South African natural gas and helium producer Renergen’s (ASX:RLT) deal with helium trader Argonon could be the catalyst to establishing more pricing transparency in the sector, the company said today.

RLT has just completed a helium forward sale agreement for 100,000 units – each representing a thousand standard cubic feet (MCF) – at 99.999% purity over 19 years, to Argonon.

While Argonon is under no obligation to purchase, the plan is to use the units to establish a helium spot market.

Helium spot market

To put this in context, the global helium market is undersupplied and consumes around 6 million units per year.

And by the time Renergen’s Virginia gas project license in South Africa expires in 2042, demand is anticipated to be sitting at around 126 million units.

That’s assuming there’s no growth in demand in the meantime.

Currently, the market is constrained by plant outages, disrupted shipping routes, and reduced upstream production, which should be eased in the short-term with Qatar and Russia bringing more capacity online.

But given the increasing global focus on reducing 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 – which will place additional constraint on future supplies.

Helium isn’t currently trading in the spot market and a visible price per MCF is not available.

That’s where the collaboration between Renergen and Argonon comes in, Argonon CEO Richard Charrington said.

The idea is to bring transparency of pricing to the helium market and highlight the growing global importance of helium.

“Whilst 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 said.

“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 similar way lithium did several years ago.”

Renergen — the game plan

Renergen CEO Stefano Marani said Argonon 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.”

“Helium is a rare element without substitutes and the importance and critical role it plays across several high growth sectors including medical imagery (MRIs), welding, fibre optics and electronics is leading to a growing global shortfall of helium supply, and rising prices,” he said.

“Through the development of its world-class, high-grade, Virginia Gas Project, Renergen is in a strong position to supply this growing market and continue to create long-term value for all our stakeholders.”

Digital platform to manage unit trades

Purple Group Limited of South Africa has been appointed to create the digital platform to track and manage the units as they are exchanged and traded.

“We see a future where the use of block-chain to manage assets at low cost and in a transparent way becomes mainstream,” Purple Group CEO Charles Savage said,

“This is what we do at EasyCrypto and it was a no-brainer when our long-time friends at Renergen asked us to get involved.

“Applying it to a resource base we believe is a very innovative approach and look forward to this journey.”

Argonon sale agreement specifics

The potential pre-funded sales of the 100,000 units are worth up to US$25 million, at the following prices:

  • US$ 230 per unit for helium paid for before 29 October 2021;
  • US$ 245 per unit for helium paid for before 30 November 2021; and
  • US$ 270 per unit for helium paid for thereafter until 100,000 units have been purchased,

Following the forward sale of the first 100,000 units of helium, 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 license in September 2042.

A portion of funds from pre-sale – if made – will be used to accelerate Phase II drilling at the Virginia Gas Project, without need for equity issue.