At first glance, the name Henry Hub might sound like some obscure comic book character from the mind of Stan Lee thanks to the alliteration! However, Henry Hub is not a comic book character, and it is not even a person. Instead, it is a noun of a different sort. Henry Hub is a thing. It is the central location, or the hub, of pricing natural gas futures, and it has been since 1990. It was in 1989 that NYMEX (New York Mercantile Exchange) contracted Sabine to be the provider of the first natural gas futures contract.
The physical hub is in Erath, Louisiana and is under the ownership of Sabine Pipe Line LLC. Because of the location of the Hub, it’s seen some trouble with hurricanes, particularly with Ike and Rita. However, even though the hurricanes were flooding surrounding areas, the actual facility did not receive much damage at all.
Understanding all of the terms when it comes to natural gas can seem quite overwhelming at first. Trying to understand too many things at once can be this way, especially when it comes to complex things such as the pricing of the gas, the pipelines, and how to trade the gas. However, taking things slowly and just a bit at a time is going to allow you to learn more. One of the first steps in that is having a better idea of what the Henry Hub is. Fortunately, it is not going to be overly difficult though.
Investors who talk about the price of natural gas are always going to be talking about the Henry Hub price for the gas, as that is the standard. The prices for the gas are in $/mmbtu (millions of British thermal units). People are usually talking about the current price for the months contracts. However, when you hear someone talking about the spot price, he or she is talking about the actual current price, which does not have an association with futures. This price has more fluidity and can change far more rapidly.
What Pipelines Connect to the Hub?
The hub connects four intrastate pipelines as well as nine interstate pipelines. These pipelines are:
- Gulf South Pipeline
- Columbia Gulf Transmission
- Sea Robin
- Southern Natural Pipeline
- Texas Gas Transmission
- Transcontinental Pipeline
- Trunkline Pipeline
- Jefferson Island
It was because of the interconnectedness of these pipelines that Sabine was chosen and the Henry Hub came into being. Henry Hub has two compressor stations able to compress 520,000 decatherms each day, and it is able to transport 1.8 billion cubic feet per day. The Hub is one of the most important locations for energy today!
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