Helium Program
Key Developments Since the Early 1990s and Future Considerations Gao ID: GAO-10-700T May 13, 2010The federal government has been extensively involved in the production, storage, and use of helium since the early part of the 20th Century. The federal helium program is currently managed by the Department of the Interior's Bureau of Land Management (BLM). During the 1960s and early 1970s, Interior purchased about 34 billion cubic feet of crude helium for conservation purposes and to meet federal helium needs, such as for the space program and scientific research. Crude helium is a gas of 50 to 85 percent helium. While some of the helium was used to meet federal needs, most of it was retained in storage. The funds used to purchase the helium became a debt owed by the program. GAO reported on the management of the helium program in the 1990s (GAO/RCED-92-44 and GAO/RCED-93-1). Since GAO's reviews of the program in the 1990s, key changes have affected the federal helium program and a recent report by the National Academy of Sciences concluded that it is time to reassess the program. This testimony discusses (1) GAO's findings and recommendations in the early 1990s, (2) key changes that have occurred since the early 1990s, and (3) some of the issues facing the helium program in the near future. To address these issues, GAO reviewed prior reports, applicable laws and regulations, National Academy of Sciences' reports, and BLM data. GAO is not making any new recommendations.
In 1991 and 1992, GAO reported on various aspects of the federal helium program including the helium debt, pricing, purity, and alternatives for meeting federal helium needs, and made recommendations to the Congress. For example, in 1992 GAO recommended that the Congress cancel the helium program's debt. As of September 1991, the debt had grown to about $1.3 billion, over $1 billion of which was interest that had accrued on the original debt principle of about $290 million. The debt was also a factor in setting the price of federal helium because the Helium Act Amendments of 1960 stipulated that the price of federal helium cover all program costs, including interest on the debt. In addition, in 1991, GAO recommended that Interior take action to preserve the purity of the helium in storage. GAO found that the unrestricted extraction of helium from the reserve was causing the purity of the crude helium to degrade faster than would otherwise occur, which in turn had increased the program's operating costs. In 1992, GAO also recommended that the Congress reassess the conservation objectives of the helium program and consider other alternatives to meet federal helium needs. Since GAO's reports in the early 1990s, two key developments--the Helium Privatization Act of 1996 and the construction of the Cliffside Helium Enrichment Unit in 2003--have caused considerable changes to the helium program and addressed or altered GAO's prior concerns. Specifically, the 1996 act froze the program's debt and as a result over half the debt has been paid off and the remainder should be paid off by 2015. The 1996 act also required a specific method for pricing helium. This along with other changes in the supply and demand for helium, has resulted in BLM's price to be at or below the market price. Lastly, in resetting the program's objectives, the act directed Interior to stop refining helium and it established a modified in-kind approach for meeting federal helium needs. Agencies must purchase helium from refiners who then purchase an equivalent amount of crude helium from BLM. The Cliffside Helium Enrichment Unit has addressed concerns about helium purity by enriching the crude helium through extracting excess natural gas. Changes in the helium market have generated concerns about the future availability of helium for federal and other needs. The 1996 act did not provide a specific direction for the federal helium program past 2015. Some of the uncertainties facing the program include: (1) How should the helium owned by the federal government be used? BLM's effort to sell off the helium in storage is going slowly and will not be completed by 2015; and some believe that the United States could become a net importer of helium within the next 10 to 15 years. (2) How will the helium program be funded after 2015? If the helium program's debt is paid off by 2015, the revolving Helium Fund that is used to pay for the program's day-to-day operations will be terminated. (3) At what price should BLM sell its helium? In the past, the debt has been a factor in the price and the price has been above the market price. After 2015 the debt will be paid off and the current price is at or below market.
GAO-10-700T, Helium Program: Key Developments Since the Early 1990s and Future Considerations
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Testimony:
Before the Subcommittee on Energy and Mineral Resources, Committee on
Natural Resources, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Thursday, May 13, 2010:
Helium Program:
Key Developments Since the Early 1990s and Future Considerations:
Statement of Anu K. Mittal, Director:
Natural Resources and Environment:
GAO-10-700T:
GAO Highlights:
Highlights of GAO-10-700T, a testimony before the Subcommittee on
Energy and Mineral Resources, Committee on Natural Resources, House of
Representatives.
Why GAO Did This Study:
The federal government has been extensively involved in the
production, storage, and use of helium since the early part of the
20th Century. The federal helium program is currently managed by the
Department of the Interior‘s Bureau of Land Management (BLM). During
the 1960s and early 1970s, Interior purchased about 34 billion cubic
feet of crude helium for conservation purposes and to meet federal
helium needs, such as for the space program and scientific research.
Crude helium is a gas of 50 to 85 percent helium. While some of the
helium was used to meet federal needs, most of it was retained in
storage. The funds used to purchase the helium became a debt owed by
the program. GAO reported on the management of the helium program in
the 1990s (GAO/RCED-92-44 and GAO/RCED-93-1).
Since GAO‘s reviews of the program in the 1990s, key changes have
affected the federal helium program and a recent report by the
National Academy of Sciences concluded that it is time to reassess the
program. This testimony discusses (1) GAO‘s findings and
recommendations in the early 1990s, (2) key changes that have occurred
since the early 1990s, and (3) some of the issues facing the helium
program in the near future.
To address these issues, GAO reviewed prior reports, applicable laws
and regulations, National Academy of Sciences‘ reports, and BLM data.
GAO is not making any new recommendations.
