The Economics of Everyday Things - 72. Helium

Episode Date: November 25, 2024

It’s unreactive, lighter than air, and surprisingly important to the global economy. Zachary Crockett goes up an octave. SOURCES:Sophia Hayes, professor of chemistry at Washington University in St. Louis.Phil Kornbluth, president of Kornbluth Helium Consulting.Bo Sears, C.E.O. of Helix Exploration PLC. RESOURCES:"Why Semiconductor Growth Will Drive Helium Demand," by Kitty Wheeler (Technology Magazine, 2024)."The World Is Running Out of Helium. Here's Why Doctors Are Worried," by Caroline Hopkins (NBC News, 2022)."Nothing on Earth Can Replace Helium — and It’s in Peril," by Joseph DiVerdi (The New York Times, 2019).Selling the Nation's Helium Reserve, by the National Research Council (2010)."Discovery of Helium in Natural Gas at the University of Kansas," by the American Chemical Society (2000). EXTRAS:"Is Macy’s Thanksgiving Parade Its Most Valuable Asset?" by Freakonomics Radio (2024).

Hey there, it's Stephen Dubner from Freakonomics Radio, and I am busting into this Economics of Everyday Things episode to tell you about two upcoming Freakonomics Radio live shows in San Francisco on January 3rd and in Los Angeles on February 13th. For tickets, go to freakonomics.com slash live shows. One word. I am told that tickets are going fast, so you might want to do this soon. Again, that is Freakonomics.com slash live shows. January 3rd in San Francisco, February 13th in LA.

I'll be there, and I hope you will too. One more thing while I have you. If you like the episode on helium you are about to hear, check out the two recent Freakonomics radio episodes on the Macy's Thanksgiving Day Parade, which as you can imagine, uses quite a bit of helium. As always, thanks for listening. Most of us have gone to a party store to buy balloons, and the process is pretty simple. You pick out the color or design you want, an employee fills it up with gas from a big

cylinder behind the register, and it rises as if possessed by a spirit. I mean, imagine going back to a time before balloons, and that you brought out this object that would float in the air. It's magical no matter how you slice it. That's Sophia Hayes. She's a professor of chemistry at Washington University in St. Louis. And she says that while the balloon tends to get all the glory at the birthday party, the stuff inside of it is the true hero.

Where that helium comes from is the decay of radioactive elements. And as they decay, they spit out an atom of helium. So every time you see a balloon, that's billions of years of the age of the earth undergoing that radioactive decay of a very small number of elements that are in the crust. Now, it may seem a little silly that a billion-year process ends up with a floating balloon that

says happy birthday. But helium has all kinds of other applications. It's used inside MRI machines, to manufacture semiconductors, and to test leaks in rocket ships. And getting this stuff out of the ground is a multi-billion dollar business. The typical cost of mobilizing and demobilizing a rig, typical day rates of drilling, you know, these things can be pretty expensive, but helium is quite valuable. So it's worth

the cost to go out there and look for the stuff. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today, helium. In 1868, astronomers observed a yellow wavelength of light in the spectrum of the sun. It was soon deemed to be a previously unknown element, and it was named helium after the Greek word for sun. By the late 19th century, helium gas was also discovered on Earth in large underground natural gas deposits. And scientists began to realize just how remarkable it was.

Well, it's not as glamorous as something like platinum or gold, but helium is extremely special and magical. Again, that's Sophia Hayes. She says that helium has many properties that make it stand out. For starters, it's one of only six naturally occurring noble gases, highly stable elements that rarely form compounds with other substances. They're called noble by analogy to aristocrats who don't mix with the common folk.

For the everyday person, what it means is those atoms do not like to bond with anything else. We have to work extra hard if we want to create those chemical bonds. Helium's noble status means we can use it without worrying about undesirable reactions. It can also be cooled to extreme temperatures without turning into a solid. This allows it to act as a powerful coolant inside machines. It can cool things into the millikelvin regime.

The temperature of outer space is about 3 Kelvin. So this is below the temperature of outer space and only helium is able to do that. Its molecules are incredibly small, capable of permeating almost anything. And it's the second lightest element known to mankind, only trailing hydrogen. It's lighter than air, so party balloons, blimps, all these things that we think of for lifting applications are extremely important also. So when you fill a balloon with helium, what's happening inside that makes it rise? Those atoms or molecules, as they begin to move and push on the container, they exert tiny amounts of pressure.

And if they are lighter than air, the air around it is heavier, so the air displaces downwards and the object gets lifted upwards by the pressure of all those tiny collisions with the interior of the balloon. All of these special properties make helium a very desirable product. And nobody knows the market better than Phil Kornbluth. I'm the president of Kornbluth Helium Consulting, which specializes in commercial issues related to the global helium business. Kornbluth has been in the helium business for more than 40 years.

