Innovative use of helium Does Russia need to produce helium?

Innovative
use of helium
Does Russia need
to produce helium?
Contents
Introduction
1
Helium as a strategic resource
2
International experience, in terms of the USA
4
Helium reserves and production facilities in Russia
7
Prospects for the development of Russia’s helium market
11
Conclusion 14
How Ernst & Young can help your business
16
Contacts
17
Introduction
As science and technology develop, we
will see new, highly effective technologies
making use of helium as a raw material.
Interest in this resource should grow
considerably as a result. Even today, there
is a steady trend on the world market
toward growth in helium consumption.
Helium’s unique properties include
chemical inertness, high thermal
conductivity, a low liquefaction point,
nontoxicity and low nuclear reactivity.
Thanks to these and a range of other
valuable properties, helium is increasingly
being used in astronautics, aviation,
medicine, shipbuilding, chemical
production, metallurgy, the nuclear
industry, cryogenic systems and in many
other areas.
Russia has substantial reserves of
helium-containing natural gas, most of
which are concentrated in Eastern Siberia.
No companies have, as yet, undertaken
1
full-scale development of these gas fields,
and thus, the key task today is to
determine the viability of recovering these
helium reserves. As a result, there is a new
emphasis today on the prospects for
developing the oil and gas resources of
Eastern Siberia with a view to promoting
Russian hydrocarbons on markets in the
Asia-Pacific region (APR).
According to Russia’s energy strategy,1
this is a strategic region for Russia, with
substantial undeveloped hydrocarbon
reserves, including those containing
helium. Comprehensive development of
the resources in this region, as well as
access to the energy markets of APR
countries, may be used to strengthen
Russia’s position in the region. Growing
demand for fuel and energy resources in
the eastern regions of the country may
also become a powerful instrument of the
state’s foreign and domestic policy.
It is now a good time for Russia to
establish a legislative framework so that
an optimal infrastructure can be created
to preserve this important resource for
future generations.
This study is an attempt to assess the
applicability of foreign experience in this
area, taking the US as an example. Since
the middle of the last century, industry
development has been shaped more by
the international political situation than by
economic factors.
Russia’s Energy Strategy through 2030, approved by Regulation No. 1715-r of the Government of the Russian Federation, 13 November 2009.
Innovative use of helium. Does Russia need to produce helium?
1
Helium as a strategic resource
Properties
Helium is a nonrenewable resource. In its
natural conditions on Earth, this
monatomic gas is completely inert,
meaning that it tends to remain in a state
of uniform motion or rest as long as forces
acting on it are absent or in equilibrium.
Helium’s boiling point of –268.9°C is
substantially lower than that of other
known elements.
In geological terms, helium’s most
important properties, in addition to
chemical inertness, are its lightness, weak
adsorption capacity, low solubility in
formation water, high diffusion capacity
and permeability.
Though widespread on the planet, helium
is extremely dissipated and doesn’t occur
freely in either the atmosphere or the
earth. No economically viable means are
known of recovering helium from the
atmosphere, due to helium’s high volatility
and very low content in the earth’s
gaseous mantle.
Applicability
This set of properties is the reason for
helium’s unique behavior in natural
conditions. Unlike other gases, this
element moves easily within the Earth’s
crust, escapes into the atmosphere along
with hydrogen and then escapes from
Earth’s gravitational field altogether.
Helium reserves are thus nonrenewable,
and there is no natural resource that can
duplicate its properties.
2
2
Helium’s unique properties are widely
employed in science, technology and
production. Figure 1 shows the main areas
in which helium is commonly used as a key
element.
According to the data from Air Products
and Chemicals,2 superconductors and
magnetic resonance imaging account for
28% of helium consumption, balloons and
dirigibles for 16%, welding for 11%, optic
fiber for 8%, leak detection for 12%, and
semiconductors for 6%.
Figure 1. Helium consumption
19%
28%
6%
8%
16%
11%
12%
Superconductors (including MRT)
Aerostatics
(including dirigible constructions)
Spill testing
Welding
Optical fiber
Semiconductors
Others
Source: Air Products and Chemicals.
