Helium Program: Urgent Issues Facing BLM's Storage and Sale of Helium Reserves
Published: 2013-02-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government has been extensively involved in the production, storage, and use of helium since the early part of the twentieth century. The federal helium program is currently managed by the Department of the Interior's 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 this helium was used to meet federal needs, most of it was retained in storage. The funds used to purchase this helium became a debt owed by the program. BLM now sells crude helium from the reserve, and the proceeds go into the revolving Helium Fund, which is used to finance the program and payoff the program's debt.
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 program, and a 2010 report by the National Academies' National Research Council concluded that it is time to reassess the program. GAO testified on the helium program in May 2010 (GAO-10-700T). This testimony is an update of GAO's May 2010 testimony and discusses (1) how the Helium Privatization Act of 1996 addressed issues raised by GAO in the 1990s and (2) three urgent issues facing the helium program in the near future.
GAO is not making any recommendations in this testimony.
section_title: What GAO Found
paragraphs: Since GAO's reports in the early 1990s, the Helium Privatization Act of 1996 has caused considerable changes to the helium program and addressed or altered GAO's prior concerns. In 1992, GAO reported on various aspects of the federal helium program including the helium debt, pricing, and alternatives for meeting federal helium needs.
Helium debt. In 1992, GAO recommended that Congress cancel the helium program's debt since doing so 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. As of September 1991, this debt had grown to about $1.3 billion, over $1 billion of which was interest that had accrued on the original debt principal of about $290 million. The 1996 act did not cancel the debt as GAO had recommended, but it did freeze the growth of the program's debt and, as a result, the debt should be paid off this year.
Helium pricing. The helium debt was also a factor in setting the price of federal helium. In 1992, GAO recognized that, if the helium debt was cancelled, Congress might need to propose a new pricing scheme. The 1996 act requires a specific method for pricing helium. This, along with other changes in the supply and demand for helium, has resulted in the Bureau of Land Management's (BLM) price to be at or below the market price.
Alternatives for meeting federal helium needs. In 1992, GAO recommended that Congress reassess the conservation objectives of the helium program and consider other alternatives to meet federal helium needs. In resetting the program's objectives, the 1996 act directed Interior to stop refining helium and established a modified in-kind approach for meeting federal helium needs. Agencies must purchase helium from refiners that then purchase an equivalent amount of crude helium from BLM.
Changes in the helium market have generated concerns about the future availability of helium for federal and other needs. The Helium Privatization Act of 1996 did not provide a specific direction for the federal helium program past 2015. Three urgent issues facing the program are as follows:
How will the helium program be funded after 2013? If the helium program's debt is paid off this year, as expected, the revolving Helium Fund will be terminated as required by the 1996 act. When GAO last testified on this issue, the estimated payoff date was 5 years away in 2015. The schedule has accelerated primarily because of improved crude helium sales.
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 2013, the debt will be paid off, and the current price is at or below market.
How should the helium owned by the federal government be used? BLM's effort to sell off the excess helium in storage will not be completed by January 1, 2015, as required by the 1996 act. As of September 30, 2012, there were 11.44 billion cubic feet of conservation helium in storage. After BLM is finished drawing down the reserve, some believe that the United States could become a net importer of helium.

section_title: Letter
paragraphs: I am pleased to be here today 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, Interior purchased about 34 billion  cubic feet of helium from private crude helium producers. In the 1990s,  we reported to, and testified before the Subcommittee on Energy and  Mineral Resources on Interior’s management of the federal helium  program. 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.
National Research Council, Selling the Nation’s Helium Reserve (Washington, D.C.:  National Academies Press, 2010).
Resources. My testimony today will describe (1) how the Helium  Privatization Act of 1996 addressed issues we raised in the 1990s and  (2) three urgent issues facing the helium program in the near future. This  testimony summarizes and updates the information presented in our  May 2010 testimony. Our May 2010 testimony was a performance audit  conducted in accordance with generally accepted government auditing  standards. A detailed description of our scope and methodology is  presented in our May 2010 testimony.
subsections: section_title: Background
paragraphs: Helium is an inert element that occurs naturally in gaseous form and has  a variety of uses (see table 1). 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.
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.helium that is stored in the ground in an area of a natural gas field that  has a naturally occurring underground structural dome near Amarillo,  Texas. In addition to the federal 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.
The federal government has a reserve of crude  The federal government has been extensively involved in the production,  storage, and use of helium since the early part of the twentieth century.
The federal government and private sector cooperatively produced helium  before 1925, specifically for military uses. The Helium Act of 1925, as  amended, assigned responsibility for producing helium for federal users  to Interior’s Bureau of Mines. From 1937 until 1960, the Bureau of  Mines was the sole producer of helium. The act provided that funds from  helium sales be used to finance the program by establishing a revolving  fund known as the helium production fund. Such revolving funds are used  to finance a cycle of business-type operations by charging for the sale of  products and then using the proceeds to finance their spending. 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, establish this  value as debt in the Helium Fund, and 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, this 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 Helium Privatization Act of 1996 significantly changed the objectives  and functions of Interior’s helium program. 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),(c)); 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  repay the program’s debt. 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 was allowed to 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)).
