INtra-Hub Transfers

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.  

The Henry Hub in Louisiana is the best known natural gas trading location in the world. There is certainly no more liquid point in the industry. An average of 350,000 Henry Hub natural gas futures contracts trade on the CME/NYMEX each day. The Henry price is used to compute locational ‘basis’ at all other natural gas trading points in North America and thus is the reference price for tens-of-thousands of derivative instruments and other commercial contracts. But the U.S. natural gas industry is changing rapidly. Henry started out as a supply market hub but a natural gas demand renaissance in and around Louisiana is transforming it into a demand market hub. How will this impact Henry and can/will it endure as the national benchmark price? Today, we begin an in-depth series looking at Henry Hub, starting with its origins.