It should be noted that, on the whole, the
sectors responsible for increased helium
demand are directly related to innovative
technologies that play a strategically
important role in scientific and technical
progress.
In many areas, helium is in demand for its
ability to create an inert environment,
which is essential in, for example,
manufacturing and processing metals that
oxidize easily. Metallic uranium,
plutonium, titanium and many other
elements may be obtained only in an inert
environment. Helium is also used to
remove dissolved gases from alloys in
order to obtain especially pure and
tenacious castings, while other inert gases
tend to dissolve in alloys.
Liquid helium is widespread in medicine —
for example, in such unique devices as
magnetic resonance imaging machines,
which scan internal organs as a form of
diagnosis. Helium is also widely used in
producing superconductors and highspeed computer technology.
Significant helium consumption is involved
in aerostatics. Today a number of Russian
and international companies are trying to
revive dirigible construction for longdistance delivery of bulky cargo. On the
whole, this is a promising area but
requires coordinated efforts to set up
temporary facilities for helium refilling
(and fueling).
In the nuclear power industry, helium’s
tolerance of various kinds of radiation and
high thermal conductivity are especially
attractive. The main environmental risk
posed by nuclear reactors is that the core
will overheat, potentially leading to a
breach of containment and a discharge of
radioactive materials. This threat may be
minimized by effective cooling systems
making use of helium’s unique properties
of high thermal conductivity and radiation
tolerance.
Helium on the Rise: An Air Products Special Report, March 2008.
Innovative use of helium. Does Russia need to produce helium?
In transportation, helium plays a part in
the creation of trains that travel on a
“magnetic cushion” about 10 cm above
the track at speeds of up to 500 km/hour.
Such trains are used in Japan and China,
for example — countries with the highest
helium consumption after the US.
Helium’s most science-driven application is
in research programs involving charged
high-energy particles (subatomic
particles, ions). Modern accelerators are
costly, large-scale complexes that even
large countries can’t afford to build on
their own. One example is the CERN Large
Hadron Collider, which was built using
helium from a plant in Russia’s Orenburg
Region.
Historically, the chief consumer of helium
is the US (over 50%). Recently, however,
with the rapid development of the
semiconductor industry, helium
consumption in APR countries has
increased its share to 15% of the total
(and continues to show growth potential).
Europe is also among the major
consumers of this unique raw material,
representing around 25% of global
consumption.
The list of countries developing
technologies that involve helium is also
steadily growing. Increased demand is
being shaped by such relatively new
markets as China, South Korea,
Singapore, Taiwan, Thailand, India, the
Scandinavian countries, Australia and New
Zealand. According to various estimates,
the demand for helium may reach
300 million cubic meters (mcm) by 2030.
Means of extraction
The chief industrial means of obtaining
helium today is still extraction from
natural gas (in which it is found as a
component). Following the removal of
carbon dioxide, natural gas is deep-cooled
(to –185°C) and compressed, yielding
liquid methane. Helium and nitrogen
remain in a gaseous state. Helium remains
gaseous throughout the process (and at
the end). Modern methods of liquefaction
produce helium that is 98% pure.
Currently, one of the most promising
means of recovering helium from natural
gas involves the use of semipermeable
membranes. Research has demonstrated
that this method is theoretically feasible,
though it has not been put into industrial
use.
It is also important to note that scientific
work involved in developing and
implementing innovative technologies can
take years. This means that the slightest
fluctuations in the market (due, for
example, to an industrial accident in one
region or another) may put a large-scale
project at risk (even if the cost of helium is
a negligible portion of total costs). Thus,
as already noted, the creation of storage
facilities permitting demand to be met in
the event of emergencies is not only a
sufficient but a necessary condition of any
long-term program for the development of
helium production.