What GAO Found:
In 1991 and 1992, GAO reported on various aspects of the federal
helium program including the helium debt, pricing, purity, and
alternatives for meeting federal helium needs, and made
recommendations to the Congress. For example, in 1992 GAO recommended
that the Congress cancel the helium program‘s debt. As of September
1991, the debt had grown to about $1.3 billion, over $1 billion of
which was interest that had accrued on the original debt principle of
about $290 million. The debt was also a factor in setting the price of
federal helium because the Helium Act Amendments of 1960 stipulated
that the price of federal helium cover all program costs, including
interest on the debt. In addition, in 1991, GAO recommended that
Interior take action to preserve the purity of the helium in storage.
GAO found that the unrestricted extraction of helium from the reserve
was causing the purity of the crude helium to degrade faster than
would otherwise occur, which in turn had increased the program‘s
operating costs. In 1992, GAO also recommended that the Congress
reassess the conservation objectives of the helium program and
consider other alternatives to meet federal helium needs.
Since GAO‘s reports in the early 1990s, two key developments”the
Helium Privatization Act of 1996 and the construction of the Cliffside
Helium Enrichment Unit in 2003”have caused considerable changes to the
helium program and addressed or altered GAO‘s prior concerns.
Specifically, the 1996 act froze the program‘s debt and as a result
over half the debt has been paid off and the remainder should be paid
off by 2015. The 1996 act also required a specific method for pricing
helium. This along with other changes in the supply and demand for
helium, has resulted in BLM‘s price to be at or below the market
price. Lastly, in resetting the program‘s objectives, the act directed
Interior to stop refining helium and it established a modified in-kind
approach for meeting federal helium needs. Agencies must purchase
helium from refiners who then purchase an equivalent amount of crude
helium from BLM. The Cliffside Helium Enrichment Unit has addressed
concerns about helium purity by enriching the crude helium through
extracting excess natural gas.
Changes in the helium market have generated concerns about the future
availability of helium for federal and other needs. The 1996 act did
not provide a specific direction for the federal helium program past
2015. Some of the uncertainties facing the program include:
* How should the helium owned by the federal government be used? BLM‘s
effort to sell off the helium in storage is going slowly and will not
be completed by 2015; and some believe that the United States could
become a net importer of helium within the next 10 to 15 years.
* How will the helium program be funded after 2015? If the helium
program‘s debt is paid off by 2015, the revolving Helium Fund that is
used to pay for the program‘s day-to-day operations will be terminated.
* At what price should BLM sell its helium? In the past, the debt has
been a factor in the price and the price has been above the market
price. After 2015 the debt will be paid off and the current price is
at or below market.
View [hyperlink, http://www.gao.gov/products/GAO-10-700T] or key
components. For more information, contact Anu K. Mittal at (202) 512-
3841 or mittala@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to participate in this hearing to
discuss the federal helium program currently managed by the Department
of the Interior's (Interior) Bureau of Land Management (BLM). As you
know, helium is an important nonrenewable natural resource that has a
variety of uses. The federal government uses helium for, among other
things, the space program, national security applications, and
scientific research. For many of its uses, helium has no substitute.
During the 1960s and early 1970s, to fulfill the conservation
objective of the Helium Act Amendments of 1960,[Footnote 1] Interior
purchased about 34 billion cubic feet of helium from private crude
helium producers.[Footnote 2] In the 1990s, we reported to, and
testified before this Subcommittee on Interior's management of the
helium program.[Footnote 3] In May 1993, we testified that Interior
had enough helium in storage to meet federal needs until at least 2070
and that a reassessment of the objectives of the Helium Act was needed.
Since our reports in the early 1990s, key changes have affected the
federal helium program and a recent report by the National Academies'
National Research Council concluded that it is time once again to
reassess the program.[Footnote 4] My testimony today will (1)
summarize the findings and recommendations from our work in the early
1990s, (2) highlight key changes that have occurred in the areas that
we reported on in the early 1990s, and (3) describe some of the issues
facing BLM's helium program in the near future.
To address these issues, we reviewed our prior reports and testimonies
from the early 1990s. To identify key changes that have occurred in
the areas that we reported on in the past and some of the issues
facing BLM's helium program in the near future, we reviewed applicable
laws and regulations, relevant studies, and data on the helium program
from BLM and Interior's U.S. Geological Survey. In addition, we
interviewed BLM officials associated with the helium program located
at BLM's headquarters in Washington, D.C.; BLM's New Mexico State
Office in Santa Fe, New Mexico;[Footnote 5] and BLM's Amarillo Field
Office in Amarillo, Texas. To assess the reliability of data used in
this statement, we examined the data to identify obvious errors or
inconsistencies, interviewed knowledgeable BLM officials, and, to the
extent possible, compared the data with other sources. We determined
the data to be sufficiently reliable for the purposes of presenting
overall trends. Officials with BLM's helium program concurred with the
new information presented in this testimony and provided technical
clarifications, which we incorporated as appropriate.
We conducted this performance audit from April 2010 to May 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
Helium is an inert element that occurs naturally in gaseous form and
has a variety of uses (see table 1).[Footnote 6] Helium's many uses
arise from its unique physical and chemical characteristics. For
example, helium has the lowest melting and boiling point of any
element and as the second lightest element, gaseous helium is much
lighter than air.
Table 1: Estimated Helium Uses in the United States, 2008:
Category of use: Cryogenics;
Examples of applications: Magnetic resonance imagining (MRI);
Fundamental science; Industrial cryogenic processing;
Amount used (million cubic feet): 685;
Percentage: 32%.
Category of use: Controlled atmospheres;
Examples of applications: Optical fiber manufacturing;
Semi-conductor manufacturing;
Amount used (million cubic feet): 382;
Percentage: 18%.
Category of use: Pressure/purge;
Examples of applications: Space and defense rocket purging and
pressurizing;
Amount used (million cubic feet): 382;
Percentage: 18%.
Category of use: Welding;
Examples of applications: Metal welding;
Amount used (million cubic feet): 285;
Percentage: 13%.
