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Western Digital helium drive plans popped by shortage?

Plans to ramp up helium production in the works

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Western Digital's HGST subsidiary may not have picked the best time to have a breakthrough in hard-disk drive innovation.

After a decade of trying, HGST recently perfected a method to seal helium gas inside drives. The company is preparing to launch a line of hard drives filled with the gas, which it says will drastically reduce internal friction and thus lower power consumption by 23% while increasing capacity by 40%.

Currently, however, helium reserves in the US, which supplies 75% of world's annual demand for 6.2 billion cubic feet, are at an all-time low. Under current conditions, the largest US reserve will only last another five to six years unless additional supplies are brought on line.

HGST said that the helium it would be using would cost mere pennies per drive.

"As we will not be a big consumer of helium, our requirements will have little incremental impact on the overall worldwide demand for helium. The incremental parts costs and capital costs of assembly tooling for the helium-filled drives are more significant but manageable enabling us to deliver a compelling $/GB and watts/GB advantage over air," said Brendan Collins, vice president of Enterprise Storage at HGST..

While helium is the second most abundant element in the universe, here on earth, most of it bleeds right through the atmosphere and into space.

Helium is a byproduct of natural gas production and it is a non-renewable resource. In the simplest terms, however, the current shortage is not necessarily critical. Current demand is simply outstripping supply, said Donna Hummel, a spokeswoman for the US Bureau of Land Management.

Worldwide demand for helium is expected to rise by between 7% and 10% over the next year, primarily due to demands from the Asian market, Hummel said.

The US Bureau of Land Management (BLM) oversees the Federal Helium Reserve in Amarillo, Texas, which stores about 30% of the world's supply.

"Just like everything else, supply and demand wrestle back and forth," Hummel said. "There's no reason new markets that use helium could not be managed, but at what cost? No one in the BLM is saying we can't support the new industries. But, we can't vouch for how the market will respond."

The Federal Helium reserves are kept 3,000 feet below ground in a natural geologic gas storage formation called the Bush Dome Reservoir.

The major issue confronting worldwide helium supplies is the wholesale sell off of the reserves in the Bush Dome Reservoir that has been going on for the past 15 years.

Walter Nelson, director of helium sourcing for Air Products and Chemicals, told the US Senate Energy and Natural Resources Committee in May that with current production rates of about two billion cubit feet per year, the Federal Reservoir could continue to create helium for another "five to six more years." Computer modeling, he told the committee, shows reservoir production will decline to approximately 1 billion cubic feet per year after 2014.

The Federal Helium Reserve was established in 1925 as a strategic supply of gas for dirigibles. During World War I, America was only able to build a few air ships because of it lacked a non-flammable gas. Later, in the 1950s, those reserves were used as a coolant by NASA during the race to be first to put a man into space.

Today, Helium is used by the US military for drones, and by private industry for manufacturing semiconductors, LED lights, LCD screens and for cooling magnetic resonance imaging (MRI) magnets. Helium is even used to cool the superconducting magnets in Europe's Large Hadron Collider.

But perhaps the greatest market competitor for worldwide supplies are party balloons, Garvey said. That industry's future currently looks bleak.

In an attempt to get the federal government out of the helium business, the Helium Privatization Act of 1996 mandated that all reserves be sold off by 2015. Over the past 15 years, it was hoped new gas fields would come on line. That, however, has yet to happen. The massive sell-off of helium by the US government artificially depressed worldwide prices for years, but as the drawdown neared, prices again spiked.

In April, helium prices charged by the federal government were reported to have reached an all-time high of $75.75 per thousand cubic feet. Next year, the price is expected to climb to $84 per thousand cubic feet - that represents a doubling over the past decade. In 2002, one thousand cubic feet of helium sold for $42, said Hummel. In contrast, last year in the private sector, helium sold for $160 per thousand cubic feet.

This year, the US Senate began considering a bill to reestablish the supplies in the Bush Dome in the Texas panhandle. The Helium Stewardship Act of 201, was intended to slowed the sell off and changed the pricing model from public to private rates. The bill, however, has not moved forward and will be reconsidered in the next legislative session.

Even if the bill were not to pass, substantial worldwide helium reserves exist around the globe that could sustain the helium industry for hundreds of years, according to Maura Garvey, director of market research at J.R. Campbell & Associates.

New sources and expansions to helium capacity and production are planned in Big Piney, Wyoming in the US and in two natural gas fields in the Middle East and Africa during the next year, according to Garvey.

"These sources should be sufficient to meet worldwide demand for the next five years, given modest growth in demand and continued global economic recovery," Garvey said in a recent report. "There should be adequate future sources of helium from natural gas projects, even in the US. However, consensus is that they will provide helium at much higher prices than users are accustomed to paying."

HGST has not disclosed how many helium-filled drives it plans to produce per years, however, it did say the hermetically sealed drives will be a whole new "platform," meaning there will be numerous products being developed.

In the fourth quarter of this year, Western Digital shipped 71 million drives. Using a far-smaller number - taking into consideration the helium-filled drives are a new product - Garvey performed some initial calculations based on 500,000 drive shipments per year. Her conclusion was that consumption level is less than 1 million cubit feet per year, "a minor blip when you consider we produce 6.2 billion cubic feet per year."


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