Roll With Me Henry - LNG Exports, Marcellus/Utica Production Driving Physical Gas Flows, Unprecedented Constraints at Henry Hub

For decades, liquidity at the U.S. natural gas benchmark pricing location Henry Hub in Louisiana has been dominated by financial trades, with minimal physical exchange of gas, despite the hub boasting robust physical infrastructure, including ample pipeline connectivity. But that’s changing. Between the start of LNG exports from Cheniere Energy’s Sabine Pass LNG facility in February 2016, and the slew of pipeline reversals that are allowing Marcellus/Utica producers to target the new Gulf Coast demand, gas flows through Henry have been rising. In fact, more physical gas is moving through the hub than in nearly 10 years, to the point where a key pipeline interconnect is at capacity on many days, which historically was unheard of. Today, we begin a short series looking at the changing physical market at Henry.  

We first delved into Henry Hub in our series Henry the Hub, I Am I Am, including its formation as a trading location and the rationale behind its status as both a spot market and futures contract delivery point. In that same series, we also alluded to the potential for gas flows and market dynamics at Henry Hub to shift with the emergence of a new demand source right in its backyard — namely LNG exports — and the push among Marcellus/Utica producers to target that demand. Now, two years after the first export cargo left Cheniere’s Sabine Pass LNG facility in Cameron Parish, LA, we are starting to see the effects of that export demand and supply influx on Henry Hub, including increased flows and even constraints. In this series, we’ll dive into those flow dynamics. But first, it’s worth putting it into context by reviewing the salient features and historical role of the hub.

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It’s no exaggeration to say that the Henry Hub pricing location, which is situated in Vermillion Parish, LA, is the center of the natural gas spot-trading universe. It also serves as the delivery mechanism for the third-largest commodity futures trading instrument in the world — the CME/NYMEX Henry Hub natural gas futures contract. So, it’s safe to say, Henry Hub in some way touches almost every aspect of the U.S. natural gas market.

What makes Henry Hub an attractive benchmark is the bevy of major long-haul, large-diameter, high-capacity pipelines that converge in the vicinity, resulting in high deliverability at the hub. The backbone of Henry Hub is Enlink Midstream’s Sabine Pipeline, a 130-mile, ~500-MMcf/d east-west mainline extending from Erath, LA, to the industrial complex at Port Arthur, TX.

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