctuate and create price uncertainty that can create an incentive for a firm with a monopoly (or as part of an oligopoly) to delay before sinking the necessary large capital costs in the project (Dixit and Pindyck 1994 ).

The time, effort, and costs to secure the property rights and leases also contribute to the barriers to entry. The high helium content of the Harley Dome gasfield in Utah was recognized by 1924 (or earlier), but helium was not produced there until 2013 (PRNewswire 2013 ; IACX Energy LLC 2016 ). In addition to technical issues with the project, the president of upstream helium production at IACX reportedly suggested that negotiations with the Government to obtain the rights to produce helium from this field had been extensive (Reisch 2017b ). On June 21, 2017, the Subcommittee on Energy and Mineral Resources of the U.S. House of Representatives held a legislative hearing on a discussion draft of a bill to allow helium extraction from natural gas on Federal lands under the same lease terms as oil and gas (Kornbluth 2017a ; McDonald 2017 ; Subcommittee on Energy and Mineral Resources 2017 ).

Qatar has been producing LNG since 1996, is the leading producer of LNG in the world, and has been extracting helium as a byproduct of LNG production since at least 2005. Algeria began producing LNG and helium as a byproduct of LNG even before Qatar (Flower 2012 ; Kornbluth. 2015 ). In 2017, U.S. production of LNG was still in a nascent stage, and LNG producers in the United States did not appear to pose much of a threat of entry into the global (or U.S.) helium supply chain. Even if there is > 0.04% He in many of the U.S. gasfields in Figure  1 , the capital costs to develop LNG production together with helium separation, storage, and transportation infrastructure that would source from those gasfields will contribute to the barriers to entry of potential U.S. LNG producers into the helium market.

A small number of Governments that maintain arsenals of nuclear weapons control a vast majority of the supply of helium-3. Generally, extraction of helium-3 from underground sources is considered uneconomic, because it is far more scarce and it appears in far lower concentrations than common helium (helium-4) (Clarke and Clare 2012 ). Other potential sources of helium-3 include tritium (as a byproduct in heavy-water nuclear reactors, production of either tritium or helium-3 using particle accelerators, and (like helium-4) extraction of naturally occurring helium-3 from natural gas or the atmosphere. Generally, these other sources of helium-3 have also not been considered economic in the presence of sufficient supply from nuclear weapons maintenance operations.

Shea and Morgan ( 2010 ) suggest that the economics could change if demand for helium-3 increases sufficiently. In addition, the current supply of helium-3 exhibits a disconnect with the market for it, because the timing of the weapons maintenance may occur on a fixed schedule that has little or nothing to do with fluctuations in demand for helium-3. Regarding the issue of storage, however, the volumes of helium-3 being produced and consumed are far smaller than that for helium-4, and it is possible to store produced helium-3 in small flasks (measured in liters) to meet future demand. Again, that situation could change if there is a significant increase in demand for helium-3 (Shea and Morgan 2010 ).

To summarize the ownership structure for the supply of helium, there appear to be instances of oligopoly at various points along the helium supply chain (Nuttall et al. 2012 ), especially for supply of purified (Grade-A) helium and of helium-3. Depending on the degree to which regulators force Linde and Praxair to divest in order to complete their planned merger, the ownership structure of helium production in the United States (and the world) will probably become even more concentrated in the very near future (Capitol Forum 2016 ; gasworld Business Intelligence 2017 ; Trager 2017 ). In addition, the BLM’s planned disposal of all helium-related assets by no later than the end of fiscal year 2021 (APS, MRS, and ACS 2016 ; Hamak 2017 ) could increase the market power of the few remaining producers of crude helium (if the FHR is sold to one of the existing major helium producers or a consortium of existing helium majors). In 2016, one new LNG plant and export terminal started up in the country, although more are planned to possibly come onstream in the country in the not too distant future (U.S. Energy Information Administration 2016 ). As currently planned, however, these new LNG producers are not likely to contribute significantly to the total helium supply in the United States (or the world), and the ownership structure of helium supply in the near future is still likely to be best characterized as an oligopoly.

With only a few major helium producers in the world and the FHR being the only helium storage facility of its kind (National Research Council 2000 , 2010 ; McDonald 2017 ), major helium supply disruptions have occurred, and it is reasonable to expect that they will continue to occur in the future (Kornbluth 2015 , 2016 ). Helium users have adapted and will need to continue to adapt to improve efficiency of use, containment, and recycling of helium (Butler 2017 ; IHS Markit 2016b ). Owing to its unique physical properties, however, there are still no substitutes for helium in many cryogenic applications (including enabling superconductors and MRI machines to function) and other applications (Hamak 2017 ). In addition, the future availability of economic sources of helium could be necessary to enable development of emerging and future technologies that could be critical to the U.S. and global economy (APS and MRS 2011 ; APS, MRS and ACS 2016 ).

In 2015, estimated global helium consumption was about 6 BCF (APS, MRS and ACS 2016 ), remained at about that level in 2016, and was still expected to stay at about that level in 2017. Through 2022, global helium consumption is expected to grow by about 1.5% per year (Garvey 2017 ). Throughout the 1990s, rapid development of MRI technology was the main driver in double digit growth in helium consumption. In the 2000s, innovations in MRI technologies made MRI machines much more efficient at using helium, including by way of reducing the boil-off of helium during their operation (gasworld 2014 ). Development of alternative technologies and increased recycling of helium has also increased efficiency of use in the cryogenic applications sector (including the MRI industry). Despite this increased efficiency, however, the continuing increases in the deployment and use of MRI systems have meant that the MRI industry is still the leading consumer of helium in the world (Sears 2012 ; Kornbluth 2015 ; APS, MRS, and ACS 2016 ; Garvey 2017 ).

There are no substitutes for helium in cryogenic applications if temperatures below – 429 °F are required (Hamak 2017 ). In order to attain the necessary superconductive state, the magnets in MRI scanners need to be cooled to a temperature that can be attained only by using helium (IHS Markit 2016b ). In 2015, MRIs accounted for 20% of worldwide consumption; this was followed by use in analysis and spectrometry, 15%; a sector that included leak detection, pressurization, purging, and other uses, 15%; use as a lifting gas, 14%; the electronics and semiconductors sector, 11%; diving (for breathing mixtures), 6%; fiber optics, 6%; science and engineering research, 6%; welding, 5%; and use in controlled atmospheres, 2% (APS, MRS and ACS 2016 ) In 2016, the MRI industry continued to lead helium use in the United States, accounting for about 30% of U.S. consumption of Grade-A helium. Helium’s importance in MRIs was followed by its use as a lifting gas, which accounted for 17% of 2016 U.S. consumption; analytical and laboratory applications, 14%; welding, 9%; engineering and scientific applications, 6%; leak detection and semiconductor manufacturing, 5% each; and various other applications (including purging and pressurization), 14% (Hamak 2017 ). Globally, the MRI industry is expected to continue to decrease its consumption of helium relative to consumption by the electronics industry, including for the manufacture of semiconductors, liquid crystal displays, and fiber optics (Garvey 2017 ).

In 1963 (when the U.S. space and missile programs were the primary helium users), pressurization of liquid-fueled rocket engines (which required large amounts of helium for pressurizing and purging the fuel tanks) was the leading use of helium, and it accounted for about 42% of U.S. consumption; it was followed by welding, 14%; use in controlled atmospheres 12%; science and engineering research, 10%; use as a lifting gas, 6%; leak detection, 4%; cryogenics, 3%; and no other use accounted for greater than 3%. In the 1970s, the U.S. space program decreased its activities in general, and hard fuels were developed and increasingly substituted for liquid fuels in rocket propulsion. From 1984 to 1999, however, the National Aeronautics and Space Administration (NASA) again increased its purging and pressurization demand, including use of about 7.5 MMCF of helium for each Space Shuttle launch (Cai et al. 2012 ). By 2015, cryogenic applications (including MRIs) accounted for 32% of total U.S. helium consumption; pressurizing and purging, 18%; controlled atmospheres, 18%; welding cover gas, 13%; leak detection, 4%; breathing mixtures, 2%; and other uses, 13% (Hamak 2016b ).

In scientific and engineering research, helium is used extensively (for its cryogenic properties) in NMR Spectroscopy, and NMR instruments are reportedly in use in almost every research university in the United States. NMR Spectroscopy is heavily used in the research fields of medicine, chemistry, pharmacology, and physics. This technology is reportedly being used to enable the synthesis of organic chemicals that have led to new drugs and other essential products. In addition to its more familiar cryogenic properties, a lesser known property of helium is that it does not become radioactive when exposed to radiation. This makes it potentially critical in the development of advanced nuclear reactor technologies for power generation (APS and MRS 2011 ; Cai et al. 2012 ; APS, MRS, and ACS 2016 ).

Geographical Distribution

In 2001, the United States accounted for about 60% of global helium consumption; countries in Europe and the Middle East, 22%; Japan, 11%; other countries in Asia, 4%; and the rest of the world, 2%. In 2010, the United States accounted for about 41% of global helium consumption; countries in Europe and the Middle East, 32%; Japan, 3%; other countries in Asia, 21%; and the rest of the world, 3%. In 2016, IHS Markit ( 2016a , b ) projected that future helium demand would shift more toward the electronics manufacturing sectors in China, the Republic of South Korea and Taiwan. In 2017, helium consumption in Asian countries (including in these 3 major helium consumers) was expected to surpass U.S. helium consumption for the first time. In 2017, Asian countries were expected to consume about 1.94 BCF of helium compared with about 1.9 BCF in the United States (Garvey 2017 ). IHS Markit ( 2016a , b ) expected that global helium consumption could increase at about 2% per year through 2020, but that consumption in these three countries could increase by about 4% per year during the same time period.

Uncertainty

Helium could be potentially critical to the development of a commercially viable fusion technology, and development of this widely sought after energy technology could potentially raise helium consumption far beyond any current projections (Hughey 1989 ). However, the timing of development of commercially viable fusion technology is highly uncertain (Epple and Lave 1980 ; Cai et al. 2012 ). In addition, the fusion reactors would likely have to be designed to include an extensive capability to recycle helium, since consumption of helium for fusion could quickly outstrip supply. So, any future helium demand related to development of fusion technology is highly uncertain for many reasons. Significant increases in helium demand could occur in the nearer term as NASA continues to develop its Space Launch System (SLS). The SLS is currently designed to use liquid hydrogen fuel, which requires helium for purging and pressurizing the system, but it is possible that the design of future launch systems could not require as much helium (National Aeronautics and Space Administration 2017 ).

From 2011 through 2013, the helium market experienced shortages, and some long-term supply contracts were only filled at 70–80% of the contracted delivery volumes. In 2014 and 2015, however, the helium market was described as in surplus, and this was expected to continue through at least 2017. Part of the reason for this lingering surplus was reported as owing to demand destruction during the shortage (IHS Markit 2016b ). Since substitution for helium in most applications may be possible to only a limited extent, this sluggish recovery in demand could be mostly owing to more efficient use of helium, and partially owing to greater efforts and investments in recycling (APS, MRS, and ACS 2016 ).

Despite the reported surplus of helium (Kornbluth 2016 ), the American Physical, Materials Research and American Chemical Societies (2016) reported that ongoing volatility of prices and inconsistent supply were still limiting research crucial to the development of innovative technologies. Helium prices may not adjust as quickly as expected to current market conditions owing to the prevalence of long-term supply contracts with take-or-pay arrangements (Cai et al. 2012 ). In addition, helium prices may increase as a greater share of global production shifts to countries that may have greater political uncertainty than in the United States. Garvey ( 2017 ) reported that part of the reason there was an 11.2% increase in the average BLM helium auction price could have been because the Qatar blockade could have created a premium for U.S. helium over that from other sources.

Helium-3 Demand

Many uses of helium-3 for medicine, industry, and science are similar to that for helium-4, such as its use in medical imaging. There are some unique cryogenic applications and research that require helium-3, because it liquefies at an even lower temperature than helium-4 (APS, MRS, and ACS 2016 ). Importantly, helium-3 also has unique value as a neutron detector, an application for which helium-4 may be a poor substitute. Detectors that rely on helium-3 are used to detect (concealed or smuggled) nuclear and other radiological material, and were increasingly deployed in the United States following the terrorist attacks of September 11, 2001. This increase in demand raised concerns about potential shortages of helium-3 (Shea and Morgan 2010 ).

Criticality Debate

The American Physical Society and Materials Research Society ( 2011 ) recommended that the United States should maintain a nondefense stockpile of helium, but not of any of the 13 other energy critical elements (ECEs) that they identified. They suggested that helium is unique even in comparison with other ECEs, because it is unlikely that any economic source of helium besides natural gas will be found, helium is often vented into the atmosphere during the production and consumption of natural gas, and natural gas production (without separation of helium) and consumption is likely to continue to increase. Since then, natural gas production and consumption in the country has increased, but that has been mostly owing to increases in the production of shale gas, which may not have any significant helium content. However, if production of shale gas declines and natural gas prices rise enough to bring more conventional gas production onstream, then there could be an increase in helium venting in the country (Clarke et al. 2013 ).

As amended through 2016, helium was not included in the list of strategic and critical minerals for the purposes of the Strategic and Critical Materials Stock Piling Act (50 U.S.C. § 98 et seq.). The two parts of the definition of the term “strategic and critical materials” in this Act were that the material “would be needed to supply the military, industrial, and essential civilian needs of the United States during a national emergency”, and that it is “not found or produced in the country in sufficient quantities to meet such need” (DLA Strategic Materials 2017 ). Through 2016, it could be that enough helium was being produced in the country (Hamak 2017 ) that helium did not meet the second part of this definition. The European Union, for example, has added helium to their list of critical minerals, and this could be because they are more dependent on imports for helium supplies than the United States.

As of November 2017, reports of significant decreases in the availability of helium in the United States during the trade embargo on Qatar were not available. The FHR was still in operation and selling helium to private consumers during this time, but it is uncertain to what extent helium sales from the FHR could make up for even a small part of a shortfall caused by any prolonged absence of Qatari supply (Croce 2017 ; Kornbluth 2017a , b ; McDonald 2017 ; Reisch 2017a ; Subcommittee on Energy and Mineral Resources 2017 ).