Category of use: Chromatography/lifting gas/heat transfer;
Examples of applications: Chromatography; Weather balloons;
Military reconnaissance; Heat transfer in next-generation nuclear
reactors; Party balloons;
Amount used (million cubic feet): 270;
Percentage: 13%.
Category of use: Leak detection;
Examples of applications: Leak detection;
Amount used (million cubic feet): 94;
Percentage: 4%.
Category of use: Breathing mixtures;
Examples of applications: Commercial diving;
Amount used (million cubic feet): 50;
Percentage: 2%.
Category of use: Total;
Amount used (million cubic feet): 2,149;
Percentage: 100%.
Sources: U.S. Geological Survey's 2008 Minerals Yearbook and National
Research Council.
Note: Totals may not add because of rounding.
[End of table]
Certain natural gas fields contain a relatively large amount of
naturally occurring helium, which can be recovered as a secondary
product. The helium is separated from the natural gas and stored in a
concentrated form that is referred to as crude helium because it has
yet to go through the final refining process.
The federal government has been extensively involved in the
production, storage, and use of helium since the early part of the
20th Century. The federal government and private sector cooperatively
produced helium before 1925, specifically for military uses. The
Helium Act of 1925,[Footnote 7] as amended, assigned responsibility
for producing helium for federal users to the Department of the
Interior's Bureau of Mines.[Footnote 8] The act provided that funds
from helium sales be used to finance the program. From 1937 until
1960, the Bureau of Mines was the sole producer of helium. The 1925
act, as amended, also established a revolving fund known as the helium
production fund for the program. Such revolving funds are used to
finance a continuing cycle of government-owned business-type
operations in which outlays generate receipts that are available for
continuing operations. In the federal budget, this fund is referred to
as the Helium Fund and it is used to account for the program's
revenues and expenses.
The Helium Act Amendments of 1960 stipulated that the price of federal
helium cover all of the helium program's costs, including interest on
the program's debt. The 1960 act required the Secretary of the
Interior to determine a value for net capital and retained earnings
and establish this value as debt in the Helium Fund, and to add
subsequent program borrowings to that debt. The program's borrowings
were authorized by subsequent appropriations acts and recorded as
outlays in the federal budget in the years in which they were
expended. In addition, the interest was added to the debt in the
Helium Fund. However, the interest is simply a paper transaction, not
a government outlay. The Bureau of Mines determined that the value of
the program's net capital and retained earnings was about $40 million
in 1960. Subsequent borrowings from the U.S. Treasury totaling about
$252 million were used to purchase helium for storage. By September
30, 1991, the debt had grown to about $1.3 billion, of which more than
$1 billion consisted of interest because the interest accrued faster
than the program could repay the debt.
The government's reserve of crude helium is stored in the ground in an
area of a natural gas field that has a naturally occurring underground
structural dome near Amarillo, Texas. The purity of the stored crude
helium diminishes (degrades) over time as it mixes with the natural
gas that is present in the storage area. Moreover, when extracted at
an excessive rate, the degradation is accelerated because the natural
gas surrounding the helium is pulled toward the extraction wells
faster than the helium. This causes the helium to mix with the natural
gas more rapidly. As a result, larger volumes of the mixture of
natural gas and helium must be extracted to obtain the needed helium.
In addition to the government's reserve of crude helium, private
companies that are connected to BLM's pipeline and pay a storage fee
are also able to store and retrieve their own private crude helium
reserves from the same storage area.
As directed by the Congress, the National Academies' National Research
Council reviewed the helium program and released a report in 2000 that
evaluated changes made in the program, effects of these changes on the
program, and several scenarios for managing the federal helium reserve
in the future.[Footnote 9] Because of subsequent changes in price and
availability of helium, in 2008, the National Research Council
convened a committee to determine if the current implementation of the
helium program was having an adverse effect on U.S. scientific,
technical, biomedical, and national security users of helium. The
committee reported on these effects in early 2010 and concluded that
the current implementation of the program has adversely affected
critical users of helium and was not in the best interest of the U.S.
taxpayers or the country.
GAO Reported on Helium Debt, Pricing, Purity, and Alternatives for
Meeting Federal Helium Needs in the Early 1990s:
Our November 1991 and October 1992 reports included findings and
recommendations on the helium program's debt, the pricing of crude
helium, the purity of helium in storage, and three alternatives for
meeting federal needs for helium.[Footnote 10]
In 1992, GAO Recommended that Congress Cancel the Debt in the Helium
Fund:
In October 1992, we reported that the Helium Fund debt had grown to
about $1.3 billion, as of September 30, 1991.[Footnote 11] Section
6(c) of the Helium Act Amendments of 1960 stipulated that (1) the
price of federal helium should cover all of the helium program's
costs, including interest on the program's debt; and (2) the debt
should be repaid within 25 years, unless the Secretary of the Interior
determines that the deadline should be extended by not more than 10
years. With the 10 year extension, the deadline for paying off the
debt and accumulated interest was September 13, 1995. In 1992, we
estimated that, in order for the Bureau of Mines to repay the debt by
the 1995 deadline, it would have to charge federal agencies with major
requirements for helium over $3,000 per thousand cubic feet, compared
with the 1992 price of $55. These agencies, which were required under
section 6(a) of the 1960 act to purchase helium from the Bureau of
Mines, would have had no choice but to pay a higher price for helium.
We concluded that this would have no net effect on the overall federal
budget if those agencies received additional appropriations to pay for
helium at a higher price because the appropriations would offset the
increased revenues to the helium program.
Because conditions affecting the Bureau of Mines' helium program had
changed since the Helium Act Amendments of 1960, one of the
recommendations in our October 1992 report was that the Congress
should consider canceling the debt in the Helium Fund. This is because
we concluded at the time that it was no longer realistic to expect the
agency to repay the debt by the statutory deadline of 1995, and
canceling the debt would not adversely affect the federal budget as
the debt consisted of outlays that had already been appropriated and
interest that was a paper transaction. We reported that canceling the
Helium Fund debt, however, would likely allow the Bureau of Mines to
undercut private industry's refined helium prices, thus adversely
affecting the private helium-refining industry.
