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Nathan Hunt: This is the essential podcast from S&P Global. My name is Nathan Hunt. It's been a while, but we are back to the elements of the energy transition. I'm joined once again by Terence Kooyker, CEO of Valent Asset Management, a hedge fund focused on commodities and the energy transition. Today, we are tackling helium, lucky #2 on the periodic table of elements. Terence, welcome back to the podcast.

Terence Kooyker: Thanks very much, Nathan.

Nathan Hunt: Terence, up to now, our elements of the energy transition have been a little further down the periodic table. And then we find ourselves talking about an atomic number of 2. What makes helium an element of the energy transition?

Terence Kooyker: Yes, it's -- the title of this podcast is a little bit of misdirection actually because I think what we'll find is that we're actually going to be talking about what helium does all the elements further down on the periodic table. I mean, really, if we had to boil it down to one concept, cold is efficient, and that's where helium comes in.

Nathan Hunt: Cold is efficient. Okay. So what is it about helium that makes it useful for coldness?

Terence Kooyker: Essentially, it's the property of helium that it has -- it's in liquid form. It's the coldest of all the elements at 4.2 Kelvin. At 2.7 Kelvin, which is its lambda temperature, it becomes a superfluid. And really, that's -- the property of that is due to its low interatomic forces. And that's why we use it in anything that needs to be either inert or very, very, very cold. That can range anything from the experiments that we've done in superconduction or even just when you go to the hospital, your MRI machine, that application takes up 15% of helium per year.

Nathan Hunt: So Terence, I read helium gets used in cryogenics. Does that mean people use it to, I don't know, freeze their brains, so they can be revived in the future? Or is cryogenics referring to something else here?

Terence Kooyker: Cryogenics, in this case, is really just referring to these applications, which I was already -- made reference to. It's anything where we need to achieve that low of a temperature. And I guess the question is what applications are there where we need to achieve that level of coldness and how are those related to the energy transition. And this is what I was referring to and what does helium actually do to the properties of metals or other elements.

The 3 concepts here will be, like I said, in the beginning, cold is efficient. And that's why we find helium to be so important in superconduction. We also find it in production of semiconductors. So the increased demand from the solar industry for efficient use of semiconductors, helium is used in that process. And then also just in the industry of space exploration, uses about 15% of the helium per year.

And so I guess the follow-on question is what happens to these materials. Why does it become more efficient? And I think the most tangible one for the energy transition is -- and I will admit right off the bat that the previous podcast up until now, we've spoken about these elements in more material occasions. And this will be a lot more, I think, geared towards the concept of future technologies.

And I say that with specific reference to superconduction because, really, there's been the focus on how we generate renewable green energy and technological advancements in solar, even infusion recently. A lot of it is focused on the generation side, but really, there's a lot to be gained in not losing energy and transmission and becoming efficient and whether that's upgrading our electrical grid or just change in the materials used that can make a material difference in [ antimorphic ] energy usage.

And so that's why focusing here on superconductive materials, well, admittedly not commercially viable for energy transmission now. It certainly seems like a concept that will be employed in the future. There's -- when you take a material that can be superconductive at very low temperatures, essentially, something we've talked about in previous podcast was movement is energy, is heat. It's all the same thing. It's all energy in some form. And as you pass electricity to a normal wire, a normal copper wire, aluminum wire, there's friction built up from electrons colliding with atomic nuclei. That's usually released in heat and thermal energy. And even in the newly installed or recently installed energy transmission lines in China, you still get about 5% to 7% energy loss. Superconduction makes it so that you get 0% energy loss.

And essentially, it does that by cooling the material down to a point where you're really mitigating the kinetic energy within it. You're really mitigating the atomic vibrations. When you do that, this interesting thing happens where electrons can form what's called Cooper pairs. All of a sudden, instead of hating each other for both having a negative charge, they like to hang out together, and they create a linear movement between the atomic nuclei that are not vibrating as much as you would at room temperature. Essentially, what that means is that you can move electrons through material much more efficiently to the point where, under a perfect superconductor, it moves without any energy loss whatsoever.