In July 2017, the BLM held its FY2018 crude helium auction. In the summer of 2018, the BLM is scheduled to hold its final auction and conservation sales of crude helium stored in the U.S. Federal Helium Reserve (the FHR). After this, no further sales of crude helium from the FHR to private industry are scheduled, and the volume of reserves in place there is expected to reach the targeted volume of 3 BCF of helium after final deliveries are made to the private sector during FY2019 (Burton 2017 ). Private U.S. suppliers of helium could increase production to make up for some of the decrease in BLM supply, but a greater share of global helium production is likely to continue to shift to other countries. As of mid-2017, reports of development of rival helium storage facilities that could be comparable to the FHR were not available. If alternative storage facilities are not developed before the FHR is closed to private consumers, it is unlikely that the global helium industry will be able to compensate for a sudden loss of one of its few major suppliers (such as Qatar).

In 2018, the second-leading helium producer in the world (Qatar) is scheduled to bring its third major helium production plant onstream, and this plant is expected to produce about 425 MMCF/year of helium. Qatar produces helium as a byproduct of LNG, and the global supply of helium could continue to trend toward major LNG producers. For projections of future helium production by LNG producers, it is important to recognize that LNG production from shale gas is not likely to contribute much (if any) to helium production, since shale gas has not been found to contain significant amounts of helium. As of mid-2017, nascent LNG production in the United States was based on shale gas. If shale gas continues to be the major source of LNG production in the country, this could also be a minor contributor to further decreases in the share of U.S. production in global helium supply. Gazprom has developed a project to produce a large amount of helium from natural gas in eastern Russia, but the timeline to startup of production is uncertain, at least partially owing to uncertainty surrounding the future price of the natural gas. Another project to produce helium contained in natural gas in South Africa has been announced, and there are reportedly plans to develop the recent helium discovery in Tanzania. However, these projects are remotely located and still in the planning stages, and information on projected timelines for development was not available (Garvey 2017 ).

Natural sources of the helium-3 isotope appear to be even more limited than that of helium-4, and substitutes for some important uses of helium-3 (such as for detection of radioactive material and leaks) could be even more rare than for helium-4. In response to elevated concern about the availability of helium-3 in the United States in the 2000s (Shea and Morgan 2010 ), the USGS was tasked with assessing helium-3 resources (U.S. Government Printing Office 2013 ). As of 2017, however, reports of severe shortages of helium-3 were not available, and these concerns may have decreased somewhat. Ongoing maintenance activities on arsenals of nuclear weapons could be enough to satisfy future demand for helium-3. If not, it appears unlikely that enough helium-3 from natural sources could be produced to contribute significantly to any severe shortfalls in supply.

In general, demand for helium has been increasing in the United States, and this trend could continue even with increased recycling and efficiency of use in the country (APS and MRS 2011 ; APS, MRS, and ACS 2016 ; IHS Markit 2016a , b ). Despite an estimated 20% increase in apparent consumption of helium in the country in 2016 compared with that of 2015 (Hamak 2017 ), the U.S. share of global demand may continue to decrease. Alternatively, potential increases in NASA’s demand, continuing scientific and engineering research demand, and stable demand for use in critical cryogenic applications could mean that the country will continue to be one of the leading helium consumers in the world for some time. Although U.S. imports of helium did not account for a significant share of the country’s apparent consumption in 2016, imports could increase in the near future. If so, helium could satisfy criteria to be more widely considered as a critical or strategic mineral in the United States.

The ownership structure of helium supply is likely to become even more concentrated with the planned merger of Air Products and Linde (gasworld Business Intelligence 2017 ), and the scheduled disposal of all BLM helium assets by the end of FY2021 (Hamak 2017 ). There has been a historical lack of economic models of helium markets that consider the implications of an oligopoly being in control of the supply of this potentially critical resource. Since about 2010, however, a few economic models have appeared in the literature that consider oligopolistic control of the supply of helium. In addition, economic studies of helium markets could benefit from better modeling of demand and uncertainty. Finally, there is a great need for more empirical work to estimate current demand elasticities and the responsiveness of helium supply and demand to recent decreases in the volumes of helium stored in the U.S. Federal Helium Reserve.

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Acknowledgments

The author appreciates the thorough and helpful reviews of Peter Warwick and Tina Roberts-Ashby of the Eastern Energy Resources Science Center, U.S. Geological Survey; John DeYoung (Scientist Emeritus, National Minerals Information Center, U.S. Geological Survey); and two anonymous reviewers for Natural Resources Research. The author further would like to thank Sean Brennan (USGS Eastern Energy Resources Science Center) and John Hamak (Lead Petroleum Engineer, Helium Resources, U.S. Bureau of Land Management) for their insight and discussions. Use of trade, product, or firm names is for descriptive purposes only and does not imply endorsement by the U.S. Government.

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Is helium coming of age as an investment?

InvestorNews

Perhaps the best known use for helium is to levitate balloons at parties and the inevitable voice changing characteristic that occurs when someone invariably inhales the helium contained in one of those balloons. But contrary to popular belief, helium is not all fun and games. This non-toxic, inert gas (unless the temperature drops below -269 C where it becomes liquid) has many intriguing scientific and technological uses. In rocket propulsion it is used to pressurize liquid hydrogen fuel tanks, because only helium is still a gas at liquid-hydrogen temperature. But I’m sure Richard Branson and Jeff Bezos already knew that. Helium’s inert nature makes it essential for creating controlled environments in semiconductor and fiber optics manufacturing and aerospace applications. Because liquid helium is the coldest substance it is used in cryogenics as a coolant and to cool the magnets in your local MRI machine. It is also used for more mundane things like an inert-gas atmosphere for welding metals such as aluminum, in high-pressure breathing operations like scuba diving (mixed with oxygen because of its low solubility in the bloodstream) and don’t forget dirigibles.

Another helium fun fact, and part of the reason for its scarcity on earth, is the fact that it’s the only element that can escape the earth’s atmosphere. That’s right, earth’s gravity is not sufficient to prevent its gradual escape into space. So the helium that the world relies on for supply comes from traps in porous, sedimentary rocks that are capped by an impermeable seal of shale, halite or anhydrite. Sounds a lot like natural gas to me, and in fact, it is commonly produced as a byproduct of natural gas production.

Daily InvestorNews updates

I find all this stuff fascinating and could talk about it all day long but perhaps we’ll change gears and get back to an investment thesis which is hopefully why you came to this website in the first place. So today we’ll have a look at a company that is looking to secure helium supply to meet the growing global demand for this irreplaceable resource. Imperial Helium Corp . (TSXV: IHC) plans to expedite acquisition, production testing, resource certification, and monetization of helium resources in Western Canada, where we know a thing or two about drilling and exploiting valuable commodities. Driven by Canadian geoscience and engineering expertise, in combination with its proprietary helium well database, the Company is developing its asset base to meet the growing global helium demand.

The advantage of looking for helium in Alberta/BC is that there are already over 645,000 oil and gas wells drilled and 189,000+ of those have a gas analysis available. Using this information, Imperial Helium has developed a proprietary database of existing helium bearing well bores that are being evaluated for acquisition. The Company’s target is focusing on wells with contingent concentrations of helium and existing infrastructure. The analytical geoscience and engineering approach undertaken to source these helium opportunities reduces the fiscal risk of finding uneconomic concentrations of helium in the exploration process. The first target identified in this process was the Steveville property, situated over a large basement dome feature with four-way closure. The property is approximately 200km east of Calgary providing easy access for drilling and development. The property includes land leased from Heritage Royalty Resource Corporation covering 24,635 hectares (95 square miles), with rights for natural gas (including helium) below the base of the Big Valley and Nisku formations.

Steveville was first drilled in the winter of 1940 with production testing showing six million cubic feet a day (6MMCf/d) of non-burnable gas (87% nitrogen, 3.5% methane, 0.63% helium and 8% carbon-dioxide). This isn’t much of a natural gas well but for helium there is potential. Correspondingly, the Company spud an appraisal well on July 5th to confirm helium concentrations and flow rates from the structure established by the historic well. The successful drilling, logging and casing of the first well confirmed their technical view of the Steveville structure and production testing will begin soon. A second appraisal well was spud on August 3 rd with 3 weeks expected to drill and log the well and a further five to six weeks to complete and test it. And in case you were wondering, methane will either be used as fuel gas to run the facilities or sold into the well-established natural gas market, while carbon dioxide may be sequestered or sold and the nitrogen can be vented because the atmosphere is approximately 80% nitrogen, or it may be captured and sold if fiscally viable.

Helium is considered a critical raw material by the EU, the US and China. Important to the investment thesis for helium is the fact that the Bureau of Land Management in the U.S., which had been supplying in the range of 10-15% of the world production since 2016, had sold all the available federal volumes in inventory by 2020 making for a new global dynamic, putting upward pressure on helium prices. When you factor in the security of supply issue we’ve seen in several commodities (most helium production comes from just a few fields in the U.S., Qatar and Algeria), you have the makings of an intriguing opportunity. A scarce resource with increasing demand makes helium a commodity to watch. Imperial Helium may not be elephant hunting but with helium prices in the $400/MCF range, you don’t need a lot to be profitable.

Disclaimer: The author of this Investor.News post, which is published by InvestorNews Inc., may or may not be a shareholder of any of the companies mentioned in this column. No company mentioned has sponsored or paid for this content on Investor.News, and InvestorNews Inc. does not accept opt-in payments from advertisers. While InvestorNews Inc. provides digital media services like video interviews and podcasts to advertisers, not all are paid promotions. Any sponsored video interview will be clearly marked in the summary. The author of this piece is not a licensed investment advisor and makes no recommendations to buy, sell, or hold any securities. If the author holds an investment advisor license, this will be stated in their biography. Conduct your own due diligence by reviewing public documents of any company. For our full legal notices and disclaimers, click here click here .

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One response

Great article Dean, thank you. Great conversation started behind the scenes in my email inbox and Peter Clausi provided me with approval to share the notes that he sent me…

Peter Clausi wrote: Biggest problem in the sector is that it is not part of NI43-101 or NI51-101. In other words, disclosure in helium is held to the same standards as blockchain and cannabis.

A helium company could legitimately write “Management believes the company has helium in the ground of 100,000,000,000,000 barrels”, and as long as management believes that, then it is within compliance in Canada. Whether those barrels are actually there, or whether there is a reasonable basis for so believing, are not material questions qua compliance.

So the first question for any helium company, to what standards of disclosure do you adhere?

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Lift off for global helium market.

• August 2, 2023
• By Anthony Milewski

• value of Grade-A helium sold during 2022 in the US by private industry was US$820 million
• prices range from $500 mcf to $1200 mcf
• market has been in supply deficit for 8 years — nearly half — between 2006-2022
• US and Qatar produce 85% of supply, but US reserves and production falling

If I say helium, you say “balloons” — yet party balloons make up less than 10% of helium’s use across rocket launches, semiconductors and medical equipment.

The scale and importance of the global helium market is often overlooked.

The estimated value of Grade-A helium (99.997% helium or greater) sold during 2022 in the US by private industry was US$820 million.

Helium is not publicly traded, with agreements negotiated privately between buyers and sellers, so pricing is often difficult to establish.

But it is clear that demand is growing and supply is extremely volatile.

One of the industry’s leading consulting firms, Akap Energy, values the global helium production market to be worth US$1.5billion on a price assumption of US$250 thousand cubic feet (mcf) — but, end user pricing could have been up to x4 times higher in 2022.

And this is not due to a one-off supply chain problem: we are currently in the fourth helium supply shortage since 2006, with prices doubling since January 2002.

“Helium prices are at all-time highs with a number of commentators reporting helium spot sales at between US$2,000 and US$3,000 per mcf. Naturally, we are keen to sell helium into this market as soon as possible” Trent Spry, Blue Star Managing Director and CEO

And the market is expected to grow by 5-6% CAGR over the next 5 years.

“It will keep growing” — Cliff Cain , CEO of rare gas consultancy Edelgas Group

So, how should interested investors position themselves?

What is helium

Helium gas is the second most abundant element in the universe, after hydrogen, but considered the only non-renewable element on earth — it’s so light that it can easily escape the Earth’s gravitational pull, and then disappears from the planet.

Naturally occurring helium on Earth takes thousands of years to produce, as elements, such as uranium and thorium, decay deep in the Earth. The helium rises up and is then trapped in pockets of natural gas, which is drilled and processed.

Helium production and reserves

The vast majority of the world’s helium production comes from natural gas wells in the United States, with 2.6 billion cubic feet in 2022, and QatarGas, with 2.1 billion cubic feet. Much of the rest comes from Sonatrach in Algeria, Russia, Australia and Canada.

The first-ever estimate on recoverable helium reserves by the US Geological Survey found that the US has an estimated 306 billion cubic feet of helium, or about 150 years of supply at 2020 US production levels. Reserves outside of the US are estimated at 1.13 trillion cubic feet.

However, significant new discoveries are very rare and any problems in supply from one of the few producers can cause a significant spike in prices.

Helium demand

Most popularly known for filling party balloons, helium is essential across significant growth industries, particularly as it’s use as a super coolant, including:

• medical, eg to cool the superconducting magnets in MRI scanners
• military equipment, eg air-to-air missile guidance systems
• high-tech manufacturing, eg fibre optic cables
• space rockets, eg liquid fuel rockets to separate hot gases and ultra-cold liquid fuel during lift-off
• semiconductors and scientific research, eg as a “superfluid” in quantum computing

For example, NASA is the biggest consumer of helium in the world, buying roughly 75 million cubic feet a year. Their latest contract with Air Products and Chemicals is to supply 33 million litres of liquid helium with approximately $1.07 billion.

Helium Prices

In 2021, the official US estimated price of Grade-A helium was US$210 per thousand cubic feet. In 2022, this has risen to US$310 per thousand cubic feet.

However, prices can vary sharply in the private market, with our sources calling the average contract price for 2022 at approx US$500 mcf, with some sales for rocket launches at Space X and the US Dept of defence at around $1200 mcf.

Retail chain Party City filed for Chapter 11 bankruptcy in January 2023. There are, of course, a variety of factors, but a significant one is that the cost of a full tank of helium rose from $195 in 2021 to $350 in 2023.

Helium supply chains

The main reason for volatility in helium prices is the vulnerability of the supply chain: two countries produce over 85% of the world’s supply.

Concerns over supply has meant helium is listed as a critical mineral in Canada and Australia , the EU is proposing adding it. The US removed helium from its critical mineral list in 2021, but this may change as the US Geological Survey is seeking public comment on helium supply risk.

One of the reasons is that US reserves and production have fallen sharply.

US Federal Helium Program Reserve

America’s Federal Helium Program Reserve, administered by the US Bureau of Land Management (BLM), is held at the underground Cliffside Storage Facility in Texas, with helium piped in from across the country.