In 1992, GAO Found That the Federal Price for Helium Affected the
Private Helium Industry and Identified Alternatives to Foster the
Private Helium Industry:
The Helium Act Amendments of 1960 also were intended to foster and
encourage a private helium industry. In our October 1992 report, we
found that the helium price set by the Bureau of Mines had an effect
on the growth of the private helium industry.[Footnote 12] After the
1960 act was passed, the Bureau of Mines' refined helium price for
federal users rose from $15.50 per thousand cubic feet to $35 in 1961
to cover the anticipated costs of conserving helium, which principally
included purchasing helium for storage. This 126-percent increase in
the federal refined helium price caused the private industry to
believe that it could economically produce and sell refined helium.
While private-sector prices fluctuated from a low of $21 in 1970, they
gradually increased to $37.50 by 1983, which matched the Bureau of
Mines' 1982 price. Over this period, the Bureau of Mines' price for
helium continued to be higher than or equal to the private-sector
price, and from 1983 to 1991 it appeared to act as a ceiling for
private-sector prices. In 1991, the federal price increased to $55,
and private-sector prices gradually increased to about $45. These
price trends led us to conclude in 1992 that once a private helium
refining industry had developed, it was able to successfully compete
with the Bureau of Mines' program.
However, in our October 1992 report, we also noted that if the
Congress decided to cancel the Helium Fund debt then this would affect
how the Bureau of Mines sets its helium prices and would likely allow
it to undercut private-sector prices. Therefore, we noted that if the
Congress decided that fostering the private helium industry was still
an objective of the Helium Program then additional actions would be
needed. One alternative we identified was to require the Bureau of
Mines to price its helium comparably to private-sector prices by
ascertaining private-sector prices and using a comparable price or by
setting a price that covered the Bureau of Mines' capital costs,
operating expenses, estimated costs of a normal level of inventory,
and an industry-like rate of return on its investment. A second
alternative was to eliminate competition by requiring that all federal
needs be met by the Bureau of Mines but prohibiting the federal helium
program from selling helium to nonfederal customers.
In 1991, GAO Made a Recommendation on the Purity of the Helium in
Storage:
In our November 1991 report on helium purity, we found that the Bureau
of Mines was not restricting the rate at which helium was being
extracted from the helium reserve, causing the purity of the crude
helium to degrade faster than would otherwise occur.[Footnote 13] We
noted that because of this accelerated degradation, the Bureau of
Mines was incurring additional costs to extract and refine federal
helium.[Footnote 14] While some mixing with natural gas is inevitable,
according to a study by the Bureau of Mines in 1989, the mixing should
be minimized so that the crude helium's purity can be maintained at as
high a level as possible in order to avoid higher future costs of
extracting and refining federal helium. In our 1991 report, we
reported that, according to Bureau of Mines' engineers, the
accelerated degradation could be avoided by restricting total
extractions to 3 million cubic feet of helium per day. At the Bureau
of Mines' request, an outside petroleum engineering consulting firm
reviewed the Bureau of Mines' engineering, geologic, and other studies
and agreed that an extraction rate restriction of 3 million cubic feet
per day was needed to protect the purity of the stored crude helium.
In 1989, the Bureau of Mines decided to restrict total daily
extractions to 3 million cubic feet but later rescinded that
restriction after an industry association expressed concern to the
Director of the Bureau of Mines that the restriction might adversely
affect private companies' ability to obtain crude helium to meet their
needs. At the time of our 1991 review, the Director told us that he
had not reviewed the Bureau of Mines' study when making the decision
to rescind the restriction and Bureau of Mines' engineers estimated
that if the helium continued to be degraded at the rate it was being
degraded at that time, the Bureau of Mines would incur additional
costs of as much as $23.3 million in 1991 dollars to extract and
refine federal helium from the helium reserve through the year 2050.
In 1991, we recommended that the Bureau of Mines determine if setting
an acceptable extraction rate was warranted and, if so, to specify
that rate. In addition, we noted that if an extraction rate was
specified, the Bureau of Mines should either restrict private company
extractions or impose a charge on private companies that store helium
in the helium reserve when their extractions exceed the established
acceptable rate.
In 1992, GAO Recommended That Congress Reassess the Objectives of the
Helium Program:
In our October 1992 report, we evaluated three alternatives for
meeting federal needs for helium: (1) continue the Bureau of Mines'
existing program, (2) require that all federal needs be supplied by
private industry, and (3) allow all federal agencies to choose to
purchase helium from the Bureau of Mines or private industry.[Footnote
15] These three alternatives had the potential to affect the
objectives of the Helium Act Amendments of 1960, the program's debt,
the federal budget, and the total cost of supplying helium to the U.S.
economy differently. For example, in 1992, we reported that the growth
of a private industry capable of meeting federal needs created a
competitive market where the federal helium prices directly affected
the private industry. In this environment, if the Bureau of Mines
priced helium to repay the Helium Fund debt by 1995, it would need to
charge an extremely high price, which would likely drive the Bureau of
Mines out of the helium business. On the other hand, if the debt had
been repaid or canceled, the federal price likely would be lower than
private prices, which could have an adverse effect on the private
helium refining industry. We concluded that the choice among these and
other possible alternatives was ultimately a public policy decision
that should consider many issues. We recommended that the Congress
reassess the act's objectives in order to decide how to meet current
and foreseeable federal needs for helium.