In fact, if you took a loop of a superconductor, a wire, and you induce an electric current in it, that current would just go on forever. Of course, now your thinking isn't that impossible. But there's this little amount of energy loss that's going to be lost to the helium, which you'll need to keep that cold.

Nathan Hunt: Terence, I'm wondering about the nature of these superconducting materials. Have they been developed in a lab? Do they exist anywhere? Or are they largely theoretical at this point?

Terence Kooyker: So honestly, the Nobel -- there was a Nobel Prize in, I think, 1913 awarded for superconduction and research into superconduction. It was -- I can't remember who, but it was -- they achieved superconduction in mercury. And so it's been a phenomenon that we've studied for quite some time. And it's something that -- like I said, one of the tangible commercial applications was in MRI machines.

And it's -- in terms of electricity transmission, you still have the problem of that's a very long distance that you need to cool. And I think it's going to be quite some time before you see that in electrical transmission. But one place you can see it in practice now is in maglev trains. And it's essentially -- this is another property of -- that occurs in certain materials, have very low temperatures. And it's taking -- maglev trains take advantage of the fact that when you cool magnets to very low temperatures, you really can increase the magnetic flux that comes out of them.

There's 2 things that occur, and it's the same concept as what happens with energy transmission efficiency. When you think of the fact that a magnet is just a crystalline structure that is an alignment of electron spins, and so all those little electron magnets that are within that substance, you try the best you can to get them pointed with all the negatives in one direction, all the positives in the other direction. And like we've said before, quantum spin does not actually mean they're spinning. It's just the magnetic properties and the 2 poles of the electron.

Now in a magnet at room temperature, you're really kind of talking about the mean alignment of electrons because they're vibrating. Anything with temperature is vibrating and the higher the temperature, the more it's vibrating. And so you'll get those poles of those electrons vibrating back and forth. And sometimes, they're going to oppose each other to a certain degree. Sometimes, they're going to be in a line. So you're really just talking about the -- like I said, the average.

When you cool a magnet down, just like when you stabilize all the atoms in a superconductor that you use for energy transmission, you are having a greater alignment in their -- in the magnetic field. So you are essentially reducing -- it's like having an earth that doesn't move back and forth on its axis. All of a sudden, the equator is just where the sun hits all the time. And I think that's probably the best way to visualize this. And so you have the highest force from the aligned electron spins going in one direction.

Nathan Hunt: When you think about using these superconducting materials for electricity transmission, would that take the form of -- and forgive me if this is sort of a dumb way to think about this, but would that take the form of copper or aluminum wire essentially encased in liquid helium?

Terence Kooyker: My answer to this one is I wish I knew. It's -- there is going to be that issue of keeping it at those temperatures for that distance. And so then the question is what's the energy involved in that. Do you have to have intermittent pumping stations just like the way with -- the way that you have to have boosting stations throughout the Atlantic Ocean to -- for fiber optics.

It's -- there's -- of course, the -- all the research now is directed towards finding materials that behave that way at higher and higher temperatures. And you might have read about superconductors because all the headlines that you see about it are called "high temperature" superconductors and that high temperature that they're referring to is like 20 Kelvin instead of 2.

So it's not like we're actually getting to room temperature superconductors. But there's -- there are other ways that superconduction has been contributing to the green energy transition, and one of them is in fusion. And one of the issues of fusion is that Helion was the first company to achieve fusion at 100 million degrees. You can't really touch that many things when you're 100 million degrees.

And so they use just very powerful superconducting magnets to isolate the plasma within their chambers, within their fusion chambers. And for that level of magnetic flux, you need to be cooling those to a high degree as well, and that's where helium comes in, in that regard. And one of the other aspects of this, which leads to -- which contributes to its efficiency in using magnetic force is that superconductors will naturally expel magnetic fields.