In 1995, the Helium Privatization Act mandated the reserve be sold to pay debts of US$1.4 billion, often at below market price meaning there was no incentive to invest in private facilities.

The process has seen a variety of delays but privatization is now entering its final stages with almost all the site’s assets now up for sale .

And the reserve is now almost empty. 

The latest statistics , as of September 30, 2022, show about 2.06 billion cubic feet of privately owned helium remained in storage at Cliffside Field.

Supply chain problems

The reason price spikes is volatility in supply.

The market is still struggling to recover from a series of problems after the disruption of Covid lockdowns, including a 6-month long, unscheduled outage at BLM’s Crude Helium Enrichment Unit last year; a fire at a natural gas processing plant in Kansas; maintenance of two of Qatar’s three helium plants; and fires at Russian facilities.

This may seem like bad luck, but helium is an industry beset by problems with unsettling consistency. 

Every year brings some new challenge, so much so that the market has been in supply deficit for 8 years — nearly half — between 2006-2022.

And 2023 seems to be no different with ExxonMobil’s LaBarge facility in Wyoming, which provides 20% of the world’s supply , is reportedly set to close for 29 days this summer for maintenance.

Russian helium

The huge, planned increase of helium production at Amur Gas Processing Plant, run by Russia’s state-owned energy company, is seen as a solution to rising demand and problems with the helium supply chain.

Expected to reach full capacity in 2025, the plant can produce up to 2.1 billion cubic feet of helium a year — almost as much as the US today.

However, the project has been hit by numerous delays.

Most recently, a fire at the plant in January 2022 has meant that helium production could be delayed again by as much as 6 months.

Western sanctions on Russia, due to the war in Ukraine, have also hampered both repairs to the plant, as well as helium exports.

There are no direct sanctions on helium from Russia, but sanctions have meant Western ships are not permitted to call at Russian ports — in particular, Vladivostok, Russia’s main helium export port.

Helium expert Phil Kornbluth, in his latest analysis , warns the lack of access “greatly diminishes the number of slots available on cargo ships” and “times to acquire new containers that are required to eliminate the bottleneck have recently been 18-24 months.”

This is no easy fix, even if exports are rerouted through China, due to the logistical difficulties in securely transporting what is the second lightest element (after hydrogen).

When Russia’s Amur plant is brought online — scheduled for the end of 2023 — it is hoped the global shortages will be alleviated.

However, this does not resolve the underlying issue of a supply chain concentrated in a small number of volatile regions.

And it will take time to resolve the supply shocks of the past 5 years — especially as US production continues to decline.

More importantly, in our view, the fall in price from any new (Russian) supply will likely be met by a corresponding increase in demand if volatility in supply can be reduced.

High prices have meant demand destruction across science , medicine and industry , but these industries are forecast for significant growth, despite fears of a recession.

For example, SpaceX is planning a 40% increase in rocket launches, aiming to have 100 this year, up from 61 in 2022.

We may see some stabilization in supply and prices, but the risk of volatility and rising demand means the helium market is unlikely to pop anytime soon.

For investors interested in exposure to the helium market, the easiest way to gain exposure is through one of the majors (who also offer a more diversified portfolio of other commodities):

• Air Liquide
• Air Products and Chemicals
• Linde, Matheson-Trigas

The difference in wholesale and retail price from US$1000 to US$250-500 respectively, is what largely currently accrues to these large companies. 

The recent changes in market structure mean the potential investment opportunity has moved increasingly to developers as incentives move to primary, not by-product helium producers.

There has also been a recent “boom” in micro cap companies, encouraged by the recent price rises, focused on helium exploration and production. Most of the old, big discoveries were made during oil and gas exploration, and the new companies are deliberately seeking new reserves.

Smaller companies carry more risk, so this is where you will need to do your due diligence, and we would recommend focusing on companies based in North America, where they will be closer to growing demand and secure from trade restrictions.

For example, Canada’s Saskatchewan province released their Helium Action Plan: From Exploration to Exports (HAP) in 2021 to encourage investment and increase the value of exports by 50%, annual exports worth more than $500 million.

The same year, Canada  opened the country’s largest helium purification facility, worth CA$32million, with capacity to produce more than 50 million cubic feet per year of purified helium for commercial sale.

Saskatchewan produces only 1% of the world’s helium, but hopes to increase output to 10% of world supply by 2030. The province holds the world’s 5th largest helium reserves .

In America, global gas giant, Linde, has signed a long-term helium off-take agreement with Freeport LNG, to provide nearly 200 million cubic feet of helium into Linde’s supply portfolio.

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MIT Technology Review

• Newsletters

The era of cheap helium is over—and that’s already causing problems

Helium is crucial to all kinds of technologies, including MRI scanners and semiconductors. But it’s produced in only a few places.

• Amy Nordrum archive page

MIT Technology Review is celebrating our 125th anniversary with an online series that draws lessons for the future from our past coverage of technology. 

In the nuclear magnetic resonance facility at Mississippi State University, three powerful magnets make it possible to see how atoms form bonds. Chemists there use the technology to design new polymers and study how bacteria bind to surfaces. To make it all work, they need an element that’s commonly found in grocery stores, but is also in perpetually short supply: helium. 

Every 12 weeks, the university pays $5,000 to $6,000 to replenish the liquid helium required to cool the superconducting wire coiled up inside the magnets down to -452 °F (-269 °C). 

“It’s by far the biggest expense we have,” says Nicholas Fitzkee , the facility’s director. “The price that drives our user fees is the purchase of liquid helium, and that has pretty much doubled over the past year or so.”

Helium is excellent at conducting heat. And at temperatures close to absolute zero, at which most other materials would freeze solid, helium remains a liquid. That makes it a perfect refrigerant for anything that must be kept very cold.

Liquid helium is therefore essential to any technology that uses superconducting magnets, including magnetic resonance imaging (MRI) scanners and some fusion reactors . Helium also cools particle accelerators , quantum computers, and the infrared detectors on the James Webb Space Telescope. As a gas, helium whisks heat away from silicon to prevent damage in semiconductor fabs. 

“It’s a critical element for the future,” says Richard Clarke, a UK-based helium resources consultant who co-edited a book about the element. Indeed, the European Union includes helium on its 2023 list of critical raw materials , and Canada put it on a critical minerals list too. 

Again and again throughout the history of technology development, helium has played a critical role while remaining in tight supply. As part of MIT Technology Review ’s 125th anniversary series , we looked back at our coverage of how helium became such an important resource, and considered how demand might change in the future. 

Countries have at times taken extreme measures to secure a steady helium supply. In our June 1975 issue , which focused on critical materials, a Westinghouse engineer named H. Richard Howland wrote about a controversial US program that stockpiled helium for decades. 

Even today, helium is not always easy to get. The world’s supply depends primarily on just three countries—the US, Qatar, and Algeria—and fewer than 15 companies worldwide. 

With so few sources, the helium market is particularly sensitive to disruptions—if a plant goes offline, or war breaks out, the element may suddenly be in short supply. And as Fitzkee noted, the price of helium has climbed rapidly in recent years, putting hospitals and research groups in a pinch. 

The global helium market has experienced four shortages since 2006, says Phil Kornbluth , a helium consultant. And the price of helium has nearly doubled since 2020, from $7.57 per cubic meter to a historic high of $14 in 2023, according to the United States Geological Survey . 

Some research labs, including Fitzkee’s, are now installing recycling systems for helium, and MRI manufacturers are making next-generation scanners that require less of it. But many of the world’s highest-tech industries—including computing and aerospace—will likely need even more helium in the future. 

“At the end of the day, what’s happening is helium’s just getting more expensive,” says Ankesh Siddhantakar , a PhD student in sustainability management at the University of Waterloo in Canada. “The era of cheap helium is probably gone.”

A high-tech need

Helium is the second element on the periodic table, which—as you may recall from high school chemistry class—means it has just two protons (and thus two electrons). 

Thanks to their simple structure, helium atoms are some of the smallest and lightest, second only to hydrogen. They’re extremely stable and don’t easily react with other stuff, which makes them easy to incorporate into industrial or chemical processes. 

One major use of liquid helium over the years has been to cool the magnets inside MRI scanners, which help doctors examine organs, muscles, and blood vessels. But the cost of helium has risen so much, and the supply has been so volatile, that hospitals are eager for other options. 

MRI manufacturers including Philips and GE HealthCare now sell scanners that require much less helium than previous generations. That should help, though it will take years to upgrade the roughly 50,000 MRI scanners already installed today. 

Other industries are finding ways around helium too. Welders have substituted argon or hydrogen on some jobs, while chemists have switched to hydrogen for gas chromatography, a process that allows them to separate mixtures. 

But there’s no good alternative to helium for most applications, and the element is much harder to recycle when it’s used as a gas. In semiconductor fabs, for example, helium gas removes heat from around the silicon to prevent damage and shields it from unwanted reactions. 

With rising demand for computing driven in part by AI, the US is investing heavily in building new fabs, which will likely drive more demand for helium. “There’s no question that chip manufacturing will be the biggest application within the coming years, if it isn’t already,” says Kornbluth. 

Overall, Kornbluth says, the helium industry expects to see growth in the low single digits over the next few years. 

Looking further out, Clarke predicts that most industries will eventually phase out nonessential uses of helium. Instead, they will use it primarily for cryogenic cooling or in cases where there’s no alternative. That includes quantum computers, rockets, fiber-optic cables, semiconductor fabs, particle accelerators, and certain fusion reactors. 

“It’s something that, for a cost reason, all these new technologies have got to take into account,” Clarke says. 

Given its importance to so many industries, Siddhantakar thinks helium should be a higher priority for those thinking about managing strategic resources. In a recent analysis , he found that the global supply chains for helium, lithium, and magnesium face similar risks. 

“It is a key enabler for critical applications, and that’s one of the pieces that I think need to be more understood and appreciated,” Siddhantakar says. 

A delicate balance

The helium we use today formed from the breakdown of radioactive materials millions of years ago and has been trapped in rocks below Earth’s surface ever since. 

Helium is usually extracted from these underground reservoirs along with natural gas, as John Mattill explained in an article from our January 1986 issue : “Helium can be readily separated from the gas before combustion, but the lower the helium concentration, the higher the cost of doing so.” 

Generally speaking, helium concentrations must be at least 0.3% for gas companies to bother with it. Such levels can be found in only a handful of countries including the US, Algeria, Canada, and South Africa. Qatar has lower concentrations but produces enough natural gas to justify recovering helium at those lower levels.

Helium shortages are not caused by a lack of helium, then, but the inability of producers in those few countries to deliver it to customers everywhere in a timely manner. That can happen for any number of reasons. 

“It is a very global business, and any time a war breaks out somewhere, or anything like that, it tends to impact the helium business,” says Kornbluth. 

Another challenge is that helium atoms are so light Earth’s gravity can’t hold onto them. They tend to just, well, float away, even escaping specially designed tanks. Up to 50% of helium we extract is lost before it can be used, according to a new analysis presented by Siddhantakar last week at the International Round Table on Materials Criticality . 

Given all this, countries that need a lot of helium—Canada, China, Brazil, Germany, France, Japan, Mexico, South Korea, and the UK are among the top importers—must constantly work to ensure a reliable supply. The US is one of the largest consumers of helium, but it’s also a leading producer.

For decades, the global helium market was closely tied to the US government, which began stockpiling helium in Texas in 1961 for military purposes. As Howland wrote in 1975, “The original justification of the federal helium conservation program was to store helium until a later time when it would be more essential and less available.” 

But the US has slowly sold off much of its stockpile and is now auctioning off the remainder, with a final sale pending in the next few months. The consequences are not yet clear, though it seems likely that agencies such as NASA will have to pay more for helium in the future. As Christopher Thomas Freeburn wrote in a 1997 article titled “ Save the Helium ,” “By eliminating the reserve, the federal government … has placed itself at the mercies of the market.”

Customers everywhere are still overwhelmingly dependent on the US and Qatar, which together produce more than 75% of all helium the world uses. But the US has produced and exported significantly less in the past decade, while demand from US consumers rose by 40%, according to the USGS’s Robert Goodin . 

Eager to fill the void, new countries are now starting to produce helium, and a flurry of companies are exploring potential projects around the world. Four helium plants opened last year in Canada, and one started up in South Africa. 

Russia is set to open a massive new plant that will soon supply helium to China, thereby edging out Algeria as the world’s third-largest producer. 

“Russia is going to become the number-three producer as early as 2025, and they’ll end up accounting for a quarter of the world’s supply within the next five years,” says Kornbluth. 

Qatargas in Qatar is opening a fourth plant, which—together with Russia’s new facility—should expand global helium supply by about 50% in the next few years, he adds. 

Some companies are now considering sites where they could extract helium without treating it as a by-product of natural gas. Helium One is exploring several such sources in Tanzania.  

Will it be enough? 

Back in 1975, Howland described the helium market as “an example of the false starts, inefficiencies, and economic pitfalls we must avoid to wisely preserve our exhaustible resources.”

He also predicted the US would use up much of its known helium reserves by the turn of the century. But the US still has enough helium in natural-gas reservoirs to last 150 more years, according to a recent USGS analysis . 

“As with a lot of other things, it’s going to be about the sustainable management of this resource,” says Siddhantakar. 

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Nick Grossman – Jun 12, 2019

One of the pillars of  USV’s investment thesis 3.0  is “broadening access to capital”, and we often get asked what we mean by that.  While “capital” includes financial capital, we have always meant it more broadly, to include human capital, technology infrastructure capital, and access to “ownership” more generally.

One of the most important types of technology infrastructure is the telecommunications network.  While there is significant investment taking place in this sector, there are still major gaps when it comes to accessibility, in terms of coverage, cost, and usability.  This is why USV has invested in companies like  Pilot ,  Ting  (part of  Tucows ),  goTenna  and  Cloudflare , and will continue to seek out opportunities to invest in projects that broaden access to this critical infrastructure layer.

As the next step in that journey, today we are excited to announce that we have co-led a $15M Series C financing in  Helium , along with our friends at Multicoin Capital.

Helium  is building a new kind of wireless network. For commercial customers, Helium makes it inexpensive and easy to connect low-power IoT devices (bikes, key fobs, temperature sensors, etc.) to the internet, providing both data connectivity and location services.  For infrastructure operators (independent operators of “hotspots” on the Helium network), Helium represents a new deployment model and business model for building out essential networking infrastructure.