Two Key Developments Have Affected the Issues That GAO Reported on in
the Early 1990s:
Since our reports in the early 1990s, two key developments--the Helium
Privatization Act of 1996 and the construction of the Cliffside Helium
Enrichment Unit in 2003--have caused considerable changes to the
federal helium program. These two developments addressed or altered
the areas that we had raised concerns about in the early 1990s.
Specifically, the Helium Privatization Act of 1996 affected helium
debt and pricing, and it reset the program's objectives. The Cliffside
Helium Enrichment Unit addressed the issue of helium purity in storage.
The Helium Privatization Act of 1996 Affected the Helium Debt,
Pricing, and the Program's Objectives:
After our reports in the early 1990s, the Congress passed the Helium
Privatization Act of 1996, which significantly changed the objectives
and functions of Interior's helium program.[Footnote 16] For example,
the 1996 act made the following key changes:
* Interior was required to close all government-owned refined helium
production facilities and to terminate the marketing of refined helium
within 18 months of enactment (50 U.S.C. § 167b(b));
* the helium program's debt was frozen as of October 1, 1995 (50
U.S.C. § 167d(c));
* Interior was required to offer for sale all but 600 million cubic
feet of the crude helium in storage on a straight-line basis--a
depreciation method that spreads out the cost of an asset equally over
its lifetime--by January 1, 2015 (50 U.S.C. § 167f(a)(1));
* Interior was required to set sale prices to cover the crude helium
reserve's operating costs and to produce an amount sufficient to
reimburse the federal government for the amounts it had expended to
purchase the stored helium. The price at which Interior sells crude
helium was required to be equal to or greater than a formula that
incorporates the amount of debt to be repaid divided by the volume of
crude helium remaining in storage, with a Consumer Price Index
adjustment (50 U.S.C. §§ 167d(c), 167f(a)(3)). Furthermore, when the
debt is fully paid off, the revolving Helium Fund shall be terminated
(50 U.S.C. § 167d(e)(2)(B));
* Interior should maintain its role in the helium storage business (50
U.S.C. § 167b(a)); and:
* established a modified "in-kind" program to meet federal needs for
helium. Rather than purchasing refined helium directly from Interior,
federal agencies were required to purchase their major helium
requirements from persons who have entered into enforceable contracts
to purchase an equivalent amount of crude helium from Interior (50
U.S.C. § 167d(a)).[Footnote 17]
These changes affected the federal helium program in various ways. For
example, because the 1996 act effectively froze the debt at $1.37
billion and interest no longer accrued, BLM has been able to pay off a
large portion of its debt. As of the end of fiscal year 2010, BLM
expects to have paid off 64 percent of the debt; it expects to pay off
the entire debt around 2015 (see figure 1).
Figure 1: Actual and Projected Balance of the Helium Debt, Fiscal
Years 2003 through 2015:
[Refer to PDF for image: line graph]
Fiscal Year: 2003;
Remaining debt: $1,199 million.
Fiscal Year: 2004;
Remaining debt: $1,139 million.
Fiscal Year: 2005;
Remaining debt: $1,074 million.
Fiscal Year: 2006;
Remaining debt: $914 million.
Fiscal Year: 2007;
Remaining debt: $764 million.
Fiscal Year: 2008;
Remaining debt: $644 million.
Fiscal Year: 2009;
Remaining debt: $579 million.
Fiscal Year: 2010;
Projected remaining debt: $519 million.
Fiscal Year: 2011;
Projected remaining debt: $429 million.
Fiscal Year: 2012;
Projected remaining debt: $309 million.
Fiscal Year: 2013;
Projected remaining debt: $189 million.
Fiscal Year: 2014;
Projected remaining debt: $89 million.
Fiscal Year: 2015;
Projected remaining debt: $19 million.
Source: BLM.
[End of figure]
In addition, since the 1996 act required a specific method for pricing
crude helium, the initial minimum BLM selling price for crude helium
after the act was passed was almost double the price for private crude
helium at that time. However, after BLM started to sell its crude
helium according to the method specified in the act, the market price
for crude and refined helium began to change. According to the
National Research Council, the private sector began using the BLM
crude price as a benchmark for establishing its price, and, as a
result, privately sourced crude helium prices increased and now they
meet or exceed BLM's price. Increases in the price of crude helium
have also led to increases in the price of refined helium (see figure
2). Refined helium prices have more than doubled from 2002 through
2008 pursuant to demand trends. One of the factors for recent price
increases was a disruption in helium supply from plants closing
because of weather-related issues. Prices increased around 2007 due to
the decline in production capacity.
Figure 2: BLM Crude Helium Price and Grade A Price Estimates:
[Refer to PDF for image: multiple line graph]
Fiscal year: 2000;
Grade A average price: $46 dollars per cubic foot;
Crude Price: $50 dollars per cubic foot.
Fiscal year: 2001;
Grade A average price: $46 dollars per cubic foot;
Crude Price: $50 dollars per cubic foot.
Fiscal year: 2002;
Grade A average price: $49 dollars per cubic foot;
Crude Price: $52 dollars per cubic foot.
Fiscal year: 2003;
Grade A average price: $63 dollars per cubic foot;
Crude Price: $53 dollars per cubic foot.
Fiscal year: 2004;
Grade A average price: $63 dollars per cubic foot;
Crude Price: $54 dollars per cubic foot.
Fiscal year: 2005;
Grade A average price: $70 dollars per cubic foot;
Crude Price: $55 dollars per cubic foot.
Fiscal year: 2006;
Grade A average price: $83 dollars per cubic foot;
Crude Price: $57 dollars per cubic foot.
Fiscal year: 2007;
Grade A average price: $98 dollars per cubic foot;
Crude Price: $59 dollars per cubic foot.
Fiscal year: 2008;
Grade A average price: $125 dollars per cubic foot;
Crude Price: $61 dollars per cubic foot.
