By Collin Gallant on September 9, 2017.
A global chemistry sector analyst says time will tell whether helium exploration will lift the City of Medicine Hat’s financial outlook, or whether the industry will take root in Western Canada.
This week the city’s energy division announced advanced plans to drill for sources the valuable gas used in advanced manufacturing, and has been produced in small amounts for decades in southwest Saskatchewan.
If successful, it hopes to expand its exploration to Alberta and study the feasibility of building a refinery here.
Analyst Bala Suresh covers industrial gases, supply chains and markets for IHS Chemical Weekly.
He said small, niche production could be profitable and “could probably add to a growing market, but based on the information available right now, it’s not likely to impact on the North American market.”
“It depends on if you can get a good price — if buyers turn up with a good margin, then it makes sense,” Suresh told the News Thursday.
“How much they measure, the duration of the project, the capital cost involved — that will determine the feasibility.”
City administrators agree.
A presentation to a council committee outlined a plan to drill a series of exploratory helium wells in tandem with an ongoing oil program, then evaluate the results.
While similar to petroleum exploration at the drilling stage, collecting and processing helium is much more capital intensive.
Interest in the commodity has risen for about a decade, since the United States government announced it would sell off a strategic reserve. More recently, an economic blockade of Qatar has jolted the industry. Together those nations produce about 80 per cent of the world supply, which is used in medical equipment, fibre-optics, super-computing and other industrial applications. World prices have levelled out however, Suresh states.
“We expect it to stabilize,” he said.
“There has been new production coming on (around the world) … Fields in the U.S. are depleting and becoming less economic.
“There are a few small plants that are coming on, but not enough to match what’s coming off.”
“In North America, demand is growing by 1.3 per cent and supply is down 1.6 per cent, so imports are going to be covering the balance.”
Top-grade helium fetched $200 per 1,000 cubic feet last year. Four chemical consortiums controlled virtually the entire world supply, processing it in 20 refineries around the world.
The nearest to Medicine Hat is located in Kansas.
Since the gas is difficult to contain and transport, it must be compressed and trucked at a temperature of -270C. That makes the logistics “capital intensive.”
Yet, interest has risen since prices first rose. Since trace amounts of helium is typical in most natural gas production, stripping it out has been suggested to help beleaguered natural gas producers.
At least two other companies are actively promoting their projects that target helium in Western Canada. Saskatchewan is fielding increased applications for special helium drilling permits.
The inert gas occurs naturally at extreme depths underground.
Due to light mass and low density, helium migrates upward but most is lost when it enters the atmosphere, eventually travelling to outerspace. Sometimes though, it is trapped in geologic formations capped by a layer of non-porous rock.
Officials with the city expect first-phase drilling to be complete by the second quarter of 2018.
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