Helium is innovating on both the demand side and the supply side of this new connectivity marketplace, pioneering a number of concepts that we believe have the potential to radically broaden access to wireless connectivity:

Long-range, low-power, low-cost:

“LongFi” is Helium’s wireless protocol that works over long distances and consumes very small amounts of power at the end device.  While low-power, long-range data networks are not a new idea, they are not yet widely utilized and the opportunity to leverage them for new use cases is still open.

Low-cost, low-power, low-data-rate connectivity is not appropriate for every situation, but there are many, many unserved use cases that can benefit from this kind of network. For example, wildfire detection (many small sensors with tiny batteries spread over a large area), pet tracking (small sensor, small battery, ultra low cost), bike theft (small, durable, long-lasting sensors shipping directly inside the frame), agricultural & supply chain uses, and more.  Anywhere where the requirements are small size, long life, low cost and intermittent low-data-rate connectivity.

While there a set of existing wireless technologies that have similar properties that have resulted in promising initial deployments (Narrowband IoT in the licensed spectrum space and The Things Network and Sigfox in the unlicensed space), there has not yet been an open system that unites them into a single network.  Helium’s community-driven approach attempts to solve that problem in a novel way.

Community-driven:

Hotspots, the backbone of the Helium network, can be deployed by anyone, anywhere, simply by plugging into an existing router.  The Helium network will be assembled, over time, by a broad community of volunteers, civic organizations, commercial partners, and ideally a new class of entrepreneurs building out connectivity in new cities and towns.

Economic activity in the Helium network is coordinated through a new type of blockchain that uses “proof of coverage” (proving that a Hotspot is actually located in physical space) to secure the network and incentivize deployment where it is needed most.  We believe that the Helium network has the potential to become one of the most decentralized blockchain networks in existence, due to physical location as the underpinning of the economic and security model.

The Hotspot itself is built from commodity hardware and open source software.  Anyone who wants to can assemble a Helium-compatible hotspot from parts, can download open source software that will link existing compatible wireless radio to the network, or can, of course,  buy one pre-assembled from Helium Inc .  USV has ordered a handful of Hotspots and plans to kickstart NYC’s Helium network, unless someone else beats us to it 🙂

just_work = true

Finally, because of the design of Helium’s “Data Credits” (non-transferable cryptographic tokens that are redeemable for a fixed unit of bandwidth on the network, and can be pre-loaded on any device), Helium-compatible devices can ship with internet connectivity built-in and automatically on.  

Imagine a world where products automatically connect to the internet, without the need to sign a contract with a cell carrier, set up a credit card account, etc.   Think about the experience of buying a regular old radio: you turn it on and it  just works .  Unfortunately wireless internet does not currently work that way — but with Helium, it can.  This kind of functionality has the potential to unlock dramatically new user experiences around all kinds of connected devices.  We believe that this will be one of the  killer features  of blockchains and cryptonetworks.

Together with Multicoin, and along with the existing syndicate of FirstMark, Khosla Ventures, GV, and MunichRE Ventures, we are incredibly excited to support Helium as it embarks on this next chapter.

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Investors see opportunity after decadelong helium shortage. What you need to know.

By Myra P. Saefong

Crucial gas is a critical component in scientific research, medical technology such as MRI scanners, national defense, airships, high-tech manufacturing, and space exploration

A commodity by dictionary definition is something useful or valued, but here's one irreplaceable raw material that is hard to transport, has many more uses than you might think, and is often overlooked by investors: helium.

Given its unique properties, helium is a "critical irreplaceable commodity" for several industries, said Anish Kapadia, chief analytics officer at The Edelgas Group. "There has been an increasing under supply of helium over the last decade, which has led to the growth in the number of companies exploring for helium to solve the shortage."

The lack of adequate supplies to meet demand has made the recent sale of the U.S. helium reserve particularly worrisome. While helium is probably most well known for its use in party balloons, it's a critical component in scientific research, medical technology such as MRI scanners, national defense, airships, high-tech manufacturing, and space exploration.

Earlier this month, the U.S. Department of Interior's Bureau of Land Management, or BLM, which manages the Federal Helium System in the U.S., including a helium storage reservoir in Texas, announced that it accepted bids for the purchase of the system by privately held industrial gas firm Messer LLC. The sale of the reserve, which is not yet complete, had been previously mandated by the Helium Stewardship Act of 2013.

That helium production in the U.S. is in decline is no surprise given that all the historic helium produced was from conventional natural-gas production, which is also in decline, said Dean Nawata, manager of corporate development at Royal Helium Ltd. (CA:RHC).

U.S. dry natural-gas output totaled 37.9 trillion cubic feet in 2023, a record high based on government data going back to 1930, according to the Energy Information Administration.

However, most of the new U.S. natural-gas production is from shale, which "tends not to have helium," said Nawata.

In Canada, helium is one of the 31 federally designated "critical minerals." About one-third of the world's helium supply is needed to run medical MRI equipment, said Nawata, adding that in Canada alone, there are some 378 MRI machines.

Helium demand from "newer, high growth sectors" such as rocket launching, high-tech manufacturing, and small modular nuclear reactors continues to increase worldwide and importantly, in North America, he said.

Helium discoveries

Helium is a chemical element notoriously known as difficult to extract, given that its molecules, as the Encyclopædia Britannica explains, can wind up "on a one-way mission to space."

The commodity has no substitute for many of its applications, and it's found in "recoverable quantities in only a few locations around the world," according to the BLM.

Canada has grown its production significantly over the last few years, said Edelgas Group's Kapadia, who's also founder of helium market data service AKAP Energy.

There have been some "promising" discoveries, Kapadia said, in South Africa by natural gas and helium producer Renergen Ltd. (ZA:REN), in Tanzania by Noble Helium Ltd. (AU:NHE) and Helium One Global Ltd. (UK:HE1), in Canada by North American Helium and Royal Helium, and in the U.S. by Pulsar Helium Inc. (CA:PLSR) and Avanti Helium Corp. (CA:AVN).

In late February, Pulsar Helium's Chief Executive Officer Thomas Abraham-James told CBS News that his company's helium discovery in Minnesota's Iron Range could be one of the most significant such finds in the world.

Lack of transparency

The helium market has encountered production challenges over the years.

Some natural-gas fields that showed helium content were not exploited because of the low helium prices back in the 1950s and 1960s, said Don Mosher, president and director at Desert Mountain Energy Corp. (CA:DME). But junior helium producers are now drilling into those old gas fields since more recent prices for the commodity make these fields more attractive, he said.

Christopher Ecclestone, mining strategist at Hallgarten & Company, told MarketWatch that helium didn't exist for junior producers, but now that market has opened up - and it's a "bit of a last frontier."

Desert Mountain Energy is focused on helium production and processing and, Mosher said, has plans to acquire more natural-gas fields with helium content.

Helium prices, however, are tough to track.

The commodity isn't traded globally like copper (HG00) or gold (GC00), but purchased through individually-negotiated contracts signed under nondisclosure agreements, said Mosher.

The nature of the helium market 'results in a lack of transparency.'Don Mosher, Desert Mountain Energy Corp.

The "nature of the market results in a lack of transparency," he said.

Mosher told MarketWatch that shortages of the commodity have increased prices by 800% since 2018.

Meanwhile, Royal Helium, which says it's the first public helium company to produce, refine, and sell helium, publicly acknowledged two helium sale agreements. One sales agreement was at $450 per thousand cubic feet in 2022 and another was for $625 in 2023, both to a major North American space launch company. Some industry data show that prices were at around $100 until about 2012 and climbed up to $400 by 2021.

Pricing is "opaque and controlled by the 5 to 6 large gas distributors," such as Air Products & Chemicals Inc. (APD) and Air Liquide S.A. (FR:AI), said Royal Helium's Nawata.

Either way, the figures show significant increases in the value of helium just in the last few years.

Royal Helium intends to bring more wells, those that have already been drilled but have yet to be tested, into production with two more plants in the next 12 to 18 months, and it plans to continue drilling more fields "well into the future," said Nawata.

As with production and price transparency, finding a way to invest in the helium sector has its own challenges.

Edelgas' Kapadia estimated that there are around 20 listed helium stocks.

But there are no related exchange-traded funds, said Hallgarten's Ecclestone.

And keep in mind that big helium deposits are of "no interest" if the helium from those deposits can't be transported, he said.

The commodity is known as the "great escape artist" because it must be transported in a totally hermetically-sealed environment, Ecclestone said. "This dictates which deposits will be commercially viable or not." Helium can also be turned into, and transported as, a liquid.

Exploration for, and development of, new, large helium deposits are critical for the medical industry, semiconductor manufacturing, and rocket launches, said Nawata.

Given the demand growth pattern, generally at a 6% compound annual growth rate (CAGR), and at a more than 20% CAGR for semiconductors and rocket launches, Royal Helium believes the market will "continue to be in deficit and perform well for years to come," Nawata said.

"There is a great ongoing need for helium, not only worldwide, but specifically for the western world," he said.

-Myra P. Saefong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

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Our Investment in Helium

I’m extremely excited to announce that Multicoin Capital co-led a $15M financing in Helium with our friends at Union Square Ventures. The round also included participation from Khosla Ventures, FirstMark, GV (formerly Google Ventures), and MunichRE Ventures.

The Helium vision is the most ambitious we have seen in the blockchain space since the advent of smart contracts on Ethereum: Helium represents a fundamentally new approach—one with a radically reduced cost structure—to deploying and managing wireless networks at scale.

The Helium blockchain is the economic layer empowering a decentralized wireless telecommunications network. This network is currently being used not for smartphone data on 3G/4G/5G networks, but for low-power, low-bandwidth IoT devices in the Sub-GHz frequency band.

How It Works

Starting today, anyone can purchase a Helium Hotspot ( order one here ). The setup is dead simple. Consumers plug the hotspot directly into an electrical outlet and then connect to a local network (either Ethernet or WiFi) through an intuitive, consumer-friendly iOS or Android app. Helium Hotspots provide network coverage within a radius of several miles. Because the intended use case for Helium is IoT devices relaying relatively small amounts of sensor data (e.g. no live streaming audio/video), bandwidth is limited to < 5 Kbps, which is inconsequential to the host.

Each Helium Hotspot provides coverage using LongFi, which is an Apache licensed open source protocol in the Sub-GHz frequency band. This is a low-frequency band, meaning that these radio waves can easily pass through walls and floors of concrete. They are also extremely low power: IoT devices implementing the LongFi protocol can be thousands of times more battery efficient per bit than LTE. This means that IoT devices implementing LongFi can use coin-cell batteries and still achieve battery life measured in years.

Using the LongFi protocol, any device can broadcast a message within the coverage area of the Helium network and have their message relayed to the destination (typically a web server) of their choice on the public internet for a minuscule fee. IoT devices and hotspot operators do not need to establish any formal relationship prior to usage of the network. Instead, IoT devices reward hotspot operators on a per-byte basis. As an IoT device moves through the world, the device will reward many different operators.

The implications of this are profound. I cannot emphasize that enough. This means that the same IoT device can work anywhere in the world without needing to have a relationship with AT&T, Vodafone, or any other cellular carrier. Today, the most cost-effective IoT data plan from a network incumbent charges $2.50 per month per device just to access their respective networks. This is far too expensive for the vast majority of IoT use cases which generally require thousands of devices per metropolitan area.

Costs on the Helium network are expected to be 90-99% lower for the vast majority of IoT use cases, dramatically reducing the barrier to connectivity and unlocking many new IoT use cases that depend on global, inexpensive internet access.

A New Business Model For Wireless Networks

Why does Helium need a blockchain?

The business model of deploying large scale IoT networks has been the Achilles Heel of the IoT vision. There have been many bespoke, local-scale deployments of IoT networks over the last decade around the world: enough such that independent researchers have formally studied them to understand what works and what doesn’t. These studies have concluded what Helium already figured out: the centrally managed, top-down business model of building, owning, and managing a new wireless telecom network is economically unfeasible.

By using a blockchain to coordinate economic incentives, Helium is able to deploy this network with far less capital than a centralized company. In order to understand how Helium aims to undercut the cost structure of existing cellular networks, we need to first consider the existing cost structures of the legacy model:

• Incumbent network operators buy extremely expensive proprietary equipment.
• They buy/lease land for towers.
• They pay people to install the radio equipment.
• They maintain the radio equipment.
• They maintain a massive back-end infrastructure for customer support, billing, etc. They spend aggressively on marketing and sales.

Because all of this needs to happen before the network can produce any revenue, traditional telecom companies are extremely capital intensive ").

Helium will succeed by inverting the cost structure:

• Consumers buy commodity hardware for hundreds of dollars. This hardware is 100% nonproprietary. Due to the economics of the Helium Blockchain, Helium Inc.’s business model does not depend on extracting margin on hardware.
• Consumers have “free” rent.
• Consumers plug-and-play hotspots in their homes and businesses. Labor cost is $0.
• Consumers maintain hotspots as necessary. Labor cost is $0.
• Through public key cryptography, blockchains naturally manage customer accounts and billing for free. The Helium blockchain coordinates per byte micropayments between everyone permissionlessly. New devices can connect to the network anywhere in the global coverage area without ever needing to sign up with a telecom company. This would be impossible on legacy payment rails.

The result is that the Helium network is an order of magnitude less expensive to build, deploy, and manage. And it’s impossible to compete with: the network actually benefits as Chinese manufacturers build cheaper hotspots. Moreover, Helium Inc. itself could disappear, and the network would continue operating.

What kind of applications become possible with a globally available, inexpensive, and battery efficient wireless network? Some examples:

Pet tracking: Current pet trackers leave a lot to be desired. They’re expensive - typically at least $20 per month - and battery life is measured in hours or days. A Helium-enabled pet tracker will have a battery life measured in years and likely cost less than $1 per month to operate. The pet tracker use case is huge; there are 90M dogs and 96M cats in the US alone. This one use case is likely large enough to economically motivate the rollout of the whole Helium network.

Smart city infrastructure: Wouldn’t it be cool if public trash cans had sensors that measured how full the bins are, and would notify the sanitation department as necessary? This is impossible on traditional cellular networks because of battery and cost constraints. This has already been piloted on a number of college campuses over the last few years and there is a clear appetite for this type of infrastructure. We expect IoT sensor density to explode once cities know they can inexpensively measure all kinds of data around the city in real time. Imagine fire sensors which don’t need a hardline connection, traffic sensors on every intersection to intelligently route emergency services or even intelligently control traffic signals to reduce travel times. The smart city vision is predicated on something like the Helium network.