Fiscal year: 2009;
Grade A average price: $135 dollars per cubic foot;
Crude Price: $62 dollars per cubic foot.
Source: BLM.
[End of figure]
As part of the resetting of the helium program's objectives, the 1996
act established a revised approach for meeting federal needs for
helium. In 1998, BLM began engaging in in-kind sales to federal
agencies. The in-kind regulations established procedures for BLM to
sell crude helium to authorized helium supply companies and required
federal agency buyers to purchase helium from these approved
suppliers.[Footnote 18] Since the in-kind program started, the sales
to federal agencies have fluctuated, primarily due to the National
Aeronautics and Space Administration's (NASA) unique requirement for
large volumes of helium on a sporadic basis. Total federal in-kind
sales for fiscal year 2009 were 175.67 million cubic feet (see figure
3).
Figure 3: In-Kind Helium Sales by Federal Agency, Fiscal Years 1999
through 2009:
[Refer to PDF for image: multiple line graph]
Fiscal year: 1999;
Other federal agencies: 14.8 million cubic feet;
DOE: 36.5 million cubic feet;
Total DOD: 43.1 million cubic feet;
NASA: 126.7 million cubic feet.
Fiscal year: 2000;
Other federal agencies: 27.3 million cubic feet;
DOE: 45.2 million cubic feet;
Total DOD: 36.0 million cubic feet;
NASA: 126.1 million cubic feet.
Fiscal year: 2001;
Other federal agencies: 23.1 million cubic feet;
DOE: 32.3 million cubic feet;
Total DOD: 40.0 million cubic feet;
NASA: 157.3 million cubic feet.
Fiscal year: 2002;
Other federal agencies: 30.5 million cubic feet;
DOE: 26.9 million cubic feet;
Total DOD: 32.3 million cubic feet;
NASA: 138.8 million cubic feet.
Fiscal year: 2003;
Other federal agencies: 29.3 million cubic feet;
DOE: 29.1 million cubic feet;
Total DOD: 23.7 million cubic feet;
NASA: 120.5 million cubic feet.
Fiscal year: 2004;
Other federal agencies: 40.6 million cubic feet;
DOE: 27.8 million cubic feet;
Total DOD: 32.1 million cubic feet;
NASA: 119.5 million cubic feet.
Fiscal year: 2005;
Other federal agencies: 26.3 million cubic feet;
DOE: 32.7 million cubic feet;
Total DOD: 24.7 million cubic feet;
NASA: 167.5 million cubic feet.
Fiscal year: 2006;
Other federal agencies: 33.6 million cubic feet;
DOE: 22.0 million cubic feet;
Total DOD: 24.1 million cubic feet;
NASA: 105.8 million cubic feet.
Fiscal year: 2007;
Other federal agencies: 33.8 million cubic feet;
DOE: 26.5 million cubic feet;
Total DOD: 26.9 million cubic feet;
NASA: 110.8 million cubic feet.
Fiscal year: 2008;
Other federal agencies: 35.4 million cubic feet;
DOE: 16.4 million cubic feet;
Total DOD: 24.0 million cubic feet;
NASA: 131.9 million cubic feet.
Fiscal year: 2009;
Other federal agencies: 35.1 million cubic feet;
DOE: 16.4 million cubic feet;
Total DOD: 16.6 million cubic feet;
NASA: 107.5 million cubic feet.
Source: BLM.
[End of figure]
Since the act was passed, demand for helium has changed over time (see
figure 4). Total domestic demand has generally decreased since 2001.
The vast majority of domestic sales are made to private industries,
with federal agencies making up about 10 percent of the sales. On the
other hand, total foreign demand has consistently increased, and the
amount of helium exported was approximately equal to the amount of
helium removed from storage each year from 2000 to 2007. In 2008, the
amount of helium exported exceeded the amount of helium removed from
storage.
Figure 4: Domestic Sales Compared to Exports:
[Refer to PDF for image: multiple line graph]
Fiscal year: 1998;
Total exports: 1,023 million cubic feet;
Total domestic sales: 2,573 million cubic feet.
Fiscal year: 1999;
Total exports: 960 million cubic feet;
Total domestic sales: 2,881 million cubic feet.
Fiscal year: 2000;
Total exports: 1,219 million cubic feet;
Total domestic sales: 3,087 million cubic feet.
Fiscal year: 2001;
Total exports: 1,579 million cubic feet;
Total domestic sales: 3,329 million cubic feet.
Fiscal year: 2002;
Total exports: 1,436 million cubic feet;
Total domestic sales: 3,184 million cubic feet.
Fiscal year: 2003;
Total exports: 1,457 million cubic feet;
Total domestic sales: 3,163 million cubic feet.
Fiscal year: 2004;
Total exports: 1,566 million cubic feet;
Total domestic sales: 3,109 million cubic feet.
Fiscal year: 2005;
Total exports: 1,826 million cubic feet;
Total domestic sales: 3,110 million cubic feet.
Fiscal year: 2006;
Total exports: 2,071 million cubic feet;
Total domestic sales: 2,872 million cubic feet.
Fiscal year: 2007;
Total exports: 2,321 million cubic feet;
Total domestic sales: 2,619 million cubic feet.
Fiscal year: 2008;
Total exports: 2,396 million cubic feet;
Total domestic sales: 2,370 million cubic feet.
Fiscal year: 2009;
Total exports: 2,631 million cubic feet;
Total domestic sales: 1,693 million cubic feet.
Sources: BLM and U.S. Census Bureau.