It should be noted that when natural gas is
utilized at gas fields, there are
concomitant losses of helium, so that
preliminary extraction of all the helium in
natural gas output may be the best
solution. The total amount recovered may,
however, exceed demand, and the surplus
gas must then be pumped into
underground storage (worked-out
deposits) in the form of helium raw
material (nitrogen-helium concentrate).
Innovative use of helium. Does Russia need to produce helium?
3
International experience,
in terms of the US
The US has been the dominant player for
a long time, controlling over 50% of the
world helium market. The US has major
reserves of high-quality helium raw
material with a helium concentration of
over 0.5%.3 Qatar and Algeria have only
recently begun to develop their helium
industry (after significant deposits were
discovered in these countries as a result of
geological exploration).
Since the US has been concerned with the
rational use and preservation of its unique
resources for almost a century, it makes
sense to look specifically at the US as an
example of foreign experience in
developing the industry. First, however, we
need to establish several key factors,
including the overall development level of
infrastructure and historical data on
helium extraction and consumption, as
well as how the market is organized.
According to the US Geological Survey
(USGS),4 77 mcm of helium (with a
concentration of 99.997% and higher) was
produced in the US in 2010, worth an
estimated USD730 million.
The infrastructure of the US helium
industry, as it has been developed
historically, includes a 720-kilometer
pipeline system as well as helium reserves
in Cliffside, Texas.
Nine companies are engaged in helium
extraction from natural gas and crude
helium (with a content of from 50% to
99%) production. Ten plants obtain a
helium-nitrogen mixture and then produce
highly refined helium. Only six production
facilities are connected to the pipeline,
allowing them to obtain and purify stored
helium.
Despite the considerable number of
processing facilities that belong to private
companies, the US helium market
resembles an oligopoly. The six plants
connected to the pipeline make up a
unified system. Plants connected to the
pipeline purchase crude helium from the
reserve at a price established by the US
Bureau of Land Management (BLM)
(more on this below).
Figure 2. Infrastructure
of the US helium industry
Wyoming
Riley Ridge Area Fields
Church Buttes Field
Utah
Colorado
Moab
Burlington
Scott City
Beautiful Mountain Field
Reichel Field
Bushton
Satanta Kansas
Lisbon Field
Las Animas Fields
Greenwood Field
Hugoton Field
Liberal
Ute Dome Field
Shiprock Field
Keyes Field
Gruver
Panhandle Field
Oklahoma
Cliffside Field
New Mexico
Fain
Amarillo
Chillicothe
Thalia Field
Техаs
Explanation
City location
BLM helium pipeline
Helium gasfields
Source: US Geological Survey
Minerals Yearbook, 2009.
3
See V. P. Yakutseni, “The World’s Helium Raw Materials and Prospects for Developing the Helium Industry,” Oil & Gas Geology: Theory and Practice
(electronic scientific journal), no. 2 (2009): 1-24, http://www.ngtp.ru/rub/3/15_2009.pdf (visited on 4 September 2011).
4
2009 Minerals Yearbook // Сайт USGS. URL: (http://minerals.usgs.gov/minerals/pubs/commodity/zeolites/myb1-2009-zeoli.pdf (дата обращения — 04.09.2011); Mineral
Commodity Summaries 2011. Helium // Сайт USGS. URL: http://minerals.usgs.gov/minerals/pubs/commodity/helium/mcs-2011-heliu.pdf (дата обращения — 04.09.2011).
4
Innovative use of helium. Does Russia need to produce helium?
The US helium industry has developed
steadily since the 1920s, as illustrated by
the pattern of helium production and
consumption in Figure 3. The Federal
Helium Reserve, operated by the US
Bureau of Mines, was formed in 1960
under the Helium Act. For these purposes,
the government allocated an area of
11,000 acres in Cliffside, adjacent to the
Panhandle-Hugoton oil and gas field,
located in Texas, Oklahoma and Kansas.
The Bureau of Mines extracted, refined
and accumulated helium. In addition to its
own production, the bureau also bought
helium from private extraction companies
under long-term contracts and pumped
the raw material into the reserve storage
facility. Companies, able to sell an
unlimited quantity of helium to the
government, made substantial
investments in production infrastructure.