So if you go on to everybody seeing these things -- well maybe not everybody because not everybody is watching videos on superconduction. But if you go on to YouTube, you always see those things where there's this cool mist flying off of a circle of this metal and they put a magnet on top. The magnet just floats. They flick it, and it goes around and around in a circle, right?

So the cool thing about superconductor materials and magnetism is that superconductors won't allow the magnetic flux to pass through. It'll just equally repel it. And so that's why that magnet floats right on top of it. So instead of passing through the material, it just sits right on top. There's an equal and opposite reaction.

And whenever I watch those, I think, wow, that must be efficient for transport, which is exactly the same thing that the inventors of the maglev train thought. If we could just have this floating on top in superconductive suspension, that really reduces the friction involved. And it's that exact concept that the maglev train uses.

Nathan Hunt: Okay. So to revisit a point you made earlier, helium may not be a commercialized element of the energy transition right now, but you seem to be suggesting that it must be commercialized in order for the energy transition to occur in the future. Is that accurate?

Terence Kooyker: Yes. And I -- one of the -- the maglev train example is one example of how that is employed. And in addition, the helium's property of bringing materials down to superconducting temperatures is actually only one aspect. One thing I said in the beginning was that helium's also necessary for -- in the production of semiconductors. And I think we all know by now that semiconductor demand has been increasing.

And essentially, what you -- there's 2 properties of helium that make it important for that. One is that when you need a sterile and inert environment, which is what you need when producing semiconductors, that's one of the properties that helium can provide. That's somewhat substitutable. Argon can be used for that, too. But in addition, you also need something that can readily transfer heat away when you're pulling the little tiny individual silicon molecules that go into a superconductor. And that property is used to cool that material quickly after extraction.

And the same thing is true for fiber optic cables. As you extrude a fiber optic cable, you generally cool it with helium on the way out because the rapidity of cooling will mitigate air bubbles in the fiber optic cable, which is important for the efficient transfer since you're literally just passing light through it.

Nathan Hunt: Let me return to the point you made about semiconductors, right? So it's important to keep in mind, obviously, semiconductors at this point are basically carved into silicon at the atomic level, like the individual semiconductors are so very tiny. So when you talk about the need to dissipate heat, is it because if you aren't dissipating heat, you can mess things up at the atomic level? Is that the goal there?

Terence Kooyker: Yes. And I try to think of a decent example for this, but essentially, the faster you can cool it, the lesser the kind of imperfections.

Nathan Hunt: So where do we get helium? I mean I know where I get helium. Go to the balloon store.

Terence Kooyker: Party City.

Nathan Hunt: Yes, Party City. I go to Party City, and I get balloons filled with helium. But where does Party City get helium?

Terence Kooyker: Well, that has changed in the recent past. So to get the full story of helium, you kind of have to rewind to the 1950s and to the beginning of the Space Race and the Cold War. And it was at that time that, like I said, helium is very important in space exploration, and that's one area where it's really not substitutable. Generally, it's needed for purging liquid oxygen or liquid hydrogen tanks and you need a gas that is not liquid when oxygen and hydrogen are liquid. And that kind of leaves you with just helium.

And so at that time, the U.S. government decided that they needed to build a massive stockpile of helium, whether it was just the Space Race or looking forward into the Cold War period, and they saw it as an incredibly critical material because the other problem with helium is it just goes up. And there's nothing you can do about it.

So it's one of these elements that also taunts you because space is full of it, but you're not getting it down here. The only way you get it on earth is by the very slow decay of rock, and that is very, very slow. And so for a while after the stockpile was built by the U.S. government, they just held it, and then eventually after the Space Race in the early '90s, they decided to sell off those stockpiles.

And there was a policy passed. That was the Helium Privatization Act or something like that. And the Bureau of Land Management started doing auctions, annual auctions of the helium reserves. That pretty much ran out about 5 years ago, and they wanted to shift it back towards the private sector. The problem was that helium was mostly sourced from natural gas wells. And in that period, we had this conversion of conventional natural gas well production to fracking. And fracking was the real one that expanded that industry with a cheap way of getting natural gas.

