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Henry Hub

Updated on January 29, 2024
Article byKhalid Ahmed
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Henry Hub?

Henry Hub refers to the crucial natural gas pipeline and distribution hub in Erath, Louisiana. It serves as a benchmark price concerning natural gas pricing. Its main purpose is to act as a pricing point for natural gas futures contracts in the New York Mercantile Exchange (NYMEX).

Henry Hub

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It plays a significant role in the natural gas infrastructure of the United States, interlinking interstate and intrastate pipelines. It gives producers easy access to natural gas markets throughout the United States. Traders, consumers, and producers use it as an indicator to decide about natural gas prices and contracts.

Key Takeaways

  • Henry Hub in Erath is a key gas hub, setting prices and NYMEX futures.
  • Henry Hub is a crucial global gas pricing hub for NYMEX futures, facilitating North American gas delivery, setting global benchmarks, and impacting energy markets.
  • It is in Louisiana, United States, while TTF (Title Transfer Facility) is in the Netherlands.
  • Henry Hub, founded by Henry Hamel, is a natural gas supply hub in North America. It connects Gulf of Mexico gas fields with Southeast, Midwest, and Northeast markets. The hub’s prices, monitored by CME, drive economic activity, job creation, and infrastructure development.

Henry Hub Explained

Henry Hub is defined as a critical nexus of multiple natural gas pipeline interconnections. It has enabled ready entry into the vast pipeline network of the USA for marketers and gas shippers. It is strategically located with a huge logistical infrastructure, making it highly commercially relevant. 

Local markets set their natural gas prices based on a differential to Henry Hub. Moreover, the differential pricing compensates for local market conditions, existing transmission capacity, and transportation costs between different places. Its owner, Sabine Pipeline LLC, and its affiliates operate it. It does so with a full-service plus header system. The system provides different receipts, vast interconnection and deliverance capability, and hub management services to vital US pipeline structures.

All eight pipelines and three other intrastate pipelines are connected with it as part of the US transmission grid. Its regional gas production makes it quite an important location. On an average monthly basis, it has produced 637,021 million cubic feet in Texas since Jan 2014, making it contribute to up to 27% of marketed US production. Thus, Texas is the highest producer of natural gas among states.

However, from January to November 2016, Louisiana produced 155,481 million cubic feet monthly on average. Therefore, it forms seven percent of total US gas production. Moreover, its production, distribution, and pricing play an important role in the energy market and economy of the United States. Traders, investors, and common players use the natural gas pricing set by Henry Hub (NYMEX) to make predictions and decisions about the future energy market. 

Any fluctuation in the pricing of gas affects the gas pricing of the entire United States. Thus, it may increase commodity prices, taking inflation rates up or vice versa. Hence, Henry Hub’s natural gas prices are pivotal in energy markets.

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History

Henry Hub has a rich history in natural gas supplies. Henry Hamel, after whom it has been named, founded the original gas plus exploration firm and also the natural gas reservoir which feeds the extensive pipelines across North America. It was constructed in the 1950s by Stone and Webster, Inc. for TEXACO- The Texas Company. It was made to connect gas fields of the Gulf of Mexico with Southeast, Midwest, and Northeast markets. 

Later on, in 1990, it became the pricing point for natural gas futures contracts on the NYMEX. The hub has seen many expansions and new construction in its facilities. Presently, Sabine Pipe Line LLC operates it. Sabine Pipe Line LLC extends from Port Arthur, Texas, to the Henry hub in a bidirectionally mainline manner. Thus, it contributes significantly to the closely combined US gas transmission grid, increasing connectivity. 

Moreover, the Henry Hub prices, monitored by CME, serve as a key reference for the industry. Furthermore, the Henry Hub spot price is closely watched as an indicator of market trends and value. Therefore, it has become the main driver of economic activity, creating jobs, tax revenue, infrastructure, and industries.

Examples

Let us examine a few examples to understand the topic better.