[End of figure]
The Cliffside Helium Enrichment Unit Addressed the Helium Purity Issue:
The second key development, which has affected the helium purity issue
that we reported on in the early 1990s, is the construction and
operation of the Cliffside Helium Enrichment Unit. In response to
degrading helium supplies, in 2003, Cliffside Refiners Limited
Partnership--a consortium of private-sector refiners--designed and
constructed an enrichment unit to produce crude helium of sufficient
concentration and pressure for further refining. According to BLM
officials, the total cost of building the enrichment unit was
approximately $22 million and was paid for by the Cliffside Refiners
Limited Partnership. BLM, in partnership with the Cliffside Refiners
Limited Partnership, operates the unit. At full capacity, the
enrichment unit supplies more than 6 million cubic feet per day or 2.1
billion cubic feet per year of crude helium. The crude helium that is
produced from this process is either sold or retained in storage,
depending upon demand. As part of the operation, pipeline-quality
residual natural gas is also made available for sale. In addition to
the proceeds from the helium sales, BLM uses proceeds from the natural
gas sales to fund the Cliffside helium operations and the remaining
revenues are returned to the U.S. Treasury.
According to BLM officials, the enrichment unit has allowed BLM to
better manage the drawdown and purity of the helium in storage because
it is able to control the wells and the helium content of the feed.
Without the enrichment unit, BLM would have to produce from high
helium wells first to meet purity requirements and that would have a
detrimental effect on the purity of later production, according to
these officials.
The Helium Program's Direction after 2015 Is Uncertain:
Changes in helium prices, production, and demand have generated
concerns about the future availability of helium for the federal
government and other critical purposes. The Helium Privatization Act
of 1996 does not provide a specific direction for the helium program
past 2015--less than 5 years away. As a result of these factors, there
is uncertainty about the program's direction after 2015. Specifically:
* How should the helium remaining in storage after 2015 be used? The
Helium Privatization Act of 1996 required BLM to offer for sale
substantially all of the helium in storage by January 1, 2015. While
the required amounts have been offered for sale, only 68 percent of
the amounts offered for sale have actually been sold (see table 2). If
the past sales trends continue, BLM will still have significantly more
crude helium in storage than the 600 million cubic feet target
established in the 1996 act. In addition, the demand for helium has
changed over time, with foreign demand outpacing domestic demand.
According to the recent report by the National Academies' National
Research Council, the United States could become a net importer of
helium within the next 10 to 15 years, and the principal new sources
of helium will be in the Middle East and Russia. Given these
circumstances, the National Academies' report recommended that the
Congress may want to reevaluate how the domestic crude helium reserve
is used or conserved. It is uncertain at this point how the helium in
storage after 2015 will be used.
Table 2: Actual and Projected Crude Helium Sales, 2003 through 2015 (
Amounts in millions of cubic feet):
Actual sales through March 2010:
Fiscal year: 2003;
Amount offered for sale: 1,640;
Amount sold: 1,640;
Amount not sold: 0;
Percentage sold: 100%.
Fiscal year: 2004;
Amount offered for sale: 2,100;
Amount sold: 675;
Amount not sold: 1,425;
Percentage sold: 32%.
Fiscal year: 2005;
Amount offered for sale: 2,100;
Amount sold: 1,390;
Amount not sold: 3,630;
Percentage sold: 28%.
Fiscal year: 2006;
Amount offered for sale: 2,100;
Amount sold: 1,565;
Amount not sold: 535;
Percentage sold: 75%.
Fiscal year: 2007;
Amount offered for sale: 2,100;
Amount sold: 2,030;
Amount not sold: 235;
Percentage sold: 90%.
Fiscal year: 2008;
Amount offered for sale: 2,100;
Amount sold: 1,638;
Amount not sold: 462;
Percentage sold: 78%.
Fiscal year: 2009;
Amount offered for sale: 2,100;
Amount sold: 925;
Amount not sold: 1,175;
Percentage sold: 44%.
Fiscal year: 2010 (1st half of fiscal year);
Amount offered for sale: 1,050;
Amount sold: 525;
Amount not sold: 525;
Percentage sold: 50%.
Fiscal year: Subtotal;
Amount offered for sale: 15,290;
Amount sold: 10,388;
Amount not sold: 7,987;
Percentage sold: 68%.
Projected sales:
Fiscal year: 2010 (2nd half of fiscal year);
Amount offered for sale: 1,050;
Amount sold: 480;
Amount not sold: 570;
Percentage sold: 46%.
Fiscal year: 2011;
Amount offered for sale: 2,100;
Amount sold: 1,600;
Amount not sold: 500;
Percentage sold: 76%.
Fiscal year: 2012;
Amount offered for sale: 2,100;
Amount sold: 1,430;
Amount not sold: 670;
Percentage sold: 68%.
Fiscal year: 2013;
Amount offered for sale: 2,100;
Amount sold: 1,230;
Amount not sold: 870;
Percentage sold: 59%.
Fiscal year: 2014;
Amount offered for sale: 2,100;
Amount sold: 1,230;
Amount not sold: 870;
Percentage sold: 59%.
Fiscal year: 2015 (1st quarter of fiscal year);
Amount offered for sale: 460;
Amount sold: 271;
Amount not sold: 189;
Percentage sold: 59%.
Total:
Amount offered for sale: 25,200;
Amount sold: 16,629;
Amount not sold: 11,656;
Percentage sold: 66%.
Source: BLM.
[End of table]
* How will the helium program be funded after 2015? Regardless of
whether BLM is directed to continue selling off the crude helium in
storage after 2015 or conserve it, there will almost certainly
continue to be some form of a helium program after 2015. However, if
the helium debt is paid off in 2015 as currently projected and the
revolving helium fund is terminated, it is not clear how the
operations of the helium program will be paid for. Currently the
helium program does not receive any appropriated funds for its
operations. The revenues generated by the program go into the Helium
Fund and the program has access to those funds to pay for its day-to-
day operations. It is uncertain at this point how the helium program's
operations will be funded after 2015.