When the reserve was formed, the optimal
storage volume was set at 1.2 billion cubic
meters (bcm).5 A total of USD1.4 billion in
budget funds was spent on the project.
Figure 3. US helium production and consumption
mcm
150
120
Stock
sale period
Stock
accumulation
period
90
60
30
0
1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Domestic consumption
Production
Source: US Geological Survey Minerals Yearbook 2009.
In 1973, it became clear that there was
neither money nor storage capacity to
support such an aggressive program of
helium acquisition. The reserves
accumulated by that time were sufficient
for a little over 50 years, assuming that
consumption remained at the same level,
but over the next 20 years, the rate of
accumulation approximated the amounts
taken out of the reserves.
In 1996, the US Congress enacted the
Helium Privatization Act, requiring BLM to
cease refining operations in 1998 and
dispose of all federal helium reserves by
1 January 2015. Under the act, refineries
were to be privatized, and all remaining
federal helium reserves in excess of
600 million cubic feet (16.6 mcm)6 were
to be sold to private companies on a
straight-line basis.7
5
See 2009 Minerals Yearbook, ibid.
6
See Helium Privatization Act of 1996, US Government Printing Office website, http://www.gpo.gov/fdsys/pkg/CRPT-104srpt302/pdf/CRPT-104srpt302.pdf,
accessed 4 September 2011.
7
The annual cost of helium to be sold is determined by dividing the total amount of budget funds spent on maintaining storage by the expected volume of sales.
Innovative use of helium. Does Russia need to produce helium?
5
However, one of the most successful
elements of the 1996 initiative was the
in-kind sale of crude helium to government
and scientific institutions at prices
substantially lower than market prices
(Figure 4). The program’s goal was to
support long-term scientific development
that may last several years. Indeed,
significant fluctuations in helium prices
previously led to the suspension of a
number of research programs: the cost of
helium increased, and a major part of R&D
budgets was spent to buy raw materials.
To continue research, it was necessary to
obtain new approvals of financing
parameters and sources.
In this initiative, sales of helium are
arranged as follows.8 Helium refiners that
sell helium to federal agencies and their
contractors are required to buy an
equivalent amount of crude helium from
BLM at cost. This covers the cost of
refining helium and supplying it to
government and scientific institutions.
Thus, in 2011, when it was decided to
establish an open-market price of USD 2.7
per 1 cubic meter (USD75 per 1,000
cubic feet),9 US federal agencies could buy
helium under the program at last year’s
prices (USD2.3 per 1 cubic meter or
USD64.75 per 1,000 cubic feet).
Figure 4. Dynamics of helium prices established by BLM for open-market sales and
natural gas prices
USD/1,000
cubic meters
USD/1cubic
meter
350
3,0
300
2,5
250
2,0
200
1,5
150
1,0
100
0,5
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Natural gas (Henry Hub)
0,0
Helium (BLM prices for open-market sales)
Source: US Bureau of Land Management.
8http://frwebgate.access.gpo.gov/cgi-bin/get-cfr.cgi?TITLE=43&PART=3195&SECTION=12&YEAR=
1999&TYPE=PDF, accessed 4 September 2011.
9
6
US Bureau of Land Management.
Innovative use of helium. Does Russia need to produce helium?
Helium reserves and production
facilities in Russia
As a global leader of helium resources
contained in natural gas deposits, Russia
needs to take a more well-considered
approach to the extraction and sale of
helium as a nonrenewable resource used
in scientific, innovative and high-tech
developments.
In the European regions of Russia, the
helium content in natural gas deposits is
negligible — from 0.05% to 0.06%.10 Gas
deposits with a helium content from 0.1%
to 0.25%11 in the western regions have
been nearly depleted (in particular, this
refers to Saratov Region and the Komi
Republic). Meanwhile, gas deposits in
Orenburg Region, where the helium
content in natural gas is approximately
0.055%, continue to supply this valuable
raw material to consumers not only in
Russia but also abroad.