Here's the problem. As you probably know, something that is constantly mentioned with fracking is permeability, which is not great for housing helium. So fracking wells don't have any helium because it's escaped. It's really only conventional natural gas wells. Even then, there's about 0.5% in concentration. And so you have now global supply really dictated by 8 wells.

There was some hope that a large project in Russia was going to close some of the gap. It's not looking great now for obvious reasons. And so there's really kind of this dearth of new development. Essentially, when you have natural gas production from conventional wells, you just use fractional distillation as you do with any separation of hydrocarbons. And the fact that helium stays gas when everything else turns liquid is also utilized, but also for some, it's -- there's not much point in recovering the helium because it's such a small portion of the natural gas producer's revenue.

It's a theme that we touch on every single time here, where these elements are largely byproducts of other processes. And so if you're moving to a point where, down the road, we are just completely abandoning hydrocarbons, kind of means you're abandoning helium production as well.

Nathan Hunt: As you say, terrestrial helium is a little tricky because it goes up. So it's hard to capture that way. Helium, though, is actually quite common in the universe because of stars, right, so stars producing energy through fusion. And a natural byproduct of fusion is, as you sort of smash together these hydrogen atoms, you get helium as a byproduct.

So fusion has been in the news lately, these -- this success at the Lawrence Livermore labs that they had with basically getting a fusion reaction to output more energy than had been put into it. Let's look to the future, let's say, we've commercialized nuclear fusion as a source of energy. Does that mean that helium will become super abundant because it's just being produced by fusion reactions all the time?

Terence Kooyker: So while the fusion process creates helium, the -- you still have the problem of the massive electromagnets around it that enable that, which need to be cooled with helium. Now the one point to touch on here is that, technically, that helium can be recycled. And in the last real acute helium shortage, they did exactly that. And some of the producers of semiconductors invented processes so that they could just recycle their helium to the point where it was only about a 10% loss because, really, if you can contain it in a closed loop, it's really just the energy to cool it that is necessary.

And so while I don't think that fusion will be a net contributor or a net producer of helium, there are ways to be more efficient with it. One thing that you and I have discussed previously is if it really came down to it, you could have a public service campaign and say everybody stop buying balloons, and all of a sudden, 10% of demand is freed up.

Nathan Hunt: So given that there is a bit of a helium shortage right now because of the -- because we've lost the strategic reserve, it's been used up, and there's now these, I think you said, 9 natural gas wells that are still producing helium, do you think that the sort of floating balloons and funny voices applications of helium are going to go away because shortage usually means prices go up.

Terence Kooyker: Yes, it's funny in one of their mid-teens 10-K filings, I remember seeing Party City complaining that their margins were being compressed by rising helium prices. It might have been 2012. It's likely that, that could happen. I think it would not necessarily be price induced, but like I said, a public campaign kind of highlighting the fact that it's a critical material that we might need and maybe it's not so great if you buy your kid a balloon and it goes into the atmosphere, let alone that, that rubber comes back down.

But there's -- I think we'll see -- if you get to a certain point where the price is high enough [ to eat ]. There are still industries where it could be substituted as well. If you're using it in something like -- high-performance arc welding is another area. So when you're welding stainless steel, oftentimes, they'll use a -- they'll use helium as a barrier when making those welds. In the United States, they use helium in Europe, they use Argon. And so it's easy enough to switch over. You just need a noble gas that will be inert. So while there is this prospect of a shortage, there is still some wiggle room for substitution and rationing in my opinion.

Nathan Hunt: So let's talk about what the market for helium looks like right now. Let's say I have extracted helium from one of these natural gas wells. I've used my fractional distillation to extract the helium from the natural gas. Now I have a tank full of helium. Where do I sell this?

Terence Kooyker: I mean almost all of it's done under private contract. It's direct offtake agreements. There's -- one of the major producers in the United States is run by ExxonMobil, and when they started that helium production, I think it was contracted for 2 decades forward. It's really -- so it's a difficult market to trade on the spot market.