As directed by Congress, the National Academies’ National Research  Council reviewed the helium program and released a report in 2000 that  evaluated the changes made in the program, the effects of these changes  on the program, and several scenarios for managing the federal  government’s reserve of helium in the future.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.
section_title: The Helium Privatization Act of 1996 Addressed or Altered Our Prior Concerns
paragraphs: Since our reports in the early 1990s, the Helium Privatization Act of 1996  has caused considerable changes to the helium program and addressed  or altered our prior concerns. In October 1992, we reported on various  aspects of the federal helium program including the helium debt, pricing,  and alternatives for meeting federal helium needs.
subsections: section_title: Helium Debt
paragraphs: In October 1992, we recommended that 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 principal of about $290 million. At that time, the deadline for  paying off the debt was 1995. We reported that the only way to pay off the  debt by that deadline would be to charge federal agencies with major  requirements for helium over $3,000 per thousand cubic feet of helium,  compared to the price at that time of $55. We recommended that  Congress cancel the debt in the Helium Fund because it was no longer  realistic to expect the debt to be repaid by the statutory deadline of 1995,  and because 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. The 1996 act did  not cancel the debt, as we had recommended, but 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 2012, BLM had $44 million in debt remaining, which according  to BLM officials it expects to pay off this year (see fig. 1).
The helium debt was also a factor in setting the price of federal helium. In  1992, GAO recognized that if the helium debt was cancelled, Congress  may wish to propose a new pricing scheme. The 1996 act did not cancel  the debt, as we had recommended, but it did require 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 fig. 2). Refined helium prices have more than  tripled from 2000 through 2012 pursuant to demand trends.
In 1992, GAO recommended that Congress reassess the conservation  objectives of the helium program and consider other alternatives to meet  federal helium needs. 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 using 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.agencies have fluctuated, primarily due to the National Aeronautics and  Space Administration’s unique requirement for large volumes of helium  on a sporadic basis. Total federal in-kind sales for fiscal year 2012 were  160.67 million cubic feet (see fig. 3).
section_title: Three Urgent Issues Facing the Helium Program
paragraphs: As we testified in 2010, 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. As a result of these factors, in 2010, we  identified three areas of uncertainty about the program’s direction after  2015. The same three areas are even more urgent today because  3 years have passed since our 2010 testimony, and BLM’s schedule for  paying off the program’s debt has accelerated. Specifically, the three  urgent issues are as follows:
How will the helium program be funded after 2013? If the helium  program’s debt is paid off this year, as expected, 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 2013. BLM is still evaluating possible options, but it may  have to undertake an orderly shutdown of the helium reserve unless  the revolving fund is not terminated or appropriated funds are  available for crude helium sales and the operations of the reserve.  When we last testified on this issue, the estimated payoff date was  5 years away in 2015, and it was more closely aligned with the 1996  act’s requirement to sell down the helium reserve by January 1, 2015.  The debt payoff schedule has accelerated primarily because of  improved sales of the crude helium offered for sale. As a result, BLM’s  helium program will not have a funding mechanism for its continued  operation until 2015. Furthermore, because of some years of slow  sales, BLM estimates that it will need to continue helium sales from  the reserve until sometime between 2018 and 2020 to reach the 1996  act’s requirement to draw down to 600 million cubic feet.
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. 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 for crude helium is estimated to be at or below the  market price for refined helium. 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 2013, 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. In response to a recommendation in the National Research  Council’s 2010 report, beginning in fiscal year 2011, BLM  implemented a new two-tiered pricing system. Under the new pricing  system, in-kind sales involving federal agencies continued to be  based on the minimum selling price set in the 1996 act, while other  sales to nongovernmental entities are charged a higher price based  on debt repayment and cost recovery factors. The new pricing  system, however, is still not a market-based pricing system. In  November 2012, Interior’s Office of Inspector General recommended  that BLM implement a new helium pricing process by the end of 2013  to ensure a fair return on the sale of helium.
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 79 percent of the  amounts offered for sale have actually been sold (see table 2). BLM  will likely still have significantly more crude helium in storage than the  600 million cubic feet required by the 1996 act. As of September 30,  2012, there were 11.44 billion cubic feet of conservation helium in  storage. According to the 2010 report by the National Academies’  National Research Council, the United States could become a net  importer of helium within the next 7 to 12 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  Congress may want to reevaluate how the domestic crude helium  reserve is used or conserved. It is uncertain at this point how the  helium still remaining in storage after January 1, 2015, will be used.
In conclusion, Mr. Chairman, there have been a number of changes in the  market for helium since Congress passed the Helium Privatization Act of  1996. As the deadline for the required actions to be taken under this act  approaches, Congress may need to address some unresolved issues  such as how the helium program will operate once the Helium Fund  expires at the end of this year, how to set the price for the helium owned  by the federal government, and how to use the remaining helium in  storage.
Chairman Hastings, Ranking Member Markey, and Members of the  Committee, this concludes my prepared statement. I would be pleased to  answer any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information about this testimony, please contact me at (202)  512-3841 or garciadiazd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this testimony. In addition, Jeff Malcolm (Assistant Director), Carol  Bray, Leslie Pollock, and Jeanette Soares made key contributions to this  testimony.
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