What is 'Henry Hub'

Henry Hub is a natural gas pipeline located in Erath, Louisiana, that serves 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 has access to many of the major gas markets in the United States. The hub connects to four intrastate and nine interstate pipelines, including the Transcontinental, Acadian and Sabine pipelines.

BREAKING DOWN 'Henry Hub'

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

Importance of Hub Pricing

Henry Hub is an important market clearing pricing concept because it is based on actual supply and demand of natural gas as a stand-alone commodity. Other natural gas markets like Europe have fragmented hub pricing points. This means natural gas prices are often indexed to crude oil, which can have very different supply and demand factors affecting its price. Attempts are being made to develop European hub pricing points in the Netherlands and the UK, but this has proved difficult so far due to competition from national hubs. Asian natural gas markets are even more fragmented and have no defined hub pricing point, although Singapore would like to serve this regional role. Consequently 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 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.

RELATED TERMS
  1. Financial Hub

    A financial hub is a city or region that is considered to be ...
  2. Natural Gas ETF

    A natural gas ETF is an exchange-traded fund designed as a commodity ...
  3. Liquefied Natural Gas (LNG)

    Liquefied natural gas (LNG) consists mostly of methane and is ...
  4. EIA Natural Gas Report

    The EIA Natural Gas Report is a report written by the Energy ...
  5. Natural Gas Storage Indicator - ...

    The Natural Gas Storage Indicator is the U.S. EIA weekly estimate ...
  6. Natural Gas Liquids - NGL

    Natural gas liquids are components of natural gas that are separated ...
Related Articles
  1. Investing

    A Natural Gas Primer

    Learn why natural gas is playing a larger role in the energy industry.
  2. Investing

    UPS to Build New Regional Hub (UPS)

    UPS announced a new $400 million hub in Atlanta. The hub will have the latest technologies and will be a regional center for the Southeast.
  3. Investing

    Do Natural Gas Prices Always Follow Oil Trends?

    Prices for oil and natural gas are highly correlated. But investors should be aware of different factors affecting the prices of these commodities.
  4. Investing

    Will Natural Gas Perform Like Oil? (UNG, XLE)

    Oil is in a bull market. Will natural gas prices follow or are both headed for a near-term correction?
  5. Investing

    How Fracking Affects Natural Gas Prices

    Whatever you think of fracking, it has done one thing: kept the price of natural gas from increasing any more than it has.
  6. Investing

    Natural Gas Industry: An Investment Guide

    Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms.
  7. Investing

    Investing In Natural Gas? Eye ETFs, Seasonality

    When considering natural gas extraction companies and the commodity itself, what options do investors have?
  8. Investing

    Top 4 Natural Gas Stocks as of July 2018

    These four companies that develop natural gas may be strong in the rest of 2018.
  9. Investing

    Soaring Natural Gas Prices In Europe No Help for Gazprom

    Russia's Gazprom may have to shed assets despite high European natural gas prices.
  10. Investing

    The world's top 10 natural gas companies

    Read about the 10 companies that, combined, produce over 100 billion cubic feet of natural gas – approximately 30% of the world's total production.
RELATED FAQS
  1. How do government regulations impact the oil and gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  2. How did the financial crisis affect the oil and gas sector?

    Learn how the financial crisis affected the oil and gas sector. The financial crisis led to a contraction in economic activity ... Read Answer >>
  3. What economic indicators do oil and gas investors need to watch?

    Leading indicators for oil and gas investments are centered on the levels of production, consumer demand and inventory levels ... Read Answer >>
  4. How can electricity be traded as a commodity by an individual investor?

    Learn the characteristics unique to electricity trading as a commodity and how investors can trade electricity futures on ... Read Answer >>
  5. What are common mutual funds an investor should consider for investing in oil and ...

    Discover specific information about three of the most common mutual funds for an investor to consider for investing in the ... Read Answer >>
Trading Center