Micro-mobility devices: When a Lime/Bird scooter or Jump Bike runs out of battery, they are frequently lost. Because the LongFi chips require such little battery, scooter companies can install a second dedicated coin cell battery just for the LongFi chip, guaranteeing that they can find scooters and bikes in the wild long after the primary battery dies. They can also transmit data beyond location on the Helium Network, eventually removing the need for cellular connectivity on these devices completely. Helium today announced Lime is currently testing these chips in scooters right now in San Francisco.

Smart pill bottles: Patient medication adherence costs hundreds of billions of dollars in the US alone. Smart pill bottles that remind patients and their caretakers if any medications have been missed are an obvious part of the solution. With current designs, patients (many of whom are senior citizens) are required to connect their “smart” pill bottles to their home WiFi or phone’s Bluetooth because it would simply be too expensive to connect each pill bottle to cellular networks. The status quo is difficult, unrealistic, and a terrible user experience. But, because the cost of both LongFi-compatible chips and data on the Helium network are so inexpensive, smart pill bottles can remove the difficult setup process which has historically reduced patient compliance. Using Helium, smart pill bottles don’t require any configuration or setup by patients. A smarter, more cost-effective wireless network could literally save lives every day.

There are many more use cases for the Helium Network, most of which haven’t even been imagined yet.

While the Helium Network is starting with LongFi, this deployment also serves as a blueprint for additional wireless network types (LTE, 5G, etc). The same advantages which allow the Helium Network to compete asymmetrically with the big telecom networks on IoT connectivity with LongFi will also enable the Helium Network to move upmarket to compete on higher bandwidth products.

Helium is the largest private investment we have made, and we expect to continue to invest in this ecosystem for the years to come.

Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post may contain links to third-party websites (“External Websites”). The existence of any such link does not constitute an endorsement of such websites, the content of the websites, or the operators of the websites. These links are provided solely as a convenience to you and not as an endorsement by us of the content on such External Websites. The content of such External Websites is developed and provided by others and Multicoin takes no responsibility for any content therein. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.

The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/ . Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure. * This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.*

Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.

Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities. For more important disclosures, please see the Disclosures and Terms of Use available at https://multicoin.capital/disclosures and https://multicoin.capital/terms .

One of the areas of blockchain innovation I am most excited about is building open, permissionless, and decentralized technology infrastructure.

The three areas that seem most obvious to me for decentralized infrastructure are compute (code execution), storage (storing files, etc), and bandwidth (network infrastructure).

And today, we are excited to announce that USV has made an investment in a decentralized network infrastructure project called Helium .

My partner Nick, who led this investment for USV, wrote about Helium on the USV blog and explains why we made the investment (as is our practice with all new investments). I would encourage you to read that blog post as it explains a lot about how Helium works, how the token economics builds the supply side of the network infrastructure, and why it fits so neatly into our investment thesis.

I would just like to point out how cool Helium is.

Anyone can run a Helium hotspot in their home:

And then they can earn Helium tokens for doing so.

You can run a hotspot in your home/apartment and do the equvalent of bitcoin mining for network infrastructure.

Helium is optimized for very long distance, low power communications. It is ideal for Internet of Things (IoT) devices. Think about electric scooters needing to “phone home” over long distances. Think about your dog’s name tag. Think about figuring out when the school bus is going to arrive at the bus stop.

We plan to run a Helium hotspot or two at USV and it would be great to see people powered Helium networks popping up all over the place and providing very low cost, low power, highly reliable long range network infrastructure.

Comments (Archived):

The closest to this, is FON https://fon.com/ and it has been very popular in Europe with close to 7 million spots, but that didn’t seem to take off in the US.The interesting novelty to watch with Helium is the token insertion.

“The interesting novelty to watch with Helium is the token insertion.”Which i don’t yet get.

Maybe, once a year, your Helium coin can buy you a latte.Its the only thing that I have ever admitted to Fred that BlockChain might enable – IoT solutions.Whether anybody wants to trust a Helium connection for anything IoT is a whole other proposition, but, logically, this is easy to do and has some upside for the hotspot host. How much upside is what will drive the adoption – you are laying out a minimal amount of fiat currency for the juice.

Seems similar in nature to yourkarma.com (provide free Wi-Fi and earn more GB for yourself), but they have struggled recently.

yeah, in a way — but what I particularly like about helium is that it is not targeting a high-end, high-bandwidth use case, but rather a somewhat simpler one, which is low data rate, long range

Lousy offerings are the best way to get into a market, if you have time and money.Japanese car makers in NA are a classic example: https://www.autonews.com/ar …

Earlier in the year, Chris Dixon wrote a blog post titled, ‘Strong and Weak Technologies’. He stated that, “technologies usually arrive in pairs, a strong form and a weak form”. Permissionless blockchains powered by cryptocurrencies were in the ‘Strong’ category.

This is interesting, but needs a critical mass of helium nodes.Maybe an innovative leasing program for the hardware.Or built in private use cases – packets of value to the owners – that help with the ROI for the device.Build Helium into the Apple Watch?

Great write up from Multicoin Capital too. https://multicoin.capital/2 …

The penny hasn’t quite dropped in my mind about the mining of the token and the economics of the model. I might have to sleep on it and hopefully wake up tomorrow with a eureka moment over breakfast.

Feels like this is 10+ years in the making for the USV thesis – great to learn more about and excited to dig in.

The first Helium city is Austin.Now who lives in Austin?

it’s actually a coincidence, but that’s where the multicoin team is based. austin is a good city for a bunch of reasons, but largely because it’s flat and full of young people 🙂

Ha, does flat make a difference? Midwest and Florida would be great except for Florida is “God’s Waiting Room”

And it’s where Dell is… see my comment above… 🙂

HAHAHAHAHAHAHAHAHAHAHAHA.No idea.

I wonder if this ends up being more viable as a standard component of a general purpose web3 device (compute+storage+bandwidth) in order to combine all potential web3 incentives/benefits in one attractive consumer package… which can be inexpensive because multipurpose drives scale.

Not really, because they are using the processing and storage for an expensive blockchain solution. Instead, look at Veea.com, which allows truly distributed edge proceessing across a variety of layer 2 topologies.

Revenue model?Barrier to entry?Size of market?

This is why the investment takes 10-15 years to pan out!

Ah, you are cruel, SO cruel, HOW can you be so CRUEL??????!!!!!! :-)!!!!

No problem. The tech depreciates in 6 months. But the hotspot owner (aka sucker) shoulders the risk. Once again, a model where risks are imbalanced; just like the entire internet!

I saw the title in my email inbox and thought you were weighing in on the growing Helium shortage.This isn’t too bad either. Seems like a pretty cool device and idea. Puts me in the mind of a real network for those Trackr devices and such. They would benefit a lot from an IoT network they can tap for geolocation.

Fascinating.I like how both the structure of communities and the structure of our networks are both atomic in some ways.In the community perspective, a leap of massive change beyond the old Chasm Crossing config, with networks similarly so though struggling for the analog.

“Because hotspot fees are set by their owners, the network represents an open market with dynamic pricing and genuine competition.”Is there any scope for a hotspot owner to add value to their service to differentiate themselves from another hotspot owner operating in the same city? Competing only on price leads to a bloodbath. Where’s the economic incentive?

Very interesting. Would love to see more details on the business plan. My thinking on IoT is to focus on specific problems within industry verticals. Infrastructure and network investment seems more risky as it is hard to predict what applications and use cases may or may not emerge in the future. But no doubt, long range, low power, low data rate should address a range of needs.

Too bad the blockchain crowd is so fixed on profiting on the cryptocurrency – they Howey problem vs the business model shared rev with helium nose holder or sales of nodes.Have end users pay Helium node holder pay in Starbucks points.Savings savings could offset lease Payment.

I am hoping that that price point comes down quickly

Right, thinking “If I buy one for $495, how long is my payback period to break even and at what point do I run the operation where MC=MR?”

The real question is “Will Coinbase be listing Helikon?”

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What Is an Investment Thesis?

• Understanding the Thesis

Special Considerations

• What's Included?

The Bottom Line

• Portfolio Management

Investment Thesis: An Argument in Support of Investing Decisions

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

The term investment thesis refers to a reasoned argument for a particular investment strategy, backed up by research and analysis. Investment theses are commonly prepared by (and for) individual investors and businesses. These formal written documents may be prepared by analysts or other financial professionals for presentation to their clients.

Key Takeaways

• An investment thesis is a written document that recommends a new investment, based on research and analysis of its potential for profit.
• Individual investors can use this technique to investigate and select investments that meet their goals.
• Financial professionals use the investment thesis to pitch their ideas.

Understanding the Investment Thesis

As noted above, an investment thesis is a written document that provides information about a potential investment. It is a research- and analysis-based proposal that is usually drafted by an investment or financial professional to provide insight into investments and to pitch investment ideas. In some cases, the investor will draft their own investment thesis, as is the case with venture capitalists and private equity firms.

This thesis can be used as a strategic decision-making tool. Investors and companies can use a thesis to decide whether or not to pursue a particular investment, such as a stock or acquiring another company. Or it can be used as a way to look back and analyze why a particular decision was made in the first place—and whether it was the right one. Putting things in writing can have a huge impact on the direction of a potential investment.

Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued . The thesis states that the investor plans to hold the stock for three years, during which its price will rise to reflect its true worth. At that point, the stock will be sold at a profit. A year later, the stock market crashes, and the investor's pick crashes with it. The investor recalls the investment thesis, relies on the integrity of its conclusions, and continues to hold the stock.

That is a sound strategy unless some event that is totally unexpected and entirely absent from the investment thesis occurs. Examples of these might include the 2007-2008 financial crisis or the Brexit vote that forced the United Kingdom out of the European Union (EU) in 2016. These were highly unexpected events, and they might affect someone's investment thesis.

If you think your investment thesis holds up, stick with it through thick and thin.

An investment thesis is generally formally documented, but there are no universal standards for the contents. Some require fast action and are not elaborate compositions. When a thesis concerns a big trend, such as a global macro perspective, the investment thesis may be well documented and might even include a fair amount of promotional materials for presentation to potential investing partners.

Portfolio management is now a science-based discipline, not unlike engineering or medicine. As in those fields, breakthroughs in basic theory, technology, and market structures continuously translate into improvements in products and in professional practices. The investment thesis has been strengthened with qualitative and quantitative methods that are now widely accepted.

As with any thesis, an idea may surface but it is methodical research that takes it from an abstract concept to a recommendation for action. In the world of investments, the thesis serves as a game plan.

What's Included in an Investment Thesis?

Although there's no industry standard, there are usually some common components to this document. Remember, an investment thesis is generally a proposal that is based on research and analysis. As such, it is meant to be a guide about the viability of a particular investment.

Most investment theses include (but aren't limited to) the following information:

• The investment in question
• The investment goal(s)
• Viability of the investment, including any trends that support the investment
• Potential downsides and risks that may be associated with the investment
• Costs and potential returns as well as any losses that may result

Some theses also try to answer some key questions, including:

• Does the investment align with the intended goal(s)?
• What could go wrong?
• What do the financial statements say?
• What is the growth potential of this investment?

Putting everything in writing can help investors make more informed decisions. For instance, a company's management team can use a thesis to decide whether or not to pursue the acquisition of a rival. The thesis may highlight whether the target's vision aligns with the acquirer or it may identify opportunities for growth in the market.

Keep in mind that the complexity of an investment thesis depends on the type of investor involved and the nature of the investment. So the investment thesis for a corporation looking to acquire a rival may be more in-depth and complicated compared to that of an individual investor who wants to develop an investment portfolio.

Examples of an Investment Thesis

Portfolio managers and investment companies often post information about their investment theses on their websites. The following are just two examples.

Morgan Stanley

Morgan Stanley ( MS ) is one of the world's leading financial services firms. It offers investment management services, investment banking, securities, and wealth management services. According to the company, it has five steps that make up its investment process, including idea generation, quality assessment, valuation, risk management , and portfolio construction.

When it comes to developing its investment thesis, the company tries to answer three questions as part of its quality assessment step:

• "Is the company a disruptor or is it insulated from disruptive change? 
• Does the company demonstrate financial strength with high returns on invested capital, high margins, strong cash conversion, low capital intensity and low leverage? 
• Are there environmental or social externalities not borne by the company, or governance and accounting risks that may alter the investment thesis?"

Connetic Ventures

Connetic Adventures is a venture capital firm that invests in early-stage companies. The company uses data to develop its investment thesis, which is made up of three pillars. According to its blog, there were three pillars or principles that contributed to Connetic's venture capital investment strategy. These included diversification, value, and follow-on—each of which comes with a pro and con.

Why Is an Investment Thesis Important?

An investment thesis is a written proposal or research-based analysis of why investors or companies should pursue an investment. In some cases, it may also serve as a historical guide as to whether the investment was a good move or not. Whatever the reason, an investment thesis allows investors to make better, more informed decisions about whether to put their money into a specific investment. This written document provides insight into what the investment is, the goals of the investment, any associated costs, the potential for returns, as well as any possible risks and losses that may result.

Who Should Have an Investment Thesis?

An investment thesis is important for anyone who wants to invest their money. Individual investors can use a thesis to decide whether to purchase stock in a particular company and what strategy they should use, whether it's a buy-and-hold strategy or one where they only have the stock for a short period of time. A company can craft its own investment thesis to help weigh out whether an acquisition or growth strategy is worthwhile.

How Do You Create an Investment Thesis?

It's important to put your investment thesis in writing. Seeing your proposal in print can help you make a better decision. When you're writing your investment thesis, be sure to be clear and concise. Make sure you do your research and include any facts and figures that can help you make your decision. Be sure to include your goals, the potential for upside, and any risks that you may come across. Try to ask and answer some key questions, including whether the investment meets your investment goals and what could go wrong if you go ahead with the deal.

It's always important to have a plan, especially when it comes to investing. After all, you are putting your money at risk. Having an investment thesis can help you make more informed decisions about whether a potential investment is worth your while. Make sure you put your thesis in writing and answer some key questions about your goals, costs, and potential outcomes. Having a concrete proposal in place can spell the difference between earning returns and losing all your money. And that's if your thesis supports the investment in the first place.

Harvard Business School. " Writing a Credible Investment Thesis ."

Lanturn. " What is an Investment Thesis and 3 Tips to Make One ."

Morgan Stanley. " Global Opportunity ."

Medium. " The Data That Built Our Fund's Investment Thesis ."

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Why We’ve Invested in Noble Helium

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The NHE story and why we like it

Reasons we invested in nhe, macro theme: more on the helium market, what do we expect nhe to deliver in 2022, key objective #1: target generation leading up to drilling, key objective #2: acquire more permits, strengthen in country presence, key objective #3: explore new opportunities, what could go wrong, what is our investment plan, our 2022 nhe investment memo:.

