Renergen's Virginia gas project
South African natural gas and helium producer Renergen has inked a helium forward sale agreement with helium trading company Argonon Helium US for 100 000 units over 19 years, with each unit representing a thousand standard cubic feet (mcf) of helium at 99.999% purity and in liquid form.
Argonon will take possession of the units once they are paid for and for which Argonon is under no obligation to purchase, Renergen said.
Argonon intends to use the units to establish a spot market for helium.
Following the forward sale of the first 100 000 units of helium, it is intended that any future sales between Renergen and Argonon will be priced according to the spot market of helium, less Argonon’s trading margin, and will be available to Argonon until the expiry of the Virginia gas project’s licence in September 2042.
As a frame of reference, one unit weighs 4.7 kg and comprises 37.5 ℓ when in liquid form.
In terms of the transaction, Renergen says up to $25-million of helium sales from the plant at Phase 2 of Renergen’s Virginia gas project, in South Africa’s Free State, could potentially be prefunded.
The arrangement is intended to facilitate the creation of a liquid spot market for helium, which will be accessible to all investors through the Argonon platform. A portion of the funds from the pre-sale will be used to accelerate Phase 2 without the need for equity.
The contract represents significantly less than 0.1% of global helium consumption over contract term, and is, according to Renergen, intended to establish a mechanism for Renergen to sell helium to Argonon in the spot market when the Phase 2 plant becomes operational.
Financial services and technology company Purple Group has been appointed to create the digital platform to track and manage the units as they are exchanged and traded.
Further, the collaboration between Renergen and Argonon is specifically designed to bring transparency of pricing into the helium market and highlight the growing global importance of helium.
Argonon CEO Richard Charrington said “While 100 000 units is less than 0.1% of the global helium market over the term of our contract, we believe this transaction is a ground-breaking step in bringing helium to the financial markets and will pave the way for its inclusion into more mainstream commodities”.
Charrington believes that, like with so many other commodities, “it will start small and is likely to be traded by those who have researched it and understand the future potential with emerging technologies such as quantum computing and in time, may become much more mainstream in a similar way that lithium did several years ago”.
Renergen CEO Stefano Marani, meanwhile, commented that “Argonon has developed an innovative product which will provide an accessible platform and market for any interested helium investor to gain direct exposure in the underlying commodity and marks its entry into a tradeable commodity”.
He explained that helium is a rare element without substitutes and that the importance and critical role it plays across several high growth sectors including medical imagery (MRIs), welding, fibreoptics and electronics is leading to a growing global shortfall of helium supply, and consequently rising prices.
Through the development of its Virginia gas project, Renergen believes it is in a strong position to supply this growing market and continue to create long-term value for all its stakeholders.
The agreement is subject to the parties having received any approval or consent, if and to the extent required under any applicable law to implement the transactions contemplated in the agreement.
Termination events of the agreement are based on standard provisions which include only force majeure, breach or failure to perform.
HELIUM MARKET
The global helium market, which is currently undersupplied, consumes about six-million units a year, according to the estimates by Edison Group and Hannam and Partners, with an anticipated consumption of over 126-million units by the time the Virginia gas project’s licence expires, assuming there is no growth in demand.
At present, the helium market is constrained for various reasons, including plant outages, disrupted shipping routes and reduced upstream production of helium.
Renergen mentioned that the market is likely to experience some easing in the short term with Qatar and Russia bringing additional capacity online; however, given the increasing focus on decreasing fossil fuel production, lower concentration helium fields are likely to come under pressure since more associated methane is produced to extract the same volume of helium, placing additional constraint on future helium supplies.
Unlike other more transparent commodities, helium is not presently traded in the spot market and a visible price per mcf is not available.
Renergen's share price had increased by 6.67% at 15:00 on Monday, compared with Friday's close.