Henry Hub

What Is Henry Hub?

Henry Hub is a natural gas pipeline situated in Erath, Louisiana, that fills in as the official delivery location for futures contracts on the New York Mercantile Exchange (NYMEX). The hub is owned by Sabine Pipe Line LLC and approaches a considerable lot of the major gas markets in the United States. The hub interfaces with four intrastate and nine interstate pipelines, including the Transcontinental, Acadian and Sabine pipelines.

Grasping Henry Hub

The Henry Hub pipeline is the pricing point for natural gas futures on the New York Mercantile Exchange. The NYMEX contract for conveyances at Henry Hub started trading in 1990 and is deliverable 18 months later. The settlement prices at Henry Hub are utilized as benchmarks for the whole North American natural gas market and parts of the global liquid natural gas (LNG) market.

Significance of Hub Pricing

Henry Hub is a significant market clearing pricing concept since it is based on the real supply and demand of natural gas as an independent commodity. Other natural gas markets like Europe have divided hub pricing points. This means natural gas prices are frequently indexed to crude oil, which can have altogether different supply and demand factors influencing its price. Endeavors are being made to foster European hub pricing points in the Netherlands and the UK, yet this has proved troublesome such a long ways due to competition from national hubs. Asian natural gas markets are even more divided and have no defined hub pricing point, in spite of the fact that Singapore might want to serve this regional job. Subsequently, all Asian natural gas prices are either indexed to crude oil or linked to Henry Hub.

Henry Hub and Liquid Natural Gas

Henry Hub is likewise utilized in delivery contracts for LNG on a global basis, regardless of being a spot price for natural gas that is quite certain toward the North American gas market. A few global gas producers like Qatar and Australia like to base the pricing mechanism of their natural gas conveyances on spot prices as opposed to indexing to the price of oil. This is particularly true when crude oil prices are falling. Gas producers can depend on Henry Hub as a source of natural gas spot pricing to address this issue in light of its large trading volume, clear pricing transparency, and high liquidity. Henry Hub prices are widely quoted by futures exchanges and different media sources, so gatherings to a contact can undoubtedly get this pricing data.