Example # 1

The winter of 2019 ushered in freezing temperatures across the USA. Interestingly, it coincided with an increased demand for natural gas heating. Simultaneously, pipeline maintenance caused supply disruptions. Consequently, the Henry Hub spot price experienced an upward surge, garnering traders’ attention. Furthermore, this price indicator prompted investors to recalibrate their portfolios. 

Consequently, analysts closely monitored its fluctuations to foresee market trends during this period. Hence, staying well-informed with regular Henry Hub spot price updates was crucial to navigate this phase effectively. In this regard, the U.S. Energy Information Administration played a pivotal role.

Example # 2

Consider a hypothetical situation. During a scorching summer, an unexpected surge in air conditioning demand strained the natural gas supply in the bustling city of Energia. Trading participants foresaw increased demand, causing the Henry Hub spot price to soar. Technologically adept experts closely tracked the price’s rise. 

Based on this, they recommended that electricity firms transition to renewable energy sources. As a result, residents could effortlessly manage their expenses and energy consumption. The hourly updates on Henry Hub pricing provided by the town’s news center, Energy Insights, facilitated this ease.

Importance

It has huge significance concerning gas pricing in the United States and the world. Let us look at some of them below:

  • It acts as a pricing point related to gas futures on NYMEX.
  • It serves gas delivery and transportation across North America.
  • Worldwide natural gas price benchmark and pricing depend on it.
  • Its pricing change affects worldwide gas prices.
  • It has been important for price discovery and investment decisions in the energy markets.

Henry Hub vs TTF (Title Transfer Facility)

Here are the main differences between the two:

Henry HubTTF (Title Transfer Facility)
Regional demand changes and geopolitical influence affects it.The facility is located in the Netherlands.
It is affected by geopolitical factors and weather patterns.European natural gas market is its main market.
Henry hub is commonly used for natural gas prices and contracts in North America.TTF serves as the price benchmark for natural gas in European markets.
It is priced as USD per Million British Thermal Units (MMBtu).Euros per Megawatt-hour (MWh) is its pricing.
It connects numerous pipelines to deliver gas across AmericaVarious gas markets get connected using this hub.
Various factors like storage capacity, Weather conditions, and production levels affect it.The Dutch Authority for Consumers and Markets (ACM) regulates it.
It has active market participants and a high trading volume.Active trading and high liquidity are its characteristics.
Federal Energy Regulatory Commission (FERC) regulates it.Dutch Authority for Consumers and Markets (ACM) regulates it.
Major players include traders, Natural gas producers, and consumers of North America.Traders in Europe, consumers, and Natural gas producers form its key players.
It influences global LNG trade and natural gas pricing in North America.Regional demand changes and geopolitical influence affects it.
Supply and demand dynamics lead to price fluctuations.Regional demand changes, and geopolitical influence affects it.

Frequently Asked Questions (FAQs)

1. Why is Henry Hub so low?

The decrease in Henry Hub prices can be attributed to several factors:
 
· Firstly, the demand for natural gas for heating has decreased due to mild weather conditions in the United States.
· Secondly, increased gasoline and natural gas production within the United States has led to greater availability.
· Lastly, an excess supply in the global LNG market is putting downward pressure on prices.

2. What are Henry Hub’s futures?

There is a way for both buyers and sellers to engage with Henry Hub futures. This avenue assists in reaching a consensus on the pricing of future natural gas deliveries. As a result, the agreement comes into effect later in time. In contrast, these futures are traded on the New York Mercantile Exchange (NYMEX).

3. Are Nymex and Henry Hub the same?

Absolutely not; Henry Hub and NYMEX represent separate entities. While the physical exchange of natural gas occurs at Henry Hub, futures contracts are transacted on the NYMEX exchange.

4. When does Henry Hub settle?

The settlement of Henry Hub futures occurs on the third business day of every month. This means that the Henry Hub futures contract one obtains for September will end on September 13th.

This has been a guide to what is Henry Hub. Here, we compare it with vs TTF, explain its history, examples, and importance. You can learn more about it from the following articles –

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