He says the market for this stuff is much bigger than people realize. Most folks only are familiar with party balloons and the Goodyear Blimp and stuff like that. Well, they're about 15% of the US market and about probably 10% of the global market. So you know, significant, but it's not the biggest application. Historically, that honor goes to the medical industry. In particular, MRI machines, those big tubes that create detailed scans of your bones, muscles, and blood vessels. There are more than 13,000 of these machines in the U.S. alone, and each one holds an average of around $60,000 worth of helium.

Liquid helium, which is the coldest substance on the planet, is used as a refrigerant in the superconducting magnets that are the guts of MRI scanners. These extremely powerful magnets become superconductors at liquid helium temperatures, which are just a little bit above absolute zero. In recent times, helium has found an even larger market in the semiconductor industry. Because it's unreactive, helium is used in factories to sweep out other gas molecules and to deposit chemicals onto silicon wafers

without introducing impurities. Every product that contains a semiconductor chip, from cell phones to dishwashers to SUVs, benefits from helium. They're predicting huge growth in demand for helium for chips, so chip manufacturing is going to leave MRI in the dust as the number one application in the coming years. Helium's uses don't stop there. Its largest single buyer is NASA, which uses it to cool hydrogen and fuel, pressurize rocket engines, and test for leaks in oxygen supply lines.

The cost of helium for a typical space launch runs around 12 million bucks. Altogether experts estimate that anywhere from 2.5 to 4 billion dollars worth of helium gas is sold around the world every year. And most of it comes from the United States. The U.S. is the largest producer. We produce just under half of the world's supply. But at one point, the US produced more than 90% of the world's helium, so it's diminished from what it once was. For years, helium production in the United States was mostly controlled by the government.

In the 1920s, the Feds set up the National Helium Reserve, a giant facility in Amarillo, Texas. During the space race in the 1950s and 60s, it stockpiled massive amounts of helium for rocket launches and built a pipeline extending from Texas to Kansas. The thinking in the government when the stockpile was established was that we're going to need a reserve of helium to support the military and aerospace program. We had a huge amount of helium stored,

more than 10 years world supply. During this time, the price of helium was stable and fairly affordable for businesses that needed it. But in the 1990s, the government decided to get out of the helium business. Somebody in Washington said, this is stupid. Why are we storing that much helium in the ground? Let's sell it off and pay off the federal debt. A bill was passed, the Helium Privatization Act of 1996, that set up the disposal of the Federal Reserve.

Over the next few decades, the government auctioned off most of its helium. Earlier this year, the National Helium Reserve's remaining assets were sold to a private firm. Today, America's helium business is almost entirely privatized. And that's partly because getting it out of the ground is a costly endeavor. That's coming up. The process of helium production begins in the Earth's mantle, the layer of rock surrounding the core. Over millions of years, radioactive metals like uranium and thorium decay and release helium.

The gas migrates up into the sedimentary rock layer through faults and fractures, and remains trapped under the ground until it's removed by someone like Beau Sears. Helium is produced just like natural gas is. It remains stored underground until you poke a hole in the ground to get it. Sears is the CEO of Helix Exploration, a company that searches for new pockets of helium and sets up drilling operations. He says the vast majority of helium in the US

comes from the fields in Texas, Kansas, Oklahoma, and Wyoming. It's extracted as sort of a secondary product by companies like ExxonMobil that are already drilling for natural gas. Most of the helium comes from gigantic fields. For instance, in the United States, ExxonMobil is the largest domestic producer of helium by virtue of their field in Wyoming. They produce a gas that contains various constituents, 0.6% of which is helium. And because they're producing such your volumes, they're able to extract the helium rather economically.

Once this gas mix is out of the ground, it goes to a processing plant. In some cases, the extraction company owns its own plant. In others, it has long-term contracts with an industrial gas refinery. Impurities like water, CO2, mercury, and nitrogen are removed, and the gas goes through a cryogenic process that freezes all the other impurities and isolates the helium. Then it's liquefied and sent out for distribution. It goes into a liquid helium iso-container, and that contains roughly a million cubic feet of gas equivalent in liquid form. They take that to a region that needs helium, and then they run that liquid through what they call a trans-fill station, and they repackage

it in smaller parcels. For instance, think of it as a sausage maker. So they take liquid helium and they fill cylinders for the balloon folks. They fill gaseous tube trailers to go longer distances, or they fill liquid doers for hospitals and MRIs. That's usually how helium is distributed across the world. As a final product, helium is produced in a number of different grades that are defined by the Compressed Gas Association.

