Helium vs Hydrogen: investing in the gases of the future

by Jonathan Adams
investing in helium

The gases hydrogen and helium have been hyped for years. Hydrogen is primarily seen as a low-carbon alternative to fossil fuels and is also used in fertilisers. Helium is a vital element in advanced technologies from computer hard drives and chips to rocket fuel tanks, satellites and medical equipment like MRI scanners, either as a coolant or lower-density alternative to air.

The two gases are not, generally, in short supply with hydrogen the most common element in the universe, followed by helium. However, there’s a shortage of both here on Earth in a usable format even if the markets for both are not currently large. But they are both expected to grow significantly over the next decade or two.

Nascent, high-growth markets are a double-edged sword for investors. They offer huge opportunities but also come with significant risk. Betting on the right horse early in the race can deliver huge returns but there is also a significant chance of getting it wrong and the horse not even finishing the race, never mind in one of the leading positions.

But are the commercial markets for the gases hydrogen and helium megatrends investors should be keeping a close eye on already? Or are there even investments in these markets that could be sensibly considered at this early stage by some investor profiles?

Investing in hydrogen

For a long time, hydrogen was positioned as a serious alternative to electric for the next generation of vehicles that would replace those running on fossil fuels. However, at least when it comes to motor vehicles, the hydrogen dream appears to be dead. At least for now.

In October, Shell announced it was shutting down the three hydrogen car refuelling stations it opened in partnership with the AIM-listed owner-operator ITM Power in Gatwick, Cobham and Beaconsfield to great fanfare between 2017 and 2019. But enthusiastically announced plans to expand that network never came to fruition and the hydrogen project was scrapped due to the failure of hydrogen cars to attract significant enough consumer interest. There are only thought to be a few hundred on the roads in the UK.

Shell’s decision leaves just 11 hydrogen refuelling points around the UK compared to over 57,000 electric vehicle charging points at about 20,000 locations, according to the app Zap-Map. These points cater to the more than a million plug-in electric vehicles that have been sold in Britain, with those ranks swelling by around 250,000 this year,

At least for the foreseeable future, electric appears to be the winning technology for smaller motor vehicles despite hydrogen fuel-cell battery proponents arguing they take less time to charge and provide a longer range than electric car batteries.

Even if the battle appears to have been lost when it comes to hydrogen cars, the Society of Motor Manufacturers and Traders say only 12 were sold in 2021, hydrogen fuel cell technology might still have other major applications.

Shell is also not consigning hydrogen power to the dustbin entirely, only its pilot project for hydrogen cars. The energy giant is part of a consortium working to encourage the mass deployment of hydrogen-powered lorries in Europe. Both it and Motiv, the ITM subsidiary it partnered with on the hydrogen car-fuelling points, have said they will now focus on “opportunities” around fuelling hubs for lorries and buses. Shell already has some experience with such “multi-modal” facilities in California.

Hydrogen is also seen as a viable technology for planes and early this week it was announced that London-listed engineering company Rolls-Royce and the budget airline EasyJet had completed the world’s first successful test of a modern jet engine powered by hydrogen. The two companies carried out the exercise at Boscombe Down, a Ministry of Defence aircraft testing site, using a Rolls Royce AE 2100-A regional aircraft engine converted to run on hydrogen fuel.

The fuel used by the aircraft was produced using energy generated by the European Marine Energy Centre’s tidal energy plant in the Orkney Islands, allowing it to lay claim to being truly “green”.

In July Rolls-Royce publicly announced its intention to develop hydrogen technology jet engines and has the target of delivering a range of aircraft in the mid-2030s.

Hydrogen, says National Grid, could also be a direct alternative to natural gas (methane) in the energy mix. However, for hydrogen to be a viable alternative to methane, National Grid writes

“it has to be produced at scale, economically and the current infrastructure needs to be adapted”.

The good news is that hydrogen can be transported through gas pipelines, minimising disruption and reducing the amount of expensive infrastructure needed to build a new hydrogen transmission network. There would also be no need for a culture change in our home lives, as people are used to using natural gas for cooking and heating, and hydrogen energy equivalents are emerging.

Most of the hydrogen currently used commercially is grey or blue hydrogen. Grey hydrogen is not seen as “sustainable” energy because it is produced by heating hydrocarbons from oil or gas with steam. The process releases carbon monoxide and a small amount of carbon dioxide.

Blue and green hydrogen are produced using electrolysis, which involves running a current of electricity through water, splitting the water molecules into hydrogen and oxygen. If the electricity used in the electrolysis process is generated renewably, the hydrogen produced is green hydrogen. If it’s not, it’s blue hydrogen. While blue hydrogen still results in lower emissions than grey hydrogen, most investment in the space is focused on producing green hydrogen.

Investors interested in exposure to the growing hydrogen market might consider larger companies like Shell and Rolls-Royce that offer some diversified exposure mixed in with much larger businesses. However, at least for the foreseeable future, the hydrogen interests of these huge groups are unlikely to significantly impact their overall valuations.

Direct exposure to the market for hydrogen necessitates investing in smaller companies involved in developing production facilities and technologies, storage and infrastructure. The upside might be much higher but the level of risk being taken on runs parallel to that.

We provide more insight into concrete stocks and funds that offer diversified and direct exposure to the growing market for hydrogen here – link to sister article

Investing in Helium

Meanwhile, a recent article in MoneyWeek presents the case for investment exposure to helium (it’s worth noting there’s also a cryptocurrency called helium that shouldn’t be mixed up with the liquified gas commodity), while acknowledging the small but quickly growing market is fraught with investment risk.

There are no exact figures on the size of the helium market and it’s not a spot market that offers publically available pricing, which is typically negotiated between buyer and seller. However, Cliff Cain, CEO of helium market consultancy Edelgas Group, says the current helium price is around $18000 per thousand cubic feet. With current annual global demand estimated at around 6 billion cubic feet or 170 million cubic metres, the global market for liquid helium is currently only worth around $3 billion.

Cain is, however, convinced the market will continue to grow quickly as a result of demand from especially the medical, tech and aerospace sectors. There is already a shortage and with helium vital to MRI scans, Forbes has warned that the situation could become a crisis:

“Given the importance of MRI in the medical profession, the helium crisis should be front and centre for politicians, policy makers, physicians, patients, and the general public to discuss and find sustainable solutions for. The scarcity of helium is a serious matter and affects all of us directly or indirectly.”

Cain adds:

“Phones, computers, all modern life – it requires helium. There’s no substitute. Without it, we go back to the Stone Age.”

Russia’s Gazprom was a major supplier and the US National Helium Reserve, the single largest global supplier for the past 70 years, has halted supplies and has put its infrastructure up for sale.

The conclusion is:

“Put simply, the world needs a new helium supply.”

“The solution is to invest in prospective helium producers and developers. There are plenty out there. But, as with all natural resource companies, it’s a question of separating the wheat from the chaff.”

Cain estimates that up to 75% of prospective helium producers and developers will fail, making the sector a minefield for investors keen on exposure to the supply shortage and future growing need.

However, it’s also clear that despite the high risk there will also be plenty of opportunities for those who make the right calls on helium investments.

For further information on listed companies that offer exposure to helium, we’ve put together a list of some of the most interesting looking – link

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