There's also just not that many containers for it. It's another issue for its transport. It's all well and good that Qatar and Russia might be ramping up production, but it's not that easy to get that to the United States. And so there's a few companies now developing some wells in Canada. And really, it's another one of these difficult things to really get exposure to. You need to find either a -- if you do want an investment or exposure to it, it's either finding a company that has a majority of the revenue coming from helium sales, which is not easy.

I'll tell you what, ExxonMobil does not have a majority of their revenue coming from helium. Natural gas producers don't have a majority of their revenue coming from helium. It's -- there is some in -- there's some potential exposure and distributors of it. But it's really finding a pure-play equity, and for the most part now, those are on -- those are private.

Nathan Hunt: So let's say there was a commodity investor, and let's say that investor had a commodities hedge fund focused on the energy transition and that investor happened to believe that helium was underpriced. Is there any way except looking for these equity pure plays that you could -- could you get forward contracts in helium? Is there anything like that, that exists right now?

Terence Kooyker: There isn't now as far as I know.

Nathan Hunt: Okay.

Terence Kooyker: And I got your hint there, but Valent is not trading in this at all. This is one of the -- this is the element that I thought we should do a podcast on just because it's cool, no pun intended. And I have heard of others that have rented tank space, but that can also be expensive. If you're -- there's not -- you need a large volume if you store it in gaseous form and then you need -- it takes energy to store it in liquid form. So it's a difficult one to produce, and most of what I've seen is via the private equity market.

Nathan Hunt: When you think about -- or when you said about how helium, hard to store and hard to transport because of the containers, what is it about helium that is hard to put in a container? Can't you just sort of transport it the way you would natural gas or LNG or something like that?

Terence Kooyker: It's small unfortunately. That's the -- that's really the problem with it, is that it's small. And so you need very specialized containers and obviously, nonpermeable conventional natural gas wells are a place to store it, salt caverns. But when your balloon starts to deflate, it's not because there's -- anything is untied or there's a hole. It's going through the rubber. It's just a very difficult atom to contain.

And as opposed to something like natural gas, you're talking about a long somewhat -- or very long compared to helium, a long-chained hydrocarbon. And then the other question is what happens when you need to open the container. Goes up is the problem again. For the most part now, that's been -- that's all been solved for local applications. So your MRI machine is not just like leaking profuse amounts of helium everywhere, but it becomes a little bit more tricky once you actually need to transport in long distances.

Unknown Attendee

So Terence, given current usage levels of helium, looking everywhere from MRI machines to semiconductors to superconductors to Party City, do we have enough helium? Or are we looking at -- or have we moved beyond peak helium?

Terence Kooyker: It's largely contingent on 2 major projects coming online. One is the one located in Russia, and the other was the one located in Qatar and which I always thought was Qatar until the World Cup, and then everybody started calling it Qatar again. It seems to vary every decade, anyway. And so it's really dependent on those. There's increased production from that Canadian company, North American Helium.

And so it's just one of these things that's highly variable and similar to what we -- the supply risks that we spoke about when we've -- speak about some of these rare earths, it's just so highly concentrated in only a handful of projects. And so that's what makes it so prone to supply disruptions. And it's one of these things where, again, being a byproduct of another process, there's very few places you can go and just target the helium and have it be economically efficient. It's going to be produced based on the cost of natural gas.

Nathan Hunt: Well, Terence, this has been another educational Elements of the Energy Transition podcast. I'm going to put you on the spot, last question. What should we do next?

Terence Kooyker: I'm going to say manganese.

Nathan Hunt: Manganese, something to look forward to for the future. Thank you, Terence, and thank you to our listeners.

The essential podcast is produced by Patrick Moroney. At S&P Global, we accelerate progress in the world by providing intelligence that is essential for companies, governments and individuals to make decisions with conviction. From the majestic heights of 55 Water Street in Manhattan, I am Nathan Hunt. Thank you for listening.