Gas fields in Ciscaucasia, the Caspian Sea
region, Western Siberia, the Russian Far
East and the Arctic region have limited
helium content (ranging from 0.008% to
0.025%12), thus making extraction of
helium from these deposits economically
unviable.
Russia’s high-quality reserves of helium
are concentrated in Eastern Siberia. The
helium content in these gas fields ranges
from 0.15% to 1.0%.13 According to the
All-Russia Petroleum Research Exploration
Institute (VNIGRI),14 Russia’s helium
reserves in East Siberian gas fields are
approximately 16 bcm, while estimated
world reserves, excluding Russia, amount
to 27 bcm. The main areas with a high
concentration of helium are the
Kovyktinskoye, Urubcheno Tokhomskoye,
Sobinskoye, Chayandinskoye and
Srednebotuobinskoye gas fields. At the
moment, Russian companies that have
obtained licenses for these gas fields are
exploring the possibilities of developing
the deposits to recover helium and other
important gases (including ethane).
Figure 5. Helium content in natural gas
fields in Eastern Siberia
Gas field
Helium
content (%)
Kovyktinskoye
0,28
Chayandinskoye
0,50
It should be noted that full-scale
development and production of helium will
depend largely on such factors as the
construction of comprehensive
infrastructure (for gas transport,
extraction of valuable fractions and the
development of complex gas chemical
production processes) and the level of
demand for helium. In our forecast, we
considered factors of uncertainty and
based our estimates on a four-year period
for gas extraction to reach full capacity.
According to our estimates, the level of
annual natural gas production in Eastern
Siberia will be 2.5% to 4% of the region’s
total gas reserves.
Urubcheno Tokhomskoye 0,18
Srednebotuobinskoye
0.20-0.60
Sobinskoye
0,60
Source: Gas industry in Russia
(3rd quarter, 2006).
Using open publications and data on field
reserves, commercial-production starting
dates and the helium content of gas, we
estimated the natural gas production
levels for these gas fields. These estimates
allowed us to evaluate the prospects for
helium production on Eastern Siberia’s gas
fields.
10 See V. P. Yakutseni, “The World’s Helium Raw Materials and Prospects for Developing the Helium Industry,” Oil & Gas Geology: Theory and Practice
(electronic scientific journal), no. 2 (2009): 1-24, http://www.ngtp.ru/rub/3/15_2009.pdf (visited on 4 September 2011).
11Ibid.
12Ibid.
13 See Russia’s Energy Strategy through 2030, “VI. Prospects and strategic initiatives for development of the fuel and energy sector,”
Ministry of Energy of the Russian Federation website. URL: http://minenergo.gov.ru/activity/energostrategy/ch_6.php?sphrase_id=123586.
14 See V. P. Yakutseni, “The World’s Helium Raw Materials and Prospects for Developing the Helium Industry,” Oil & Gas Geology: Theory and Practice
(electronic scientific journal), no. 2 (2009): 1-24, http://www.ngtp.ru/rub/3/15_2009.pdf.
Innovative use of helium. Does Russia need to produce helium?
7
Figure 6 demonstrates that in the scenario
of large-scale development of these gas
fields, natural gas production in Eastern
Siberia may vary from 0 bcm to 40 bcm in
2020, and from 80 bcm to 110 bcm in
2030. These impressive figures are the
result of substantial gas reserves.
Figure 7 shows our projections of helium
production in Eastern Siberia, based on a
number of the factors mentioned,
including infrastructure development.
Russia’s helium production may be
comparable to current production in the
US by 2022–25. However, it should be
noted that Russia currently accounts for
approximately 3.6% of global helium
production (including production in
Orenburg Region and exports to Europe).15
Figure 6. Forecast of natural gas production in Eastern Siberia
bcm
120
100
80
60
40
20
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2027
2028
2029
2030
Source: Ernst & Young estimates.