* At what price should BLM sell its crude helium? Since the Helium
Privatization Act of 1996 was passed, BLM has set the price for
federal crude helium at the minimum price required by the act.
However, because federal crude helium reserves provide a major supply
of crude helium, we expect BLM's prices will continue to affect
private industry market prices for crude and refined helium. In
addition, in recent years, the helium market has been influenced by
other market forces as well as supply disruptions that have resulted
in price increases. For example, in 2006, failure of a major crude
helium enrichment unit process vessel led to unscheduled outages and
eventually to a major plant shutdown. When BLM first set its price
after the 1996 act, its price was estimated to be significantly higher
than the market price, but now the reverse is true--BLM's price is
estimated to be at or below the market price. On one hand, BLM could
consider raising its price to ensure that the federal government is
getting a fair market return on the sales of its assets. On the other
hand, raising the price could potentially further erode sales.
Furthermore, the 1996 act, like the Helium Act Amendments of 1960
before it, tied the price to the program's operating expenses and
debt. If the debt is paid off in 2015 as projected, the debt will no
longer be a factor in setting helium prices. BLM officials told us
that the 1996 act sets a minimum selling price and that the Secretary
of the Interior has the discretion to set a higher price. BLM is
planning to reevaluate its selling price, according to agency
officials. As a result, it is uncertain how BLM will price its crude
helium in the future.
In conclusion, Mr. Chairman, there have been a number of changes in
the market for helium since the Congress passed the Helium
Privatization Act of 1996. As the end point for the actions that were
required to be taken under the act come upon us in the next 5 years,
the Congress may need to address some unresolved issues such as how to
use the remaining helium in storage, how the helium program will
operate once the Helium Fund expires in 2015, and how to set the price
for the helium owned by the federal government.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to answer any questions that you or other Members of the Subcommittee
may have at this time.
GAO Contact and Staff Acknowledgments:
For further information about this testimony, please contact Anu K.
Mittal at (202) 512-3841 or mittala@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this statement. Individuals making key contributions
to this testimony include Jeffery D. Malcolm and Barbara Patterson,
Assistant Directors; Carol Bray; Meredith Graves; and Caryn Kuebler.
Also contributing to this testimony were Michele Fejfar, Jonathan
Kucskar, and Jeremy Sebest.
[End of section]
Footnotes:
[1] Pub. L. No. 86-777, 74 Stat. 918 (1960), codified as amended at 50
U.S.C. §§ 167-167m.
[2] "Crude helium" is a gas containing approximately 50 to 85 percent
helium.
[3] GAO, Mineral Resources: Federal Helium Purity Should Be
Maintained, [hyperlink, http://www.gao.gov/products/GAO/RCED-92-44]
(Washington, D.C.: Nov. 8, 1991); GAO, Mineral Resources: Meeting
Federal Needs for Helium, [hyperlink,
http://www.gao.gov/products/GAO/RCED-93-1] (Washington, D.C.: Oct. 30,
1992); GAO, Mineral Resources: Meeting Federal Needs for Helium,
[hyperlink, http://www.gao.gov/products/GAO/T-RCED-93-44] (Washington,
D.C.: May 20, 1993); GAO, Mineral Resources: H.R. 3967 - A Bill to
Change How Federal Needs For Refined Helium Are Met, [hyperlink,
http://www.gao.gov/products/GAO/T-RCED-94-183] (Washington, D.C.: Apr.
19, 1994); and GAO, Terminating Federal Helium Refining, [hyperlink,
http://www.gao.gov/products/GAO/RCED-95-252R] (Washington, D.C.: Aug.
28, 1995).
[4] National Research Council, Selling the Nation's Helium Reserve
(Washington, D.C.: National Academies Press, prepublication copy
released on Jan. 22, 2010). Last accessed at [hyperlink,
http://www.nap.edu/catalog.php?record_id=12844] on April 20, 2010.
[5] In addition to New Mexico, BLM's New Mexico State Office also has
jurisdiction over Kansas, Oklahoma, and Texas. The helium program is
administered by BLM's Amarillo Field Office in Amarillo, Texas.
[6] Helium in this statement refers to helium-4, the most abundant
naturally occurring helium isotope. Helium-3, which has its own supply
and demand issues, is not the focus of this statement. We currently
have an ongoing review looking into the implications of shortages in
helium-3.
[7] Pub. L. No. 68-544, 43 Stat. 1110 (1925), originally codified at
50 U.S.C. § 161 et seq. These sections of the United States Code were
completely amended, renumbered, revised, or repealed. The current
citation is 50 U.S.C. §§ 167-167m.
[8] The Bureau of Mines was established in 1910 and abolished in 1996.
The helium program was transferred to BLM.
[9] National Research Council, The Impact of Selling the Federal
Helium Reserve (Washington, D.C.: National Academy Press, 2000).
[10] [hyperlink, http://www.gao.gov/products/GAO/RCED-92-44] (helium
purity); and [hyperlink, http://www.gao.gov/products/GAO/RCED-93-1]
(helium debt, pricing, and alternatives).
[11] [hyperlink, http://www.gao.gov/products/GAO/RCED-93-1].
[12] [hyperlink, http://www.gao.gov/products/GAO/RCED-93-1].
[13] [hyperlink, http://www.gao.gov/products/GAO/RCED-92-44].
[14] Refined helium has a varying purity of 99.99 percent to 99.9999
percent helium.
[15] [hyperlink, http://www.gao.gov/products/GAO/RCED-93-1].
[16] Pub. L. No. 104-273, 110 Stat. 3315 (1996), codified at 50 U.S.C.
§§ 167-167m.
[17] The term "person" means any individual, corporation, partnership,
firm, association, trust, estate, public or private institution, or
state or political subdivision thereof. 50 U.S.C. § 167(2).
[18] 43 C.F.R. § 3195.
[End of section]
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