DUBAI/DOHA (Reuters) - Qatar, the world’s second largest helium producer, has closed its two helium production plants because of the economic boycott imposed by other Arab states, industry sources told Reuters on Tuesday.

Logo of Qatargas is seen outside its building in Doha, Qatar, June 13, 2017. REUTERS/Stringer

The helium plants operated by RasGas, a subsidiary of state-owned Qatar Petroleum [QATPE.UL] (QP), were shut after Saudi Arabia closed its border with Qatar, blocking overland exports of the gas, a QP official told Reuters. RasGas is 70 percent owned by QP and U.S. giant Exxon Mobil XOM.N has 30 percent.

The official declined to be named under briefing rules. Phil Kornbluth, head of U.S.-based industry consultancy Kornbluth Helium Consulting, said his sources had confirmed the closure.

The closure of the plants is a sign of how the rift between Qatar and Arab powers could affect commodities markets. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain cut diplomatic and transport ties last week, accusing Qatar of supporting terrorism, a charge Doha denies.

Qatar’s exports of liquefied natural gas at Ras Laffan have been unaffected by the boycott.

The impact on the global helium market was expected to be delayed, as consumers use up existing stocks and work out alternative supply options. Shipping by sea directly from Doha or through Oman would add complexity, risk and cost.

But if the diplomatic dispute lasts a month or more, Kornbluth predicted there would be a global shortage and the last time that happened, prices doubled.

“Helium is the single commodity that is affected most by this blockade because it’s probably the only thing where Qatar is a major world producer and the supply has been completely cut off,” he said.

Among its uses, helium is used to cool superconducting magnets in medical magnetic resonance imaging (MRI) scanners, as a lifting gas in balloons and airships, as a gas to breathe in deep-sea diving and to keep satellite instruments cool. It is derived from natural gas during processing.

The two plants shut by Qatar have a combined annual production capacity of approximately 2 billion standard cubic feet of liquid helium and can meet about 25 percent of total world demand for the gas, according to RasGas’ website.

Kornbluth said the helium plants had shut down after filling all available shipping containers and storage tanks. He forecast the closure was costing RasGas revenue.

FINDING NEW SUPPLIES

Helium, best known as a gas for filling party balloons and making the voice squeaky, is difficult to capture and store. The United States is the biggest producer in what is a $4.7 billion industry, according to Mordor Intelligence.

Demand for the gas, driven particularly by Asia’s booming manufacturing industry, is on the rise.

U.S. reserves meanwhile are dwindling due to the lack of helium production from its oil and gas fields, and the country has already had to start importing helium from Qatar. Other helium-producing countries include Algeria, Russia, Canada and China, according to the U.S. Geological Survey.

A Dubai-based vendor servicing the local market said on Tuesday it had not received new shipments from Qatar since last week, forcing it to dip into its stocks.

Japan's Iwatani 8088.T, which supplies helium to China and Southeast Asia, said it had a month's supply in stock. A spokesman told Reuters it was considering exporting on ships from a Qatari port, or sourcing from the United States.

German industrial gases company Linde LING.DE said it was working on meeting customers' requirements via helium sources in Australia, Algeria and the United States.

Air Water 4088.T, which imports from Qatar and sells in Japan, has shifted its helium supply automatically to the United States, a spokesman said.

A source with direct knowledge of the matter said South Korea’s importers, which source a third of their helium from Qatar, could suffer heavily.

“We might have an indirect impact if U.S. helium prices go up,” the source said.