Published 08-APR-2022 12:39 P.M.

15 minute read

Disclosure : S3 Consortium Pty Ltd (The Company) and Associated Entities own 3,925,926 NHE shares and 1,851,852 options, The Company’s staff own 40,000 NHE shares at the time of publishing this article. The Company has been engaged by NHE to share our commentary on the progress of our investment in NHE over time.

Today we are adding a new company to our long term investment portfolio.

We run due diligence on hundreds of companies a year, but only a select few make the cut and are added to our portfolio.

Our latest portfolio addition, Noble Helium ( ASX:NHE ) , is aiming to discover a globally significant helium resource.

Helium is a critical gas in the production of semiconductors used in almost every technology product.

Helium demand is surging as countries move to produce semiconductors locally to reduce reliance on supply from geo-politically unstable countries.

As helium is a gas, helium exploration is like exploring for traditional oil & gas, in that NHE has some prep work to do to identify drilling targets, secure a rig and then drill a high impact well.

We think the investment journey with NHE will be similar to other gas explorers we have invested in like Elixir Energy, Invictus Energy and 88 Energy (and Africa Oil Corp from 2012) - where we invest well before the key drilling event and expect a price rise in the lead up to drilling and results.

And then hopefully a sustained re-rate on a successful discovery.

With our gas exploration investments, we look for companies operating in frontier basins or systems that are yet to be proven. Here, if success is achieved, shareholders are well rewarded, as the implication is that more drilling in the new system will also be successful...

...but obviously there is significant risk of not making that coveted initial discovery and the share price will react downwards accordingly - frontier gas exploration is high risk and investors should only invest what they are comfortable to lose.

Today NHE starts trading on the ASX. In this note we will share a summary of why we invested in NHE, and cover our 2022 NHE Investment Memo including:

• What NHE does
• The macro theme
• Why we invested in NHE
• The key objectives we want to see NHE achieve in 2022
• Key investment risks
• Our investment plan

We are long term holders in NHE (including escrows and trading blackouts on our stock) and will be following the NHE story over time and sharing our commentary as they execute on the objectives we set out in our investment memo.

The key event we are waiting for is NHE’s maiden drilling event scheduled for 2023.

The rest of this year is all about the successful preparation of drilling targets.

We will launch our more detailed “deep dive” note on NHE in the coming weeks.

If NHE’s Helium resource can be proven, it has the potential to be the world’s third largest helium reserve behind the USA and Qatar, and the largest ever reserve held by a single company.

In just one of NHE’s four prospects, there could be enough helium to supply ~30 years’ annual global demand.

A large and growing portion of that global helium demand comes from semiconductors due to its helium’s special properties. Helium also cannot be replaced in most of its other industrial uses.

This is the short version of the macro picture, but the NHE story is also about geology and a heavily invested founder/CEO who knows that geology really well.

For seventy years, the East African Rift System basins that NHE is operating in were considered too high risk for oil and gas exploration. That was until the first oil discovery in 2006 proved otherwise.

Some of our readers will remember Hardman Resources, which moved from 2c to $2.50.

Hardman made the first East African Rift basin discovery in Uganda - and NHE founder/CEO Justyn Wood was the Exploration Geophysicist for that discovery .

Since then, the East African Rift System has become home to some of the largest, most consistently successful onshore African oil and gas discoveries - a very impressive 80% success rate from 30 wells between 2006 and 2018.

After years building towards this IPO, NHE now believes their East African Rift System basins could possess the same geological elements for success, but for helium - an emerging critical gas.

As of today’s IPO, Justyn Wood currently owns well over a third of NHE.

That means NHE is a founder owned and operated company, which we like. AND it means NHE is driven by someone who is deeply familiar with East African Rift System geology.

Our other gas exploration investments Elixir Energy and Invictus Energy are both founder owned and operated too, where the founders have deep technical knowledge - a big tick for us when assessing an investment.

Having a veteran frontier exploration expert at the helm bodes well for a discovery - and it couldn’t come at a better time.

The helium market is currently buckling under the pressure of supply issues, growing demand and geopolitical tension.

According to Edelgas, a helium consultancy, US helium prices are up five fold in the last two months - meaning that helium is now a bona fide strategic resource .

While prices will fluctuate and new supply must come online to meet demand, the underlying narrative behind NHE becomes even more powerful when you consider the following...

Surface gas sampling in and around the NHE’s tenements indicates that helium trapped underground may be “Green Helium” (associated with nitrogen rather than hydrocarbon gas) .

We note that 95% of the world’s current helium supply is associated with fossil fuel energy production - any critical materials with sustainability credentials are highly desirable.

Again, this is a prospective resource that could eclipse entire countries’ production - all in a single company.

NHE raised $10M in today’s IPO which will leave it with an Enterprise Value (EV) of $36M.

Importantly, by a measure of EV/prospective resource NHE compares favourably with other ASX-listed helium stocks, companies like Renergen and Blue Star Helium, for example.

We’ll share more on this comparison in a subsequent deep dive, but for now the focus will be on our brand new NHE 2022 Investment Memo, which we will use to assess the performance of our investment in NHE this year.

NHE has spent the last five years getting all the necessary pieces in place for its bid to become the largest pure-play helium company in the world.

Aiding NHE, will be two of the foremost helium experts in the world, who literally wrote the book on helium .

That book/database is called Atlas of Helium Occurrence and Exploration Fairway Analysis .

NHE has an exclusive licence to this database for three years with the option for two more - something which it may use to acquire further helium assets down the track and become an even bigger helium company.

Aiming to drill in late 2023, in between then and now are a range of catalysts each contributing to its maiden drill program in Tanzania - right in the middle of the East African Rift System.

We’ve created a quick high-level summary of NHE, key objectives, risks and our investment plan which can be accessed in our NHE Investment Memo:

Our NHE Investment Memo contains the reasons we invested in NHE, while below is the complete list of our reasons for making this investment:

• East African Rift System - Top helium experts highly rate NHE’s geology - Two prominent helium experts think the East African Rift is the best geology in the world for helium and it could house a globally significant resource. (NHE’s Mean unrisked prospective volume of 175.5 billion cubic feet (bcf) across nine structures).
• String of Pearls: NHE is aiming to identify drill targets from a series of leads across similar geology in the East African Rift system - known as a “String of Pearls”. If NHE drills the first “pearl” and it turns out successful, it implies all the other leads (pearls) could be successful too. This is similar to what happened to Africa Oil Corp’s “String of Pearls” back in 2012 when it surged 1,200% on a successful result from its first lead in a string of leads on the East African Rift System.
• Our past success with basin opening exploration - Some of our best investing success has come from major drilling events in frontier areas - companies like Elixir Energy, Invictus Energy, 88 Energy and our first ever top pick from many years ago, Africa Oil Corp in the East African Rift. We hope to replicate that success with NHE.
• Founder owned and operated - CEO Justyn Wood built the company over many years and holds well over a third of the company’s shares, so is heavily incentivised to deliver value for shareholders. Justyn brings significant East African Rift experience. He played a key role in opening up the region’s geology with breakthrough exploration success in 2006 with Hardman Resources (~2c to $2.50). He knows the ground NHE is working with.
• Exclusive rights to global “Helium Atlas” - Years ago, NHE commissioned and licensed the world’s first “helium atlas” from two of the foremost helium experts. Basically it’s many years of research into a detailed database of all the helium prospects in the world and is how NHE first settled on Tanzania. We think access to these experts and their “Helium Atlas” will also help NHE in selecting future helium project acquisitions.
• Bonus: “Green Helium” could attract ESG capital - Large pools of ESG capital could find a home in Green Helium projects like NHE’s. NHE has seen early signs that it’s helium is associated with nitrogen rather than hydrocarbons. ~95% of current helium supply is tied to fossil fuel production and this “Green Helium” might draw ESG investors to NHE, much like ESG initiatives in the EV battery supply chain.
• Bonus: Prospective resource compares favourably with other helium companies - Of the now four ASX-listed helium companies, we think NHE’s prospective resource compares very favourably on an EV/Resource basis.
• Bonus: Anchor investor knows industrial gases well - a core early investor in NHE is J Kent Masters - the CEO of one of the largest lithium companies in the world (Albemarle). Masters owns ~7% of NHE. Masters is also a former member of the executive board of Linde, the world's largest industrial gas company by market share and revenue (capped at ~US$160B). We think Masters would be very familiar with the helium market and may be able to make introductions to potential offtake partners down the track.

We’ll look to provide a deep dive of these reasons in the coming weeks.

You can also watch Justyn run through the NHE story to investors from a few weeks ago here . We found watching the video extremely helpful in understanding the company and its potential.

We’re particularly interested in the geology NHE is operating within, so we’re looking forward to sharing the story behind the East African Rift System and the trend line of discoveries in this part of the world which refer to in the industry as a ‘string of pearls.’

Our view is that this ‘string of pearls’ lends itself to a major helium discovery for NHE in Tanzania.

In the image below we have crudely highlighted the “string of pearls” concept of drilling leads.

On the left is Africa Oil Corp that successfully hit on the first “pearl” and subsequently went on to successfully drill the other “pearls”.

On the right is NHE’s drill leads with the same “string of pearls” concept overlaid on their prospects:

If NHE successfully deliver a result on the first “pearl” we think there is a high likelihood the other geologically similar pearls will deliver too, which is why the first drill is so important.

We want to see NHE firm up these leads into drill targets this year, and drill the first “pearl” in 2023.

We’ve had a keen interest in the helium market for well over a year now.

Below is a quick explanation of the macro theme behind NHE:

In the short-term we’re seeing a perfect storm for helium prices.

Consider that Russia was on track to becoming one of the world's top three helium producers until its Armur facility (capable of producing ~11% of global supply) caught fire and was put out of action indefinitely.

And now one of the biggest producers in the US, the Cliffside Helium Plant, is out of action after a leak caused an unplanned shutdown in January...

Spot prices for gaseous helium in the United States is firmly between 2k and 3k per mcf (1000) at the moment. This will swing higher as the disruptions and shortages continue. #insane #helium — The Edelgas Group (@TheEdelgas) March 12, 2022

All of these helium supply ruptures are being baked into the helium spot price and as result, helium spot prices are now trading between US$2,000-US$3,000Mcf.

While this is just US prices and NHE is due to drill in late 2023, we expect these supply ruptures to improve investors sentiment for new helium resources and the semiconductor demand side of the equation to ramp up in the coming years.

The main reason we are invested is to see NHE drill a successful opening well, and prove the “string of pearls” theory (success on drilling the first “pearl” implies success on the other pearls”)

But before the big 2023 drilling event, this year is all about preparing to drill - converting leads into firm drill “targets”.

We have three key objectives for NHE this year that will be used as benchmarks against which we will track the company's performance over the course of 2022.

Finding the world’s largest single company helium resource is no easy task, which is why NHE will employ a range of modern exploration techniques to get the drill targets they need for the Q3 2023 drilling event. Here’s what we expect NHE’s exploration program to look like:

🔲 Airborne gravity gradiometry (Q2-Q3 2022)

Gravity gradiometry is the study and measurement of anomalies in the Earth's gravitational field.

NHE will fly a sensor over their projects in Tanzania and produce the “colourful blobs” that map out these anomalies.

It’s an important part of the work NHE will be doing in 2022 and will inform their interpretation of the various data points they are working with.

🔲 3D seismic (Q2-Q4 2022)

NHE will complete a 3D seismic survey of 100km2 at their helium project for which they have allocated a large portion of their IPO funds ($4.5M).

Given this large allocation, we think this is the core focus of NHE’s 2022 exploration works and a key part of the exploration puzzle.

3D seismic surveys are done by artificially inducing shock waves in the earth which is then followed by recording, processing, and interpretation.

🔲 Geochemistry survey (Q2-Q3 2022)

Similar to rock chips with mineral explorers, NHE’s geochemistry surveys will test for helium content at surface to aid the generation of drill targets.

As it is much cheaper to complete than 3D seismic, we expect these surveys will help with target generation.

🔲 Bonus: Resource re-quantification (Q4?)

NHE currently has a mean unrisked prospective volume of 175.5 billion cubic feet (bcf) across nine structures - based on work carried out by well respected oil and gas resource consultants, Netherland Sewell and Associates.

Towards the end of the year, we think NHE may look to update their prospective resource based on completed exploration work.

🔲 Bonus: Finalise drill targets (Q4?)

While this may be a stretch goal for NHE, we think they may settle on the final drill targets by the end of 2022. This would allow NHE to get into the field and prepare for drilling at the end of the Tanzanian wet season, in 2023.

NHE needs to do the following things to cement its position in Tanzania:

🔲 Finalise licence areas (9 Prospecting Licences) (Q2 2022)

NHE is aiming to get 9 more licences to add to their current 14 licences to effectively double their project area size to ~4000km2 in total. $663k will be allocated from the IPO funds to accomplish this.

🔲 Stakeholder engagement (Ongoing)

Tanzania is an emerging resource jurisdiction and building strong relationships with stakeholders in the country will be important for NHE. This includes the relationships with government ministries, state and local governments as well as residents in the project area.

🔲 Tanzanian team additions (Ongoing)

NHE may look to add local employees to strengthen their in-country team. These employees would help NHE with stakeholder engagement, administrative duties and legal support.

🔲 Acquire a new asset

NHE has a treasure trove of information about prospective helium resources around the world via a book/database called Atlas of Helium Occurrence and Exploration Fairway Analysis .

The professors behind this work are two of the foremost experts on helium and we believe having an exclusive licence over this work will help NHE make smart acquisitions down the track.

This could include other East African Rift System projects or somewhere else entirely. We think that NHE is not limited in scope at its Tanzanian project and NHE has the potential to grow into a helium resource behemoth in the coming years because of this intellectual property.

We’ve summarised what we see as the main risks for NHE below:

NHE is a high-risk exploration investment for us and this risk summary is not exhaustive.

Read our trading blackout policy here .

Below is our 2022 investment memo for NHE including:

• Key objectives for NHE in 2022 (shown above)
• What the key risks to our investment thesis are

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S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.

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Family offices can lead the way in securing a sustainable and innovative future by employing a blended finance approach and developing strategic investment theses.

The Importance Of De-Risking Investments

Albert Wenger , a partner at Union Square Ventures , underscores the unique role family offices can play in taking on risks that traditional venture capital firms often shy away from.

