What Is Henry Hub?
Henry Hub is a pivotal natural gas pipeline junction located in Erath, Louisiana. This hub acts as the official handling center for futures contracts on the New York Mercantile Exchange (NYMEX). Owned by Sabine Pipe Line LLC, Henry Hub interconnects with major gas markets across the United States through its links to four intrastate and nine interstate pipelines, including those by Transcontinental, Acadian, and Sabine.
Understanding Henry Hub
The Henry Hub pipeline isn’t just a physical transport location; it is the crucial pricing point for NYMEX natural gas futures. Trading for NYMEX contracts pegged to Henry Hub deliveries started in 1990, extending up to 18 months into the future. Prices settled at Henry Hub set a benchmark for the broader North American natural gas market, impacting even parts of the global liquid natural gas (LNG) landscape.
The Pinnacle of Hub Pricing: Its Significance
Henry Hub’s valuation holds significance because it genuinely reflects the stand-alone supply and demand for natural gas. Unlike fragmented European or Asian hubs, where gas prices might be indexed to crude oil, Henry Hub provides a clear, independent price point for North American markets. Though attempts to develop similar hubs in Europe (like in the Netherlands and the UK) are ongoing, these initiatives face challenges from competing national hubs. Meanwhile, in Asia, the absence of a standardized hub sees natural gas prices either tied to crude oil or aligned with Henry Hub benchmarks.
Henry Hub and Liquid Natural Gas (LNG)
Globally, Henry Hub pricing is instrumental even in LNG delivery contracts. Gas-producing nations like Qatar and Australia often prefer this spot pricing over crude oil indexation, particularly when oil prices wane. Henry Hub’s appeal lies in its vast trading volume, transparent pricing, and high liquidity—making it an accessible and reliable reference. Regularly quoted by futures exchanges and media, Henry Hub prices are easily obtainable for contract parties seeking transparent and timely data.
Henry Hub’s unique position establishes it as a cornerstone in both regional and global natural gas markets, echoing its pricing signals far beyond North American borders.
Related Terms: NYMEX, Natural Gas Futures, Settlement Prices, Liquid Natural Gas, Intrastate Pipelines, Interstate Pipelines.
