The company bought gas rights for US$1 from land worth millions

(CNN) — When the start South African company RainerGen bought the production and exploration rights to several grasslands near Virginia, a town in South Africa’s Free State province, with the founders hoping to find small reserves of natural gas that could fuel nearby mining opportunities.

They paid $1 for the rights in 2013, according to CEO Stefano Marani, and began analyzing the composition of the gas flowing from two rusty drill pipes installed years earlier for mining exploration. What they found was an unusually high concentration of helium.

In addition to inflating party balloons, helium has numerous commercial applications. When condensed into liquid form, it is an essential refrigerant component used in the production of microchips and in the operation of life-saving MRI technology. However, global helium prices are volatile and supply is erratic, as this gas is produced in less than 10 countries worldwide.

Unwittingly, Rainergen had struck gold. Today, the company claims that the Virginia Gas project has more than 7 billion cubic feet of helium reserves, which could be valued at more than $4 billion, and potentially up to $12 billion if other potential reserves are included.

“We had a modest and humble aspiration to set up a small-scale (gas) power station that could supply a few megawatts to some nearby mining operations,” recalls RennerGen COO Nick Mitchell. “We had no idea the magnitude and scale of this helium deposit.”

The company was able to produce liquid helium from the plant for the first time in January 2023. It hopes to begin commercial operations next month to extract the helium, following delays throughout the year due to a leak in the vacuum seal of the helium cold box. with natural gas, then processing and distributing it to customers, such as Linde, a global engineering company.

Small footprint

What makes Rainergen’s natural gas reserves so special is the unusually high concentration of helium. According to Marani, the average is 3%, and in some places it is as high as 12%. By contrast, in the US, the world’s largest supplier of helium, the average concentration is 0.35%, and in Qatar, another major country, the average is 0.04%, according to the US Bureau of Land Management.

According to Chris Ballentine, professor of geochemistry at the University of Oxford in the United Kingdom, this could make Rennergen’s helium more environmentally friendly. Helium is usually produced as a byproduct of liquefied natural gas (LNG) – a mixture of gases that is mainly methane – he explains, and only above a certain concentration (typically around 0.3%) is it economically viable. Extract the helium yourself.

This means that, for the most part, helium supply is dominated by hydrocarbon producers who extract and sell helium separately, and therefore production is associated with a high carbon footprint, he continued. But a higher helium content means less associated methane is produced, reducing your carbon footprint.

“What makes Rainergen’s surveys interesting is that, despite the hydrocarbons associated with helium production, the footprint is very small. In fact, they found a primary helium gas system,” he says.

Ultimately, Ballantyne hopes the industry will shift away from helium production from LNG to sources like gas fields, where helium is produced alongside nitrogen, as discussed in a recent study he co-authored.

Another advantage of high concentration is cheaper production. “We are a much cheaper helium producer than most others,” says Marani. “We drill very shallow wells, maybe between 1,000 and 1,500 feet, low cost and small footprint, and the gas comes out naturally of its own accord,” he explains.

Africa’s supply point

At a time when global helium supplies are often disrupted, a new player in a different geographic region is very welcome, Ballentine says. “We are currently in a supply crisis, as we only have a few limited supply points… Places like Rennergen will definitely alleviate that,” he says.

Currently, none of the world’s helium is produced in Africa: helium-rich gas fields are located in Tanzania, but are not yet in commercial production.

Marani notes that Rainergen’s gas project was designated an “integrated strategic project” by the South African government, which helped expedite regulatory approval processes.

According to Mitchell, the company’s “phase one project”, a small pilot project funded by the US government, will produce about 350 kilograms of helium per day, enough to meet all of South Africa’s needs and have a surplus. Its “phase two project”, which is expected to come online in 2027 and has received funding from the US government and the South African Standard Bank, will increase production to 4.2 tonnes per day, producing between 6% and 8% of world supply. According to a research and markets company, the global helium market is expected to reach a value of over US$6 billion by 2027, generating significant profits.

Despite the company’s ambitious forecasts, its share price fell significantly in the last quarter of 2023, which experts say could be related to criticism on social networks of the company’s transparency. However, Marani is confident that Renergen will be able to overcome investors’ doubts, which he says will “not only significantly reduce the risk of the project moving forward, but also deliver.”

In December, the company announced that it had sold a 5.5% stake in Tetra4, the RenerGen subsidiary that owns and operates the Virginia gas project, for R550 million ($29 million) to Mahalaco Energy Fund and Third Way Investments, two investment management companies based . in Johannesburg. The company plans to raise more capital through an initial public offering (IPO) on the Nasdaq stock market in the United States. The company is already listed in South Africa and Australia.

“It will take a long time to build trust, I have no illusions,” Merani says. “I think helium activation is the first step in the process.”

Eleni Giokos, Michael Cross and Tom Bouchier Hayes contributed to this article.