Henry Hub price reflects pipe gas market in US

  • Henry Hub is a natural gas pipeline located in Erath, Louisiana, that serves as the official delivery location for futures contracts on the NYMEX

    • The hub is owned by Sabine Pipe Line LLC and has access to many of the major gas markets in the United States.
    • NYMEX is New York Mercantile Exchange

  • Henry Hub isn’t an LNG market but are still used as LNG benchmarks in parts of the global LNG market.

    • Henry Hub pipeline is the pricing point for natural gas futures on the New York Mercantile Exchange. As such, it is a key benchmark for the entire North American natural gas market.
    • It is sometimes used as benchmark for Upstream only pricing with the shipping and marketing costs assumed to be borne by the buyer. Naturally, the HH price is about half or less than typical 1Ln like NBP and TTF.

[!info] Henry Hub is also used in delivery contracts for LNG on a global basis, despite being a spot price for natural gas that is very specific to the North American gas market.

  • Some global gas producers like Qatar and Australia prefer to base the pricing mechanism of their natural gas deliveries on spot prices rather than indexing to the price of oil. This is especially true when crude oil prices are falling.
  • Gas producers can rely on Henry Hub as a source of natural gas spot pricing to meet this need because of its large trading volume, clear pricing transparency, and high liquidity. Henry Hub prices are widely quoted by futures exchanges and other media sources, so parties to a contact can easily obtain this pricing data.

References

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  • topic:: 00 Engineering Economics00 Engineering Economics
    #MOC / for economics notes with focus on petroleum fiscal and engineering
  • updated:: 2022-11-30 Private or Broken Links
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