Wenger, who also wrote the book World After Capital , points out that family offices have the flexibility and capacity to invest in high-risk, high-reward areas such as fusion energy and geo-engineering research. These areas are crucial for tackling the climate crisis but are typically seen as too uncertain for institutional investors.

To that point, Wenger remarks that the current wealth management practices might be misaligned, "Personal wealth should be taking exactly the risks that other people aren't willing to take. One of my big misgivings about a lot of personal wealth is that it's being all handed to managers, and the managers are then immediately being risk-averse again."

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Family offices, therefore, have a unique opportunity to step in and fund projects that might not see the light of day otherwise. By de-risking these investments, they can not only contribute to significant advancements in critical areas but also potentially reap substantial rewards.

Employing a Blended Finance Approach

A blended finance approach allows family offices to combine different types of funding—venture capital, philanthropic efforts, and direct investments—into a cohesive strategy. This approach is essential for addressing complex global challenges that require more than one type of financial support.

Wenger advocates for this holistic method, saying, "It's much more important to have a thesis-based approach and then say, if this is my thesis, what are the different levers I can actuate?" This means that family offices should not view their investments as separate and unconnected buckets. Instead, they should integrate various forms of capital to address different facets of a problem simultaneously.

For example, the climate crisis requires new technologies to be developed and existing ones to be deployed. Venture capital can help fund the former, while direct investments and philanthropic efforts can support the latter, as well as fund activism and research that might not yield immediate financial returns but are crucial for long-term solutions.

Developing a Solid Investment Thesis

Having a well-defined investment thesis is crucial for guiding family offices in their investment decisions, as this can ensure the alignment of various individual investments. Wenger emphasises the importance of this strategic approach, noting that family offices should see their investments as part of an integrated strategy driven by a central thesis.

"You have to have a thesis, and the thesis connects various investments in interesting ways," Wenger explains. This approach ensures that all investments are aligned with long-term goals and can drive substantial impact.

For instance, a family office might adopt a thesis focused on combating climate change. This thesis would guide all investment decisions, from funding clean energy startups to supporting geoengineering research. By having a clear, overarching strategy, family offices can ensure that their investments are not only financially sound but also contribute to their broader goals.

Wenger also highlights the importance of being hands-on and willing to do the necessary homework. "If you want to pursue a thesis-driven direct investment strategy, you have to be willing to do your own homework," he advises. This might involve researching new technologies, understanding the science behind them, and identifying the right people and projects to invest in.

The Unique Opportunity For Family Offices

Family offices have a unique opportunity to lead the charge in de-risking investments and addressing global challenges through a blended finance approach and strategic investment theses. Retail investors aren’t able to have the same impact and other large institutional investors often aren’t able to take on the same amount of risk. By taking on the risks that traditional institutional investors avoid, employing a holistic financing strategy, and developing robust investment theses, family offices can drive meaningful change and secure a sustainable future.

As Wenger succinctly puts it, "The people whose fortune it is ought to decide what they want the money to do and which risks they want to take." This mindset is key to leveraging the full potential of family offices in today's complex investment landscape.

By embracing these strategies, family offices can not only enhance their financial returns but also make significant contributions to solving some of the world's most pressing problems. From addressing the climate crisis to sustaining democratic institutions, the potential for family office impact investing is immense. It is time for family offices to step up and lead the way, using their unique capabilities to drive positive change on a global scale.

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A generative AI reset: Rewiring to turn potential into value in 2024

It’s time for a generative AI (gen AI) reset. The initial enthusiasm and flurry of activity in 2023 is giving way to second thoughts and recalibrations as companies realize that capturing gen AI’s enormous potential value is harder than expected .

With 2024 shaping up to be the year for gen AI to prove its value, companies should keep in mind the hard lessons learned with digital and AI transformations: competitive advantage comes from building organizational and technological capabilities to broadly innovate, deploy, and improve solutions at scale—in effect, rewiring the business  for distributed digital and AI innovation.

About QuantumBlack, AI by McKinsey

QuantumBlack, McKinsey’s AI arm, helps companies transform using the power of technology, technical expertise, and industry experts. With thousands of practitioners at QuantumBlack (data engineers, data scientists, product managers, designers, and software engineers) and McKinsey (industry and domain experts), we are working to solve the world’s most important AI challenges. QuantumBlack Labs is our center of technology development and client innovation, which has been driving cutting-edge advancements and developments in AI through locations across the globe.

Companies looking to score early wins with gen AI should move quickly. But those hoping that gen AI offers a shortcut past the tough—and necessary—organizational surgery are likely to meet with disappointing results. Launching pilots is (relatively) easy; getting pilots to scale and create meaningful value is hard because they require a broad set of changes to the way work actually gets done.

Let’s briefly look at what this has meant for one Pacific region telecommunications company. The company hired a chief data and AI officer with a mandate to “enable the organization to create value with data and AI.” The chief data and AI officer worked with the business to develop the strategic vision and implement the road map for the use cases. After a scan of domains (that is, customer journeys or functions) and use case opportunities across the enterprise, leadership prioritized the home-servicing/maintenance domain to pilot and then scale as part of a larger sequencing of initiatives. They targeted, in particular, the development of a gen AI tool to help dispatchers and service operators better predict the types of calls and parts needed when servicing homes.

Leadership put in place cross-functional product teams with shared objectives and incentives to build the gen AI tool. As part of an effort to upskill the entire enterprise to better work with data and gen AI tools, they also set up a data and AI academy, which the dispatchers and service operators enrolled in as part of their training. To provide the technology and data underpinnings for gen AI, the chief data and AI officer also selected a large language model (LLM) and cloud provider that could meet the needs of the domain as well as serve other parts of the enterprise. The chief data and AI officer also oversaw the implementation of a data architecture so that the clean and reliable data (including service histories and inventory databases) needed to build the gen AI tool could be delivered quickly and responsibly.

Creating value beyond the hype

Let’s deliver on the promise of technology from strategy to scale.

Our book Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI (Wiley, June 2023) provides a detailed manual on the six capabilities needed to deliver the kind of broad change that harnesses digital and AI technology. In this article, we will explore how to extend each of those capabilities to implement a successful gen AI program at scale. While recognizing that these are still early days and that there is much more to learn, our experience has shown that breaking open the gen AI opportunity requires companies to rewire how they work in the following ways.

Figure out where gen AI copilots can give you a real competitive advantage

The broad excitement around gen AI and its relative ease of use has led to a burst of experimentation across organizations. Most of these initiatives, however, won’t generate a competitive advantage. One bank, for example, bought tens of thousands of GitHub Copilot licenses, but since it didn’t have a clear sense of how to work with the technology, progress was slow. Another unfocused effort we often see is when companies move to incorporate gen AI into their customer service capabilities. Customer service is a commodity capability, not part of the core business, for most companies. While gen AI might help with productivity in such cases, it won’t create a competitive advantage.

To create competitive advantage, companies should first understand the difference between being a “taker” (a user of available tools, often via APIs and subscription services), a “shaper” (an integrator of available models with proprietary data), and a “maker” (a builder of LLMs). For now, the maker approach is too expensive for most companies, so the sweet spot for businesses is implementing a taker model for productivity improvements while building shaper applications for competitive advantage.

Much of gen AI’s near-term value is closely tied to its ability to help people do their current jobs better. In this way, gen AI tools act as copilots that work side by side with an employee, creating an initial block of code that a developer can adapt, for example, or drafting a requisition order for a new part that a maintenance worker in the field can review and submit (see sidebar “Copilot examples across three generative AI archetypes”). This means companies should be focusing on where copilot technology can have the biggest impact on their priority programs.

Copilot examples across three generative AI archetypes

• “Taker” copilots help real estate customers sift through property options and find the most promising one, write code for a developer, and summarize investor transcripts.
• “Shaper” copilots provide recommendations to sales reps for upselling customers by connecting generative AI tools to customer relationship management systems, financial systems, and customer behavior histories; create virtual assistants to personalize treatments for patients; and recommend solutions for maintenance workers based on historical data.
• “Maker” copilots are foundation models that lab scientists at pharmaceutical companies can use to find and test new and better drugs more quickly.

Some industrial companies, for example, have identified maintenance as a critical domain for their business. Reviewing maintenance reports and spending time with workers on the front lines can help determine where a gen AI copilot could make a big difference, such as in identifying issues with equipment failures quickly and early on. A gen AI copilot can also help identify root causes of truck breakdowns and recommend resolutions much more quickly than usual, as well as act as an ongoing source for best practices or standard operating procedures.

The challenge with copilots is figuring out how to generate revenue from increased productivity. In the case of customer service centers, for example, companies can stop recruiting new agents and use attrition to potentially achieve real financial gains. Defining the plans for how to generate revenue from the increased productivity up front, therefore, is crucial to capturing the value.

McKinsey Live Event: Unlocking the full value of gen AI

Join our colleagues Jessica Lamb and Gayatri Shenai on April 8, as they discuss how companies can navigate the ever-changing world of gen AI.

Upskill the talent you have but be clear about the gen-AI-specific skills you need

By now, most companies have a decent understanding of the technical gen AI skills they need, such as model fine-tuning, vector database administration, prompt engineering, and context engineering. In many cases, these are skills that you can train your existing workforce to develop. Those with existing AI and machine learning (ML) capabilities have a strong head start. Data engineers, for example, can learn multimodal processing and vector database management, MLOps (ML operations) engineers can extend their skills to LLMOps (LLM operations), and data scientists can develop prompt engineering, bias detection, and fine-tuning skills.

A sample of new generative AI skills needed

The following are examples of new skills needed for the successful deployment of generative AI tools:

• data scientist:
• prompt engineering
• in-context learning
• bias detection
• pattern identification
• reinforcement learning from human feedback
• hyperparameter/large language model fine-tuning; transfer learning
• data engineer:
• data wrangling and data warehousing
• data pipeline construction
• multimodal processing
• vector database management

The learning process can take two to three months to get to a decent level of competence because of the complexities in learning what various LLMs can and can’t do and how best to use them. The coders need to gain experience building software, testing, and validating answers, for example. It took one financial-services company three months to train its best data scientists to a high level of competence. While courses and documentation are available—many LLM providers have boot camps for developers—we have found that the most effective way to build capabilities at scale is through apprenticeship, training people to then train others, and building communities of practitioners. Rotating experts through teams to train others, scheduling regular sessions for people to share learnings, and hosting biweekly documentation review sessions are practices that have proven successful in building communities of practitioners (see sidebar “A sample of new generative AI skills needed”).

It’s important to bear in mind that successful gen AI skills are about more than coding proficiency. Our experience in developing our own gen AI platform, Lilli , showed us that the best gen AI technical talent has design skills to uncover where to focus solutions, contextual understanding to ensure the most relevant and high-quality answers are generated, collaboration skills to work well with knowledge experts (to test and validate answers and develop an appropriate curation approach), strong forensic skills to figure out causes of breakdowns (is the issue the data, the interpretation of the user’s intent, the quality of metadata on embeddings, or something else?), and anticipation skills to conceive of and plan for possible outcomes and to put the right kind of tracking into their code. A pure coder who doesn’t intrinsically have these skills may not be as useful a team member.

While current upskilling is largely based on a “learn on the job” approach, we see a rapid market emerging for people who have learned these skills over the past year. That skill growth is moving quickly. GitHub reported that developers were working on gen AI projects “in big numbers,” and that 65,000 public gen AI projects were created on its platform in 2023—a jump of almost 250 percent over the previous year. If your company is just starting its gen AI journey, you could consider hiring two or three senior engineers who have built a gen AI shaper product for their companies. This could greatly accelerate your efforts.

Form a centralized team to establish standards that enable responsible scaling

To ensure that all parts of the business can scale gen AI capabilities, centralizing competencies is a natural first move. The critical focus for this central team will be to develop and put in place protocols and standards to support scale, ensuring that teams can access models while also minimizing risk and containing costs. The team’s work could include, for example, procuring models and prescribing ways to access them, developing standards for data readiness, setting up approved prompt libraries, and allocating resources.

While developing Lilli, our team had its mind on scale when it created an open plug-in architecture and setting standards for how APIs should function and be built.  They developed standardized tooling and infrastructure where teams could securely experiment and access a GPT LLM , a gateway with preapproved APIs that teams could access, and a self-serve developer portal. Our goal is that this approach, over time, can help shift “Lilli as a product” (that a handful of teams use to build specific solutions) to “Lilli as a platform” (that teams across the enterprise can access to build other products).

For teams developing gen AI solutions, squad composition will be similar to AI teams but with data engineers and data scientists with gen AI experience and more contributors from risk management, compliance, and legal functions. The general idea of staffing squads with resources that are federated from the different expertise areas will not change, but the skill composition of a gen-AI-intensive squad will.

Set up the technology architecture to scale

Building a gen AI model is often relatively straightforward, but making it fully operational at scale is a different matter entirely. We’ve seen engineers build a basic chatbot in a week, but releasing a stable, accurate, and compliant version that scales can take four months. That’s why, our experience shows, the actual model costs may be less than 10 to 15 percent of the total costs of the solution.

Building for scale doesn’t mean building a new technology architecture. But it does mean focusing on a few core decisions that simplify and speed up processes without breaking the bank. Three such decisions stand out:

• Focus on reusing your technology. Reusing code can increase the development speed of gen AI use cases by 30 to 50 percent. One good approach is simply creating a source for approved tools, code, and components. A financial-services company, for example, created a library of production-grade tools, which had been approved by both the security and legal teams, and made them available in a library for teams to use. More important is taking the time to identify and build those capabilities that are common across the most priority use cases. The same financial-services company, for example, identified three components that could be reused for more than 100 identified use cases. By building those first, they were able to generate a significant portion of the code base for all the identified use cases—essentially giving every application a big head start.
• Focus the architecture on enabling efficient connections between gen AI models and internal systems. For gen AI models to work effectively in the shaper archetype, they need access to a business’s data and applications. Advances in integration and orchestration frameworks have significantly reduced the effort required to make those connections. But laying out what those integrations are and how to enable them is critical to ensure these models work efficiently and to avoid the complexity that creates technical debt  (the “tax” a company pays in terms of time and resources needed to redress existing technology issues). Chief information officers and chief technology officers can define reference architectures and integration standards for their organizations. Key elements should include a model hub, which contains trained and approved models that can be provisioned on demand; standard APIs that act as bridges connecting gen AI models to applications or data; and context management and caching, which speed up processing by providing models with relevant information from enterprise data sources.
• Build up your testing and quality assurance capabilities. Our own experience building Lilli taught us to prioritize testing over development. Our team invested in not only developing testing protocols for each stage of development but also aligning the entire team so that, for example, it was clear who specifically needed to sign off on each stage of the process. This slowed down initial development but sped up the overall delivery pace and quality by cutting back on errors and the time needed to fix mistakes.

