Lawmakers and auditors slam BLM for not keeping a closer eye on market for helium

E&E News
By Joshua Learn
July 16, 2014

Lawmakers and the Government Accountability Office put the Bureau of Land Management in the hot seat yesterday, accusing the agency of failing to monitor the sales of helium from federal reserves to distributors without refining capabilities.

"BLM has a number of challenges -- the primary challenge is breaking the hold that helium refiners located along the pipeline have had on access to the helium reserve," House Natural Resources Subcommittee on Energy and Mineral Resources Chairman Doug Lamborn (R-Colo.) said at a hearing reviewing the implementation and administration of the 2013 Helium Stewardship Act.

"For more than a decade, BLM has actively collaborated with the helium refiners to deny access to the pipeline and eliminate competition for federal helium," he said. "This has allowed a small handful of refiners to limit access, depress prices and stifle competition."

Gas held in the Federal Helium Reserve is raw and needs to be produced by refineries. The Helium Stewardship Act, which was designed to manage the sale and auction of the gas from the reserve, states in part that helium refiners must make any excess capacity available to non-refining helium distributors -- essentially their competition in the helium market -- in order to create a more competitive market for the gas.

"Effective beginning 90 days after the date of enactment of the Helium Stewardship Act of 2013, the refiner shall make excess refining capacity of helium available at commercially reasonable rates," reads the law.

Lamborn added that if refiners "inaccurately report their excess refining capacity or offer tolling at exorbitantly high prices, the law requires the BLM to withhold helium from any refiner or prohibit their participation in the auction."

But Anne-Marie Fennell, the director of the Natural Resources and Environment team at the GAO, testified that the BLM has not yet put a satisfactory system into place to ensure the conversion of crude federal helium bought by non-refiners into refined helium by refiners -- a process called tolling.

"BLM faces challenges in knowing whether refiners have excess capacity available and are offering excess capacity to non-refiners at commercially reasonable rates," she said, adding that the agency also has challenges facilitating and giving incentives for tolling.

Linda Lance, the deputy director of programs and policy at the BLM, said that the agency has defined the excess refining capacity in an upcoming report in response to questions from Fennell and Rep. Matt Cartwright (D-Pa.).

"We're trying to increasingly clarify for the industry what we expect in terms of their information on excess refining capacity. We hope that will be adequate to get what the statute requires," Lance said. But she acknowledged that perfecting the system would be a gradual process.

Rep. Bill Flores (R-Texas), a member of the subcommittee, told Lance that "there is no transitional period for this built into the HSA so I'd encourage you to get the tolling process put together ASAP."

The Federal Helium Reserve near Amarillo, Texas, was created in 1926 as a way for the United States to compete globally with military technologies of the time, such as blimps. But the helium reserve continued to be stocked for decades, even after blimps were no longer used for national defense.

It was scheduled to close in October 2013 and was kept open by the HSA, which was signed in September 2013 to ensure access to federal helium in the meantime and implement a transition period for auctioning off the material (E&E Daily, Oct. 3, 2013).

The law was also implemented to ensure, through auction, that the helium was sold off at values that better reflected current market shortages rather than the federal government's existing pricing formula. Helium customers had warned about the lack of adequate substitute markets for the gas.

But some experts say the auction system won't attract a large market that bolsters helium prices unless non-refiner buyers are guaranteed they can get the helium they bid on.

"Buyers are looking for assurance from the front end," said David Joyner, president of Air Liquide Helium, a non-refiner helium distributor and subsidiary of Air Liquide SA.

"It's key for any new buyers to know that there's going to be that capacity available following the auction," Joyner, who was not at the hearing, said in a phone interview.

He said that his company supports Congress' intention with the HSA to bring in more competition but that "it's critical that the BLM implements it properly to ensure that buyers get timely delivery of helium and tolling at commercially reasonable rates."

So far, he said Air Liquide has bought 15 million cubic feet of helium from two sales this year -- one of them in January -- but has yet to receive any of it. He said company officials are still waiting for the BLM to give them a delivery point and more clearly define or even set the "commercially reasonable" rate they will have to pay one of the three refineries for the helium they bought from the federal reserve.

"There must be firm assurances that purchasers will have access to the appropriate pipeline capacity to deliver that helium," Lamborn said, adding that he looks forward to hearing the BLM's plan on ensuring access so that purchasers will not be "left waiting years to move their helium from the reserve to market due to uncompetitive actions of the refiners."

At the end of the hearing, Lamborn also said that he and Natural Resources Chairman Doc Hastings (R-Wash.) will release a discussion draft of new legislation called "Helium 2" to "secure and encourage future production of domestic helium, ensure that helium producers have the regulatory certainty they need to explore for and produce helium on federal lands, and facilitate a private domestic market for U.S. domestic helium."