Figure 7. Forecast of helium production in Eastern Siberia (the largest helium-containing fields)
mcm
300
250
200
150
100
50
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Source: Ernst & Young estimates.
15 See Mineral Commodity Summaries 2011, op. cit.
8
Innovative use of helium. Does Russia need to produce helium?
Innovative use of helium. Does Russia need to produce helium?
9
Will the high demand for this raw material continue?
What actions will be taken by such competitors
as Qatar and Algeria? Can Russia afford to create
a helium storage system as in the US? How much
will it cost to continually purchase and store helium?
Will the demand for helium in Russia grow?
10
Innovative use of helium. Does Russia need to produce helium?
Prospects for the development
of Russia’s helium market
The above information may give rise to
doubts about the development of the
Russian helium market. Will the high
demand for this raw material continue?
What actions will be taken by such
competitors as Qatar and Algeria? Can
Russia afford to create a helium storage
system as in the US? How much will it cost
to continually purchase and store helium?
Will the demand for helium in Russia grow?
Let us try to answer these questions, at
least in part.
Primarily it seems that the level of demand
is the most important issue on the list.
According to the US Geological Survey, in
2010, the global production of helium was
150 mcm16 — lower than in 2008 and
2009 (175 mcm and 170 mcm,
respectively17).
Such dynamics are explained by the global
downturn. Forecasts of the global helium
market differ, as the estimates of
specialists vary widely. According to
experts, one of the main drivers of global
demand is the market situation in APR
countries, which are generating increased
demand. It should be appreciated that
helium price escalation will induce
optimization, rationalization and
modernization of technologies, allowing
reduced consumption of this valuable raw
material. Based on these assumptions, we
estimate that annual growth in demand
will be in the range of 2% to 4% (Figure 8).
The analysis of competitor countries in the
global market shows that the United States
is facing a decline in production, while
Qatar and Algeria are considering a
number of projects that may be
implemented between 2015 and 2020.
Figure 8. Global helium demand
mcm
350
300
250
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Ernst & Young estimates.
16Ibid.
17 See Mineral Commodity Summaries 2010, Helium, USGS website, http://minerals.usgs.gov/minerals/pubs/commodity/helium/mcs-2010-heliu.pdf.
Innovative use of helium. Does Russia need to produce helium?
11
All global market players should take into
account the probability of overproduction,
which may lead to a significant decline in
revenues for companies operating in this
segment.
We estimated the required helium
production capacity, excluding the
influence of Russia’s production and
supplies from US reserves. One can clearly
see the following trends: until 2016–20,
the global demand will outstrip
production, and market prices and supply
will thus be influenced by sales of helium
from US reserves (Figure 9). Subsequent
years may see the implementation of a
number of large-scale projects, but the
market may still need to draw on US
reserves.
Our estimates show that if the respective
projects in Russia, Qatar and Algeria are
delayed, the US government will probably
have to raise its minimum requirements
for helium stock to 100 mcm–200 mcm.
The Figure 10 demonstrates that, in this
scenario, supplies of helium from US
reserves will be discontinued in 2016–17.
Without such a decision, helium reserves
will effectively be depleted in 2019–20.
Figure 9. Global supply and demand of helium (excluding Russian production and supplies from US reserves)
mcm
350
300
250
200
150
100
50
0
Helium demand range
Helium production range
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Ernst & Young estimates.
Figure 10. Demand for helium from US reserves
mcm
80
70
60
50
40
30
20
10
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
Minimum demand (extraction from the US reserves)
Maximum demand (100 mcm limit)
Maximum demand (200 mcm limit)
Maximum demand (limit established by law)
2019
2020
Source: Ernst & Young estimates.
fields without launching large-scale
production. But there is still the probability
that other helium-producing countries will
be quicker in taking a share of the market
Maximum demand, cessation of supplies
from US reserves and a delay in new
projects may lead to a deficit of helium
and rising helium prices in 2016–18. To
reduce risks (including the risk of
overproduction), the most rational
approach for Russia would be to start
extracting helium from one or two gas
12
Innovative use of helium. Does Russia need to produce helium?