Ensure data quality and focus on unstructured data to fuel your models

The ability of a business to generate and scale value from gen AI models will depend on how well it takes advantage of its own data. As with technology, targeted upgrades to existing data architecture  are needed to maximize the future strategic benefits of gen AI:

• Be targeted in ramping up your data quality and data augmentation efforts. While data quality has always been an important issue, the scale and scope of data that gen AI models can use—especially unstructured data—has made this issue much more consequential. For this reason, it’s critical to get the data foundations right, from clarifying decision rights to defining clear data processes to establishing taxonomies so models can access the data they need. The companies that do this well tie their data quality and augmentation efforts to the specific AI/gen AI application and use case—you don’t need this data foundation to extend to every corner of the enterprise. This could mean, for example, developing a new data repository for all equipment specifications and reported issues to better support maintenance copilot applications.
• Understand what value is locked into your unstructured data. Most organizations have traditionally focused their data efforts on structured data (values that can be organized in tables, such as prices and features). But the real value from LLMs comes from their ability to work with unstructured data (for example, PowerPoint slides, videos, and text). Companies can map out which unstructured data sources are most valuable and establish metadata tagging standards so models can process the data and teams can find what they need (tagging is particularly important to help companies remove data from models as well, if necessary). Be creative in thinking about data opportunities. Some companies, for example, are interviewing senior employees as they retire and feeding that captured institutional knowledge into an LLM to help improve their copilot performance.
• Optimize to lower costs at scale. There is often as much as a tenfold difference between what companies pay for data and what they could be paying if they optimized their data infrastructure and underlying costs. This issue often stems from companies scaling their proofs of concept without optimizing their data approach. Two costs generally stand out. One is storage costs arising from companies uploading terabytes of data into the cloud and wanting that data available 24/7. In practice, companies rarely need more than 10 percent of their data to have that level of availability, and accessing the rest over a 24- or 48-hour period is a much cheaper option. The other costs relate to computation with models that require on-call access to thousands of processors to run. This is especially the case when companies are building their own models (the maker archetype) but also when they are using pretrained models and running them with their own data and use cases (the shaper archetype). Companies could take a close look at how they can optimize computation costs on cloud platforms—for instance, putting some models in a queue to run when processors aren’t being used (such as when Americans go to bed and consumption of computing services like Netflix decreases) is a much cheaper option.

Build trust and reusability to drive adoption and scale

Because many people have concerns about gen AI, the bar on explaining how these tools work is much higher than for most solutions. People who use the tools want to know how they work, not just what they do. So it’s important to invest extra time and money to build trust by ensuring model accuracy and making it easy to check answers.

One insurance company, for example, created a gen AI tool to help manage claims. As part of the tool, it listed all the guardrails that had been put in place, and for each answer provided a link to the sentence or page of the relevant policy documents. The company also used an LLM to generate many variations of the same question to ensure answer consistency. These steps, among others, were critical to helping end users build trust in the tool.

Part of the training for maintenance teams using a gen AI tool should be to help them understand the limitations of models and how best to get the right answers. That includes teaching workers strategies to get to the best answer as fast as possible by starting with broad questions then narrowing them down. This provides the model with more context, and it also helps remove any bias of the people who might think they know the answer already. Having model interfaces that look and feel the same as existing tools also helps users feel less pressured to learn something new each time a new application is introduced.

Getting to scale means that businesses will need to stop building one-off solutions that are hard to use for other similar use cases. One global energy and materials company, for example, has established ease of reuse as a key requirement for all gen AI models, and has found in early iterations that 50 to 60 percent of its components can be reused. This means setting standards for developing gen AI assets (for example, prompts and context) that can be easily reused for other cases.

While many of the risk issues relating to gen AI are evolutions of discussions that were already brewing—for instance, data privacy, security, bias risk, job displacement, and intellectual property protection—gen AI has greatly expanded that risk landscape. Just 21 percent of companies reporting AI adoption say they have established policies governing employees’ use of gen AI technologies.

Similarly, a set of tests for AI/gen AI solutions should be established to demonstrate that data privacy, debiasing, and intellectual property protection are respected. Some organizations, in fact, are proposing to release models accompanied with documentation that details their performance characteristics. Documenting your decisions and rationales can be particularly helpful in conversations with regulators.

In some ways, this article is premature—so much is changing that we’ll likely have a profoundly different understanding of gen AI and its capabilities in a year’s time. But the core truths of finding value and driving change will still apply. How well companies have learned those lessons may largely determine how successful they’ll be in capturing that value.

The authors wish to thank Michael Chui, Juan Couto, Ben Ellencweig, Josh Gartner, Bryce Hall, Holger Harreis, Phil Hudelson, Suzana Iacob, Sid Kamath, Neerav Kingsland, Kitti Lakner, Robert Levin, Matej Macak, Lapo Mori, Alex Peluffo, Aldo Rosales, Erik Roth, Abdul Wahab Shaikh, and Stephen Xu for their contributions to this article.

This article was edited by Barr Seitz, an editorial director in the New York office.

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CrowdStrike: S&P 500 Inclusion Doesn't Justify Its Expensive Investment Thesis - Upgrade To Hold

• CRWD continues to report stellar financial earnings and performance metrics in FQ1'25, while moderately raising its FY2025 guidance.
• With NVDA endorsing the Falcon platform and AWS consolidating its cybersecurity protection with CRWD, the latter's prospects as a cybersecurity leader are further solidified.
• The S&P 500 inclusion is a boon as well, with institutional investors more likely to buy while improving its price premium.
• However, while market leaders rarely come cheap, it is uncertain if CRWD is able to sustain the overstretched valuations in the long term.
• At the same time, CRWD has mostly traded sideways since early 2024, with the baked in premium implying that the stock is likely to continue doing so in the near-term.

We previously covered CrowdStrike Holdings ( NASDAQ: CRWD ) in March 2024, discussing how the generative AI hype had gone into overdrive, as the global demand for generative AI-related services rose with the cybersecurity company also reporting an accelerated top/ bottom line growth.

However, with the stock hitting frothy heights of over 90x in FWD P/E valuations and the market nearing extreme greed then, we believed that there might be more volatility in the near-term, with us similarly heeding our advice and rebalancing our portfolio at those levels, leading to our Sell rating then.

Since then, CRWD has already moderated by -13.9% at its worst before recovering, with the +6.2% change not too far off from the wider market at +3.8%.

On the one hand, it is undeniable that CRWD's premium valuations and expensive stock prices offer a minimal margin of safety for investors looking to add.

On the other hand, the cybersecurity SaaS company continues to report excellent financial and performance metrics, with the increasingly rich balance sheet implying its robust profitable growth prospects. Combined with the recent S&P500 inclusion and the higher fair value/ long-term price target, we are upgrading our previous Sell rating to Hold here.

CRWD Continues To Demonstrate Profitable Growth Trend - As Consolidation Occurs

The ongoing generative AI boom and the intensified security breaches reported by multiple cybersecurity providers, such as Microsoft ( MSFT ) and Okta ( OKTA ), further demonstrate the need for an effective and vertically integrated cybersecurity platform, one currently offered by CRWD through the CrowdStrike Falcon® XDR platform.

This is especially since hackers have already "made a failed attempt to hack into CRWD ," further proving why enterprises increasingly choose its cybersecurity platform, with it holding the highest market share for endpoint security sales at 18.5% in Q2'23 .

This is up from the 17.7% reported between July 2021 and June 2022, and MSFT at 16.4% over the same time period.

At the same time, we have observed an ongoing consolidation in the sector and slowing growth in its peers, such as Palo Alto ( PANW ), with the latter having had to offer "free support during a breach," while "approaching customers well before their point product contracts expire and offering free extended rollout period prior to the end of the obligation of legacy vendors/ payment" - effectively resulting in their slower monetization/ revenue recognition.

This is a direct contrast to CRWD, which has already received the much-needed endorsement from the leading Generative AI player, Nvidia ( NVDA ), and the leader of cloud provider, Amazon ( AMZN ), as AWS also "unifies its cybersecurity protection while replacing a variety of cloud point products" with Falcon, demonstrating the former's growing leadership thus far.

As a result of the promising market trends and CRWD's leading position in the cybersecurity market, we believe that it remains well positioned to emerge as a long-term winner.

We shall further support our bullish thesis using CRWD's promising FQ1'24 performance, discussed in depth below.

For now, CRWD has reported a double beat FQ1'25 earnings call, with revenues of $921M ( +8.9% QoQ / +32.9% YoY ) and adj EPS of $0.93 (-2.1% QoQ/ +63.1% YoY).

Its ability to increasingly monetize its existing consumer base is undeniable indeed, due to the increased cross-selling with up to seven or more of its modules at 65% adoption rate (+1 points QoQ/ +3 YoY), six or more at 44% (+1 points QoQ/ +4 YoY), and five or more at 28% (+1 points QoQ/ +5 YoY), with $212M in net new ARR added (-24.8% QoQ/ +21.8% YoY).

As a result of these developments, it is unsurprising that CRWD has reported expanding Annual Recurring Revenue [ARR] of $3.65B (+6.1% QoQ/ +33.6% YoY) and multi-year Remaining Performance obligations of $4.7B ( +2.1% QoQ / +42.4% YoY ), as similarly highlighted by the management in the recent earnings call:

And in our channel ecosystem at large, we're seeing partners deprioritizing other vendors on their line cards to consolidate their time, headcount, and go-to-market focus on CrowdStrike. Our top 50 partners in every geo are growing and telling us they're doing less and less with other vendors, instead increasing their focus and business results on Falcon. ( Seeking Alpha )

With generative AI infrastructure and software growth still at their nascency, it appears that we may see the cybersecurity company achieve its ambitious 5 to 7Y target of $10B in ARR and approximate top-line CAGR of +28% earlier than expected.

At the same time, with CRWD reporting expanding adj operating margins of 21.5% (+4.8 YoY/ +35.1 points from FY2020 levels of -13.6%), FCF margins of 35% (+1.6 points QoQ/ +2.2 YoY/ +30.9 from FY2020 levels of 4.1%), and healthier balance sheet with a net cash situation of $2.96B (+8.4% QoQ/ +35.7% YoY), we believe the SaaS company remains well positioned to generate high growth and sustained profitability ahead.

These developments have resulted in CRWD moderately raising its FY2025 guidance, with revenues of $3.99B (+30.3% YoY) and adj EPS of $3.98 (+28.8% YoY) at the midpoint, up from the original guidance of $3.95B (+29.5% YoY) and $3.87 (+25.2% YoY) at the midpoint, respectively.

Our take is that the FQ1'25 performance and raised FY2025 guidance have further solidified the SaaS company's prospects as a cybersecurity leader, further aided by the ongoing market consolidation thus far.

CRWD Is Still Expensive Compared to Its Peers - Offering A Minimal Margin Of Safety

CRWD Valuations

Seeking Alpha

As a result of the promising development above, the market has further raised CRWD's premium to FWD P/E valuations of 84.81x, compared to the previous article at 82.57x and its 1Y mean of 69.86x.

However, we are not certain if there is a margin of safety here, especially since the cybersecurity company's top/ bottom line growth projections remain somewhat consistent at a CAGR of +27%/ +27% through FY2027, in line with the previous article.

When compared to its generative AI peers, such as Palantir ( PLTR ) at 71.68x with a projected top/ bottom line growth at +19.9%/ +23.2%, NVDA at 44.65x with +44.1%/ +47.2%, and MSFT at 35.84x with +14.9%/ +16.9%, respectively, it is apparent that CRWD is trading at a premium.

Our observation is the same, when comparing CRWD to its direct cybersecurity peers, such as PANW at 53.22x with +15.8%/ +18%, Fortinet ( FTNT ) at 33.72x with +12.2%/ +12.5%, and OKTA at 36.14x with +12.5%/ +26.3%, respectively.

While market leaders rarely come cheap, these comparisons further demonstrate why we believe that CRWD's premium is not justified here.

On the one hand, we are encouraged by the S&P500 inclusion, with institutional investors more likely to buy CRWD while improving its price premium. This is an important milestone indeed, since CRWD joins the rest of its AI SaaS peers, including MSFT, NVDA, Adobe ( ADBE ), and Oracle ( ORCL ).

On the other hand, readers must note that CRWD's premium has not been observed in its cybersecurity peers within the S&P500, including PANW and FTNT, with the former likely to trade sideways ahead as it grows into its valuations.

With many other opportunities in the stock market, we do not believe in chasing overvalued stocks.

So, Is CRWD Stock A Buy , Sell, or Hold?

CRWD 5Y Stock Price

Trading View

For now, CRWD has returned to $350s after the recent earnings call, while trading at a new height of $360s after the stock market closes following the announcement of S&P500 inclusion.

For context, we had offered an estimated fair value of $197.80 in our previous article, based on its FY2024 (CY2024) adj EPS of $3.09 and a more moderate 1Y P/E mean of 64.03x (nearer to its AI SaaS peers).

For now, based on the LTM adj EPS of $3.44 (+11.3% from the previous article) and the updated 1Y P/E mean of 69.86x, it is apparent that CRWD continues to trade at a notable premium to our updated fair value estimates of $240.30.

Based on the raised consensus FY2026 adj EPS estimates from $6.38 in our previous article to the current $6.45, there remains a minimal margin of safety to our updated long-term price target of $450.50 as well.

Does this mean that CRWD remains a Sell here? Not quite.

With CRWD continually demonstrating profitable growth and robust performance metrics during the consolidation observed in the sector, and now, being included in the S&P500, we maintain our previous confidence regarding its widening competitive moat in the cybersecurity market.

However, we do not believe that the stock is a Buy here as well, with it mostly trading sideways since early 2024, temporarily recording support at $300s and resistance at $350s, with the baked in premium implying that the stock is likely to continue doing so in the near-term.

As a result of the notable premium and the relatively low risk/ reward ratio at current levels, we prefer to upgrade the stock to a Hold instead, with interested investors better off adding upon a moderate retracement - preferably at its previous support levels of $300s for an improved upside potential.

This article was written by

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CRWD, PLTR, NVDA, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The analysis is provided exclusively for informational purposes and should not be considered professional investment advice. Before investing, please conduct personal in-depth research and utmost due diligence, as there are many risks associated with the trade, including capital loss.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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