They're expressed as a percentage of purity. Typically you speak in five nines, four nines, two nines, you know, 99%, 99.999%. Five nines is the creme de la crope. If you're selling it to MRIs, you want six nines. That's very, very ultra pure gas. For balloons, all you need is a very low purity. But even the low quality helium in balloons still has to be pure enough not to cause any problems. If there's some dangerous impurities in that gas and they inhale it for the squeaky voice effect, there's a problem there. So typically the helium you get for birthday parties is, say, 98% pure. For those who buy all of this helium, the pricing

can be very complicated. Phil Kornbluth, the helium consultant, spends most of his time helping clients navigate the market. It varies a lot based on where you are in the supply chain and what quantity you're buying under what contract term. In bulk, helium is generally sold in units of 1,000 cubic feet, or MCF. But as it moves down the supply chain, it's broken up into smaller containers and can be sold by the cubic foot or the leader. A party store, for instance, might buy a standard canister containing 291 cubic feet of helium

for around $500. That's enough to fill something like 600 11-inch latex balloons, which means the store pays about 80 cents for the helium in each balloon. A large party store can easily go through 10 of these canisters every week. But if you're buying helium, you never know what you're going to pay from week to week, because the supply is unstable. 2006 to 2007 was helium shortage 1.0. 2.0 was somewhere in 2011 to the end of 2013. Shortage 3.0 was 2018 to early 2020 and then shortage 4.0 was early 22 through the end of 23. The supply chain is what I would call fragile.

The helium market is extremely susceptible to supply chain disruptions. For starters, there are plant outages, fires, and even explosions. Most of these plants are hydrocarbon production plants. They have explosive stuff there. And if somebody screws up, these plants can blow up. Sears says that, as with oil, the industry is also affected by international conflict. Geopolitically, helium is a hot button issue because half of helium comes from Qatar and Algeria. And then Russia has a large resource that they are currently sending to China right now. So lots of things can happen geopolitically where our supply will be adversely affected.

During shortages, certain customers tend to get deprioritized, especially those deemed to be less than critical, like the party store owners. Helium is very much a triage unit. The most important users, the MRI, chip manufacturing, fiber optics, those are the most high-volume users of Helium, so they'll usually get the most product. And then you go all the way down to the balloon guys, and oftentimes they are completely cut out, and they have to source their helium somewhere else. So the balloon guys are at the bottom of the packing order?

I would say so, yes. Oh, that's unfortunate for party enthusiasts. In times of shortages, they'll blend that gas to save some money, because they don't know when they're getting their next cylinder of helium. When supply is low, helium prices tend to be much higher. But many of the bigger customers can't change their buying habits when the price of helium goes up or down. That's because in many industries, there is no substitute for helium.

MRI machines cannot work without helium. Space launches, rocket launches, right? You need something that will not react with those propellants. Otherwise, those rocket engine storage just collapses like a Coke can. You must have helium. Luckily, helium shortage 4.0 seems to be over now, and prices have come back down a bit. But demand for helium is only growing, which is why there's money to be made in hunting for new sources. In order to fill the void, we need to find more molecules. And the only way to do that is to explore for it. And that's what we're doing. His company, Helix Exploration, is one of around 60 firms actively searching for new

helium deposits. Helium exploration is a very risky endeavor. We are traditional wildcatters. We are looking for stuff that we're not sure is there, but we have a pretty good idea it is. All that low-hanging fruit is pretty much gone. Now we have to fill in the gaps of where we think helium should exist. And that takes various components of geological expertise.

For instance, is it an area that has adequate uranium and thorium in the basement rock? Does it have adequate faults and fissures? Does it have a trap? Does it have reservoir quality? All of these things are important in the pursuit of helium. This exploration may help solve supply issues in the short term, but it doesn't quell potential problems in the distant future. At one point or another, all helium that's mined from

the earth and used commercially escapes to the atmosphere and goes into outer space where it's unrecoverable. That concerns Sophia Hayes, the chemistry professor at Washington University. There have been different estimates that at the rate of use we may run out of helium one day. I think that that's quite a real worry for the following reason. Because it has no substitute and because every atom of helium can escape the Earth, every time we let it go, we still have to recreate that helium one atom at a time through radioactive

decay, which is a natural process. We are using it up faster than it's being replenished. And so by definition, that's an unsustainable situation. Scientists are working on recapture systems that can trap and recycle helium in certain applications. And in recent years, manufacturers have also developed much more efficient MRI machines. They use just seven liters of helium per machine compared to the 1,500 liters used by older machines. But Hayes says there's another way

we can all make a small difference. Balloons should be a luxury item rather than a common item. It's not that I'd like people to stop having balloons because one of the great things about those balloons is it gets people to care. If you looked at that balloon and realized how incredibly magical it is to be able to hold that in your hand

and to know that when you let that go, the gas is going out into outer space, never to be seen on earth again. Well, that's a pretty amazing thing. For the economics of everyday things, I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz-Rapson. Helium is not usually like big cocktail party conversation, right? You say, well, I'm a consultant in the helium business and they crack a joke about Donald Duck voice and that's usually the end of it.

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