The gap between supply and demand will
probably narrow but will still be significant
and will become a financial burden for an
institution (a company or the government)
that accumulates helium for which there is
no demand.
and that demand will grow slowly. In this
case (Figure 11) there may not be any
demand for Eastern Siberian helium.
In a scenario of maximum demand and
delays in helium production in other
countries, the level of demand may reach
80 mcm in 2020 (or twice the forecasted
production) and 170 mcm in 2030, which
would be insufficient to absorb the helium
produced in 2030.
Figure 11. Extraction of helium in Eastern Siberia and helium demand
mcm
300
250
200
150
100
50
0
2015
Production
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Demand
Source: Ernst & Young estimates.
Thus, we may draw some conclusions.
First, it seems unreasonable to produce
helium on all fields. Second, there is
clearly a market niche which Russia can
occupy in the foreseeable future, if an
investment decision is made today. In
addition, project development should be
supported with incentive programs for
helium consumption in Russia to avoid the
risk of overproduction. Third, construction
of a storage reservoir for helium extracted
at all gas fields in Eastern Siberia will
require an investment of USD1 billion–
USD2 billion to purchase helium in 2030,
and these funds would probably be frozen
for a long period.
What is the outlook for the helium
industry beyond 2030? The gap between
supply and demand will probably narrow
but will still be significant and will become
a financial burden for an institution (a
company or the government) that
accumulates helium for which there is no
demand.
Innovative use of helium. Does Russia need to produce helium?
13
Conclusion
To sum up, we will identify measures that
would be reasonable to implement in
developing natural gas resources in
Eastern Siberia without losing their unique
helium component.
It is important to note that development of
the Russian helium industry depends
largely on the economic appeal of this
market niche. This will require a
consideration of all possible economic
factors, including state support and the
development of demand on the part of
domestic consumers (the main
consumers, as mentioned earlier, are
high-tech industries to be developed).
Primarily, the development of regulations
on helium extraction, production and
distribution is needed.
In addition, it is time to devise a strategy
for developing and protecting gas and
helium resources, clearly defining the role
and place of the state, private Russian and
foreign business, the forms of their
interaction and partnership and the
regulatory framework for measures to
rationally utilize and maintain helium
reserves.
14
Model analysis demonstrated that it would
be more economical to concentrate on one
or two gas fields where helium will be
extracted. It is noteworthy that gas
liquefaction appears to be the most
economically feasible method for the
helium extraction, as membrane
technology is still being developed.
This issue is closely related to the
identification of gas monetization
methods by developing pipeline export of
gas or constructing an onshore LNG plant.
But that brings up a question: where, and
at what distance from the coast, should a
suitable reservoir for the extracted helium
be located? If there is no worked-out
deposit to be used as a storage facility,
helium will have to be extracted on-site,
and this is less economical (but more
effective in the event of overproduction).
It is also important to note that during
pipeline transport, some gas will be lost at
compressor stations. This means that, in
absolute terms, fewer valuable
components (including helium) will be
received at the terminal point, and gas
supplies will likely be the top priority.
If an economically attractive method of
helium extraction is not developed (or the
method of natural gas sale does not allow
for large-scale extraction of helium), it
would be wise to abandon the idea of such
production. The most acceptable way may
be to initially develop several gas fields in
Eastern Siberia without extracting helium.
Thus, given the strategic importance of
helium, we believe it is now time to
undertake a program for the
comprehensive development of gas fields
in Eastern Siberia and to identify those
fields where helium extraction will involve
a license agreement or other
arrangements. Needless to say, the
current high level of uncertainty with
respect to demand for natural gas
(meaning uncertain prospects for gas field
development) seriously undermines
accurate forecasting. However, there are
decision-making tools that take these
uncertainties into account. Recent
developments in stochastic modeling may
be applied to protect businesses and the
state from potential financial losses
involved in making decisions that will
shape development for many years to
come.
