Tuesday 15 May 2012

Helium futures

Matt Yglesias points to a potential coming helium shortage.

None of the stories about peak helium have made much sense. Even if the U.S. government is selling its helium off cheaply, surely others have incentive to store helium for later sale.

But I think I get it now. The US Federal Government controls a big geological formation that provides really cheap helium storage; by legislation, they're selling down those reserves at relatively cheap prices. Funding pressure then might shut down the whole reserve. Then, the private sector is left with more expensive storage options.

I don't believe the nightmare scenarios around MRIs running out of helium. Anybody who puts high value on having reliable access to helium can buy and set up storage tanks. The cost of helium for those users will be much higher, given differential storage costs, but it's pretty hard to believe that some private storage solution wouldn't come up for those really high value users.

I wish somebody would set up futures markets in delivered helium so the high value users could ensure longer term supply and so that we'd have a better sense of what the market expects future scarcity to look like. Why isn't there one?

There seems to be policy failure all over the place on this file.
By 1996, however, the Helium Reserve looked like a waste. Blimps no longer seemed quite so vital to the nation’s defense and, more important, the reserve was $1.4 billion in debt after paying drillers to extract helium from natural gas. The Republican-led Congress, looking to save money, passed the Helium Privatization Act, ordering a sell-off by the end of 2014.
Why was the federal government subsidizing the production of helium in the first place? I can see an argument for the government paying for helium extraction and on-selling it afterwards if they were the only reasonable owner of the big geological formation, but that sure doesn't provide an argument for subsidising the production of so much helium that they wound up selling it below total cost and running large debts.

Given Congress's handling of the project, are the potential losses from a private owner earning Ricardian rents on storage cost differences really that much worse than the deadweight costs of how the government's run things? In other words, it could have made more sense to sell off ownership of the field rather than the helium inside it.


  1. of topic...


    1. Oh, I'm watching that one. I'd bet that NZ goes with an excise hike rather than minimum pricing. But neither is great.