What Is Henry Hub?

Henry Hub, situated in Erath, Louisiana, is a vital natural gas pipeline serving as the designated delivery point for futures contracts on the New York Mercantile Exchange (NYMEX). Owned by Sabine Pipe Line LLC, this hub offers access to key gas markets across the United States, linking to four intrastate and nine interstate pipelines, including significant ones like Transcontinental, Acadian, and Sabine.

Understanding Henry Hub

Acting as the pricing reference for natural gas futures on the NYMEX, the Henry Hub pipeline initiated trading for deliveries in 1990, with trades deliverable 18 months hence. The settlement prices established at Henry Hub are considered benchmarks not only for the broader North American natural gas market but also impact segments of the global liquid natural gas (LNG) market.

Importance of Hub Pricing

Henry Hub stands out as a critical market-clearing pricing mechanism because it reflects the real supply and demand dynamics solely for natural gas as a distinct commodity. Unlike Europe, which has assorted hub pricing points, often tied to crude oil, Henry Hub’s singular focus enhances price accuracy. While Europe aims to establish hub pricing points, attempts face hurdles due to competition from national hubs. In the absence of a defined hub in Asian markets, prices are often either tied to crude oil or linked to Henry Hub.

Henry Hub and Liquid Natural Gas

Despite being a spot price applicable mainly in the North American gas market, Henry Hub also features in global LNG delivery contracts. Notably, countries like Qatar and Australia opt to base their natural gas pricing on spot rates rather than oil prices, particularly during oil price declines. With its robust trading volume, transparent pricing, and high liquidity, Henry Hub serves as a reliable source for spot pricing data. The wide dissemination of Henry Hub prices by futures exchanges and media outlets ensures easy access to pricing information for contractual parties.