Helium shortage leaves balloon business deflated

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These are lean times for Ashif Mohamed's Calgary-based balloon business. For one thing, southern Alberta's June floods dampened the festive mood that normally brings customers in for bouquets of the colourful, floating decorations for parties, graduations and other celebrations.

But a longer-term, continent-wide crisis is hurting Mr. Mohamed's Balloons Canada store even more – a shortage of helium that is pushing up prices for the super-light gas and forcing the major suppliers to ration it.

The worsening problem goes well beyond party decorations. It is hampering scientific institutions that use it in high-purity liquid form for research, organizations that need it for medical imaging equipment, the electronics and aerospace industries and even welders.

When it comes to the priority list for helium, balloon-fillers are at the bottom.

"That is the case with, literally, every balloon company out here, really," said Mr. Mohamed, who has been in the business for 14 years. "It has been, for the last year and a half now, getting worse and worse."

The main culprit? A fast-approaching move by the United States to close a massive underground helium storage reserve near Amarillo, Texas, that supplies 35 per cent of world demand. It is pushing North America to what some are calling the "helium cliff." It is also leading at least one company, led by a colourful Texas executive who has written extensively on helium's history and economics, to start unlocking long-ignored deposits in Western Canada. Others are said to also be taking the initial steps to tap domestic helium.

Even as supplies tighten, demand for the gas has climbed with myriad high-tech uses, including MRI units, in which it is vital for cooling superconducting magnets. According to the scientific journal Nature, another big consumer is the expanding semiconductor industry, which uses it to shield delicate crystals from contaminants during manufacturing. As a result, wholesale prices have doubled in the past five years and now some party planners and charities are balking at costlier balloons, Mr. Mohamed said. In response, Balloons Canada and other retailers have resorted to selling customers on the benefits of tried-and-true air balloons, offering eye-catching arrangements as consolation. Reviews so far have been mixed.

"Some people don't see a balloon in any other way but helium-filled; they have to float," he said. "We're starting to educate the customer more on the shortage, and how they can maybe look at balloons a little differently."

The shortage is remarkable, given that helium is one of the most abundant elements in the universe. The difficulty is capturing and storing it. The gas, useful in numerous applications for its extremely low freezing point, is extracted from natural gas, or can be produced along with other gases, such as nitrogen, in wells. The U.S. government established its helium extraction and processing operation in 1929, to make sure it had enough supplies for defence, including its use in airships. The government was essentially the only U.S. producer until 1960, when it offered incentives to companies to extract it. The government used money borrowed from the treasury to buy the gas, and also began setting prices.

In 1996, Washington passed legislation that started the privatization, setting a deadline of Jan. 1, 2015, to sell the stockpile and retire the $1.3-billion (U.S.) debt taken on to build it up. That debt is expected to be paid off by October, which spells the impending shutdown of the facility unless the U.S. Congress acts quickly to extend operations, said Deryck Webb, operations supervisor for the National High Field Nuclear Magnetic Resonance Centre at the University of Alberta. Among his tasks is contracting the liquid helium the university's research facilities use. Mr. Webb expects his contract prices to rise by 20 per cent above current $10-$15 per litre in the next 12 months.

Canada may eventually fill its own needs, though it will take several years. Government studies conducted between the 1950s and 1980s, show the potential for helium in Alberta, Saskatchewan and Manitoba, though the reports gathered dust as the vast U.S. stockpile and low regulated prices kept industry from seeking to produce the gas domestically, Mr Webb said.

More recently, depressed natural gas prices have prompted energy companies to sharply reduce drilling for conventional natural gas, from which helium is most often extracted. That means production is falling and future developments are being shelved. In addition, most drilling today targets shale gas, which does not contain helium.

Enter Bo Sears Jr. His company, Weil Helium LLC, is embarking on a project to re-enter and re-complete two wells drilled in the mid-1960s near Swift Current, Sask. The plan, at about $1.7-million per well, is to produce the helium as the main target instead of as a byproduct. The project has been delayed for a few months by flooding in the region, said Mr. Sears, who besides searching for helium production opportunities around North America is writing a book on helium's history and supply and demand.

Weil, which is considering an initial public stock offering, will use technology that allows it to process and sell helium as the field is developed, rather that building a large cryogenic plant that requires massive reserves. The result is relatively high-purity gas that can be trucked to customers. Expansion will depend on how well it all works out. "We'll be able to deal directly with the end user. In our case, it's going to be the balloon guys and the welders," he said.

Encana Corp., the country's largest natural gas producer, has also eyed the opportunity, though spokesman Jay Averill said their are no current plans to invest in helium prospects as the company conducts a review of all its operations under new CEO Doug Suttles.

Domestic supply could not come too soon for Mr. Mohamed and other hard-hit small business owners, if it means a break on prices.

"If that is the case, that would be awesome. But, of course, it's a matter of, are they going to be competitive enough?" he said.