It appears reasonable to create a
competitive market environment in the
sector to ensure improved production
efficiency, cost savings and conditions for
cost-effective satisfaction of consumer
demand. One of the main instruments for
this involves lowering the barriers to
market entry for operators processing raw
material. Above all, they need access to
helium-containing raw material. If there is
a single monopolistic processing company,
it would be reasonable to restrict its ability
to sell finished products in the market and
make it responsible for processing raw
materials of third parties in order to
extend the list of finished-product sellers.
Innovative use of helium. Does Russia need to produce helium?
Given the strategic importance of helium, we believe it is now time to undertake
a program for the comprehensive development of gas fields in Eastern Siberia
and to identify those fields where helium extraction will involve a license
agreement or other arrangements.
While developing the sector’s legislative
framework, it would be worthwhile to
assess the US practice of crude helium
sales to government and scientific
institutions at prices significantly below
market prices, since the development of
new technological solutions and individual
areas of science is closely related to the
high volatility of the global helium market
(mainly due to potential technological
problems at plants in helium-producing
countries). It would be unwise to fix prices
for these consumers for a long period.
These steps may well lead to the
accelerated development of gas fields as
well as rising employment and budget
revenues. Additionally, as a helium
producer, Russia will be able to actively
develop high-tech industries. Without the
need to import helium, the cost of this
strategic raw material supply will be lower,
and costs will be reduced even further for
research institutions and innovative
enterprises.
15
How Ernst & Young
can help your business
Ernst & Young is a global leader in
professional services with broad crossindustry experience. Worldwide, our
152,000 people seamlessly combine a
truly global approach with local expertise
and a deep understanding of our clients’
businesses.
Our Global Oil & Gas practice consists of a
network of more than 9,000 professionals
with extensive experience working in the
oil and gas industry. Our Global Oil & Gas
Center is a hub of professionals with
significant experience delivering
assurance, tax, transaction and advisory
services and a deep industry expertise.
We serve a wide range of companies —
independent exploration and production
companies, oilfield services companies,
independent refiners, major integrated
corporations and national oil companies.
16
Our Global Oil & Gas Centers, like the
professionals in our Global Oil & Gas
practice, are strategically located, helping
us to best meet the needs of the oil and
gas industry by providing high-quality
services in the right place and at the right
time. In addition to our Houston, London,
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Our clients’ needs are our primary
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We will help you develop, maintain and
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However complex your challenges, we
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Given the economic uncertainty faced by
Russia’s helium industry, potential
developers need to analyze the industry’s
growth strategy and principles in greater
detail. We can help companies that plan to
produce helium validate the strategies
they choose to pursue and evaluate
potential returns.
Innovative use of helium. Does Russia need to produce helium?
Contacts
Dale Nijoka
Global Oil & Gas Leader
Igor Boldyrev
CIS Advisory Leader
Oleg Svetleuschyi
Ukraine Oil & Gas Leader
Tel.: +1 713 750 1551
[email protected]
Tel.: +7 (495) 705 9742
[email protected]
Tel.: + 380 (44) 490 3031
[email protected]
Alexey Loza
CIS Oil & Gas Leader
Victor Borodin
CIS Oil & Gas Tax Leader
Tel.: +7 (495) 641 2945
[email protected]
Tel.: +7 (495) 755 9760
[email protected]
Paul Cohn
Central Asia and Caucasus
Oil & Gas Leader
Alexey Kondrashov
Global Oil & Gas Tax Leader
Grigory Arutunyan
Partner, Oil & Gas Advisory
Tel.: +7 (495) 662 9394
[email protected]
Tel.: +7 (495) 641 2941
[email protected]
Tel.: +7 (727) 259 8311
[email protected]
Innovative use of helium. Does Russia need to produce helium?
17
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How Ernst & Young’s Global Oil & Gas Center
can help your business
The oil and gas industry is constantly changing.
Increasingly uncertain energy policies, geopolitical
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© 2012 EYGM Limited.
All Rights Reserved.
EYG no. DW0173
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