trading hub

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.

The shale revolution has done away with natural gas price volatility, at least for now.  And that has been a bad thing for natural gas storage.  Merchant storage facilities make most of their money on either seasonal gas price differences or short-term price fluctuations, or both.  Unfortunately, the oversupplied market has flattened out prices, removing the primary source of storage value.  But there are other ways of extracting value out of natural gas storage. Today we explore several of these strategies.

You may have heard that Cushing, Oklahoma is no longer the center of the crude oil universe.  The logic goes that WTI is no longer representative of the world crude oil price. …The WTI-Brent arbitrage is broken.  …NYMEX and ICE are looking for trading hubs to replace Cushing.  ….The days of WTI as a hedging vehicle for everything between jet fuel in Wisconsin to crude oil production in Latin America are ancient history.  ….Rail cars from the Bakken are moving to St. James, LA or Albany, NY.  …Certainly not Cushing, OK.   ….All the shale oil barrels want to get to the huge Gulf Coast refinery complex, bypassing Cushing.  ….It is only a matter of time before Cushing devolves into a dusty Oklahoma town with a lot of rusting tanks.   …And all crude oil will trade against St. James, or Brent, or some new Gulf Coast index.