Macroeconomic Themes ~ Helium Stock Picks - Heading Into 2022
Our Equities Trader, Joseph Raad, discusses macroeconomic themes heading into 2022.
One commodity which has far-reaching applications but has been flying under the radar as of late is helium. The gas has a multitude of uses beyond the one people most associate it with, being balloons. It has the lowest boiling point of any element in the world, making it ideal as a coolant for nuclear reactors and magnetic resonance imaging (MRI) machines.
It is mostly used in digital technology, and more specifically, in high-capacity hard drives in data centres and in the production of barcode readers, computer chips, semiconductors, LCD panels and fibre-optic cables.
In 2012, the US produced an estimated 78% of the world’s helium, of which around 30% came from the NHR2. We have seen, however, multiple global helium shortages over the past decade. The first, in 2013, was caused by a perfect storm of worldwide refinery equipment failures and shutdowns and scheduled maintenance in several of the world’s natural gas refineries. These factors, coupled with an increasing demand for helium from newly industrialised countries such as China, meant that as supply became short, customers faced stark price increases and supply problems as private companies struggled to meet demand.
Following this, the US government rushed through the helium stewardship act in 2013, which prolonged the operation of the NHR through to 2018, by which all helium stocks were mandated to be auctioned to private gas suppliers. This stabilised global supply and gave other global helium producers time to increase production and improve supply chain efficiency. However, with demand for helium having continued to increase, another shortage was experienced during 2019-2020. The recent pandemic has added to this issue with supply chains being further affected.
Currently, Qatar and the US are the top producers, but demand is heavily outweighing supply. Approximately 20% of global demand was met by the US selling off its national reserves, and with those reserves now gone, questions are being raised over how this demand will be met.
There are few ASX listed stocks that focus on the mining and production of helium. These, however, have experienced significant gains over the past year and are widely expected to continue to grow alongside the underlying commodity’s demand.
Helium Stock Picks
Grand Gulf Energy Limited (ASX:GGE) is targeting conventional oil and gas opportunities in the United States. The company listed on the Australian Stock Exchange in February 2006 as Alto Energy International Limited and changed its name to Grand Gulf Energy Limited in June 2007. The name Grand Gulf Energy is derived from the company’s operating subsidiary in USA.
Renergen (ASX:RLT) is an emerging producer of helium and liquefied natural gas (LNG), with existing production and sales of compressed natural gas (CNG). Their natural gas contains one of the richest helium concentrations recorded globally. The natural gas is also very pure with an average of over 90% methane, and almost zero higher alkanes. Furthermore, Renergen's natural gas offers a less carbon-intensive substitute for South Africa’s existing transport fuel, thermal fuel and power.
Blue Star Helium Ltd (ASX:BNL) is an independent helium exploration and production company. They are headquartered in Australia, with operations and exploration in North America. Their strategy is to find and develop new supplies of low cost, high grade helium in North America.
Helium plays, in general, are highly prospective, as there is no longer a federal reserve of helium, and the world is facing an extremely tight supply with fast-growing medical and technological fields.
Where to from here?
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