Wednesday, July 11, 2012

Government Regulation is Resulting in the Shortage of One of the Most Abundant Elements

A crucial ingredient in MRI machines, wafer manufacturing, welding, and more, helium is experiencing a shortage that’s driving up its price around the world.


Not surprisingly the bottom line cause is government price regulations which distort supply and demand. Popular Mechanics reports:


One of the most abundant elements in the universe is getting harder to come by.

Helium goes into a lot more than balloons. Because the gas is inert and has extreme melting and boiling points—both near absolute zero—scientists use it in cryogenics, high-energy accelerators, arc welding, and silicon wafer manufacturing. A severe reduction in the availability of helium could force hospitals to replace costly MRI magnets or restrict patient access to them.

The federal government, which sets helium prices, announced in April that helium prices would spike from $75.75 per thousand cubic feet (Mcf) in FY 2012 to $84 per Mcf in FY 2013. (Last year, prices rose only 75 cents.) This price spike, along with uncertain federal policy (and a peculiar industry setup to begin with), is threatening to create a shortage. Here’s what’s going on...


Under the federal system, those prices are unstable partly because they have less to do with supply and demand than they do about the need for the government, under the U.S. Bureau of Land Management, to pay off the cost of creating the Federal Helium Reserve, according to David Joyner, president of Air Liquide Helium America, who testified before the Senate Energy and Natural Resources Committee in May. Helium prices were set by the BLM based on the amount of the remaining $1 billion debt the government incurred after it purchased its helium stockpile in 1960 and how much of that reserve was left.

"Because the original base pricing of federal helium started at below market levels, the BLM, at the recommendation of the National Academy of Sciences, is now making unpredictable increases to adjust for the base pricing up to market levels and to incorporate additional fees for costs that are specific only to the operation of the BLM reserve," he told the committee. This irregular pricing, he said, "drives up the price of helium for all consumers, not only here in the United States, but also around the world whenever the BLM crude price is adjusted."
(ht Troy Christensen)

7 comments:

  1. "If you put the federal government in charge of the Sahara Desert, in 5 years there would be a shortage of sand." - Milton Friedman

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  2. Oh, man... Helium is the second most abundant element in the universe, but not on Earth, so the abundance reference is irrelevant. The nearest abundant reservoir of helium is Jupiter. On Earth it is a rare and irreplaceable substance with a tendency to escape into space to be lost forever.

    As for the regulation, there is no prohibition on extraction of helium from natural gas, and no directive to blow it out of smoke stacks along with exhaust gas. Hence if private sector doesn't want to do it, it is not government's fault regardless of its action or inaction. No government holds a monopoly on helium. If they hold the price down on their stockpile, it is their fault. If private sector blows it out into space, it is their fault. If public wastes such a resource on voice distortion and party balloons, or MRI users cannot be bothered with using closed circuit systems, it is their fault. In this case there is plenty of blame for everyone, and it is unfair to single out one particular party. Rampant stupidity is not a privilege of the government.

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    Replies
    1. "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"

      "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"

      "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"


      "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"

      "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"

      "That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?"

      Enjoy.

      Delete
    2. "Rampant stupidity is not a privilege of the government."

      Yeah it is, especially when you socialise it and force the populace at large to subsidise it. In some ways it is a uniquely special gov't privilege.

      Delete
    3. "Rampant stupidity is not a privilege of the government."
      No, it isn't. You can find some of that stupidity here too. The Popular Mechanics article already covered all the points you brought up, and more!

      Delete
  3. @Anonymous 1:30pm

    "The federal government, which sets helium prices..."

    That's from the article. Is that statement true or false? If true, what's the private sector alternative then... black market in helium?

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  4. The government doesn't literally set a price that everyone must sell their helium for -they just decide how much they will sell the government owned helium for. Since that has historically made up 1/3 of the world's supply, they may as well be setting the price! We tax payers paid for that stock pile below market price, but on borrowed money many years ago. In 1996 the government said they were going to get us our money back by selling all of the remaining reserves by 2015. What David Joyner is saying is that because the government plans to exaust all of their remaining supply by 2015 - they are using a cost matrix to determin their sell price based on the operating cost of their BLM refining operation. Refining from a nearly depleted shale becomes increasingly less efficent - add to that cost matrix the fact that they have given themselves 3yrs to pay the balance on our loan- what you end up with is an artificial cost hike on a sizeable portion of existing supply. Over the past 52 years the government has been selling their Helium reserves on the open market and charging Exxon for the mining rights to the only other North American source (Shute Creek, WY) The government influences the refining & extraction cost of the private sector and then sells their own supply cheap at the same time. This makes for a good price on Helium to you and I, but if anyone with a couple trillion to invest over the past 5 decades certainly didn't consider building a Helium plant! Wouldn't exactly have been a good idea to build such a costly plant that produces helium at an operating cost of $75/SCF to make something the government is selling for $78/SCF is it? Might take a little while to get a return on that initial investment! Very few private companies are willing or have the capital to invest in something that will take 52yrs to make a return on. So having said that - now that the government is trying to settle their debts & get out of the Helium game they are trying to make up for selling too low for too long while incurring increased production cost associated with a nearly empty shale.

    ReplyDelete