The following HTML text is provided to enhance online
readability. Many aspects of typography translate only awkwardly to HTML.
Please use the page image
as the authoritative form to ensure accuracy.
The Impact of Selling the Federal Helium Reserve
FIGURE 5.1 Trends for real private and government helium prices, assuming various appreciation rates for private sales. (The committee did not consider price decreases for crude helium because that would require developments on the demand or supply side that the committee deems quite unlikely.) The dotted curves indicate private prices that will not actually be attained because the government price will act as a cap. (The three rates shown are not meant to be forecasts; they merely illustrate the range of rates discussed in the text.)
2010, the midpoint of the projected federal sales period (as can be seen from to figure 4.2a, this rate of appreciation corresponds to a 1 percent per year increase in helium consumption according to the Hotelling model).4 In any of these scenarios, the private price will eventually appreciate again, once the bulk of the federally owned helium has been sold.
Second, private purchases from the federal helium reserve may accelerate somewhat as the market price approaches the government price. If demand grows substantially and no new high-quality deposits are discovered, the reserve could be drawn down to the target level earlier than expected. Or, speculative private purchases could accelerate the drawing down of the reserve. The latter case would not affect actual helium consumption, but it would shift ownership from the government to the private sector and mean that carrying costs would be borne by industry.
The idea that holders of an exhaustible resource will require a rate of return roughly equal to the real interest rate is the basic Hotelling model. This model implies that competitive private holders of helium inventory would sell all their holdings before the federal minimum sale price of $43 per thousand scf is reached, and provides a connection between the sales scenarios in Chapter 4 and the price scenarios depicted in Figure 5.1 For the scenarios in which the appreciation is close to the real interest rate, the date at which the price reaches the federal minimum price is the date that the private reserve is exhausted.