Second, as crude helium is injected into the Bush Dome reservoir, there is some mixing with the remaining native natural gas. As the crude helium inventory is reduced, the helium content can be expected to deteriorate toward the end of the life of the reserve. Thus, it may not be possible to recover all of the crude helium currently in storage without installing upgrading facilities at some time in the future. A facility for upgrading diluted crude helium as it's removed from storage could conceivably also be used to recover helium from the native gas in the reservoir.

Third, the rates for the fixed and variable charges assessed private industry for the storage of helium at the Cliffside facility are calculated to offset the operating expenses of the facility. Each company that currently stores helium in the Federal Helium Reserve has signed a helium storage contract between itself and BLM. The contract includes a cost-recovery formula that allocates the budgeted costs for the storage program to all the storers in the system. The fixed costs are $12,000 for each storage contract and $20,000 for each company connection to the crude helium pipeline. These charges reflect the approximate cost associated with these functions (i.e., contract administration and maintenance of the custody transfer point). The variable costs are based on the company's share of the activity on the storage system in the preceding year. For example, a company's total helium acceptances, redeliveries, and average helium storage are added up and compared to the total for all companies having storage contracts. This share is then applied to the remaining costs of the helium storage program (budgeted minus fixed costs). The company is billed for its fixed costs at the start of the fiscal year and its portion of the variable costs in nine monthly installments starting in January and for the remainder of the fiscal year. By the terms of the contract, all costs budgeted for a given year are collected using this formula. The moneys collected have been in the $2 million range over the last couple of years. This contractual cost-recovery system was developed by BLM personnel in 1995, with the final language having been negotiated in a series of meetings with the private storers. The cost-recovery contractual system is thus divorced from any assessment of the economic value of the storage service and could be inhibiting the amount of income generated by the facility.

Private Helium Facilities

Fourteen private companies owned a total of 20 plants in 1996. Of these plants, 13 engaged in helium extraction and 11 (with some duplications) in purification, and 8 also liquefied helium. The domestic crude helium industry can be considered to consist of three basic elements. The first element includes the private producers in the Hugoton-Panhandle complex, which are already utilizing the helium pipeline and Bush Dome reservoir. The second element includes private producers in the Rocky Mountain region, none of which are tributary to the helium pipeline network and so cannot use the Cliffside storage facility. The third element is the Federal Helium Reserve itself.

The private refiners in the Hugoton-Panhandle complex (i.e., the first element) rely on the Cliffside facility to act as a flywheel. Natural gas extraction companies generally sell crude helium to helium refiners on the basis of long-term (e.g., 20-year), take-or-pay contracts. These contracts require that refiners purchase certain quantities of helium every year, whether they take it or let it be vented. Since it is a waste of capital to let the crude helium be vented, the refiners with access to the pipeline store all of their crude helium in the Cliffside facility and remove and

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