Henry the Hub, I Am I Am – Understanding Henry Hub: How Changing Natural Gas Flows Will Impact the Benchmark
The Henry Hub is the best known natural gas trading location in the world. There is certainly no more liquid point in the industry. An average of almost 400,000 natural gas futures contracts trade there each day. The Henry price is used to compute location ‘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. In effect, the Henry Hub is the center of the natural gas trading universe. What if I were to tell you that Henry Hub is not a hub? It is not all located at some single spot you can drive by called Henry. And the gas flow through this so called hub is minimal. Could this be another LIBOR scandal where a benchmark is not what we thought? Or is all well and good at Henry, regardless of these revelations? Let’s find out why Henry is the Hub, why it developed the way it did, and how changes in gas flows from the big shale plays could impact Henry in the future.
