Henry Hub Natural Gas: The US Gas Benchmark

Key Takeaways

• Henry Hub natural gas is the US gas benchmark, delivered at a Louisiana pipeline hub.
• One CME contract is 10,000 MMBtu, priced in dollars per million British thermal units.
• Gas prices are highly seasonal and storage-driven, swinging with winter heating demand.
• Growing US LNG exports increasingly link Henry Hub to global gas prices.

What Henry Hub Natural Gas Is

Henry Hub is a physical natural gas interchange near Erath, Louisiana, owned by Sabine Pipe Line. Many interstate and intrastate pipelines connect there, which made it the natural choice for a national pricing point.

The name also refers to the benchmark futures contract listed by CME Group on NYMEX. When traders quote "the price of natural gas" in the US, they mean front-month Henry Hub futures. The EIA publishes an official Henry Hub spot price in dollars per million British thermal units (MMBtu), the standard energy unit for gas.

The Intuition

Natural gas is hard to store and expensive to move long distances without pipelines or liquefaction. A central, well-connected hub gives the whole US market one transparent reference price, even though gas is produced and consumed all over the country.

Producers, utilities, power generators, and industrial users price their deals as a differential to Henry Hub. A power plant in another region might buy gas at "Henry Hub plus 0.30 dollars," using the benchmark as the base and adding a local transport cost called the basis.

How It Works

The CME Henry Hub contract size is 10,000 MMBtu. Prices are quoted in US dollars per MMBtu, and the minimum price move is 0.001 dollars (one tenth of a cent), worth 10 dollars per contract.

1 Henry Hub contract = 10,000 MMBtu
tick = $0.001 per MMBtu = $10.00 per contract
delivery = Henry Hub, Erath, Louisiana (FOB)

The contract is physically delivered, free on board at the Henry Hub, over the course of the delivery month. Most financial traders close or roll before delivery.

Gas pricing is dominated by storage and weather. Through summer, utilities inject gas into underground storage; through winter, they withdraw it to meet heating demand. The EIA's weekly storage report is one of the most market-moving data releases in energy. A cold winter or a hot summer (for air-conditioning power demand) can swing prices sharply because gas is costly to store as a buffer.

Worked Example

Suppose front-month Henry Hub trades at 3.50 dollars per MMBtu and you buy one contract. Your notional exposure is 10,000 MMBtu times 3.50, or 35,000 dollars.

If the price rises to 3.80 on a cold-weather forecast, you gain 0.30 per MMBtu. That is 300 ticks at 10 dollars each, or 3,000 dollars on one contract. If it falls to 3.20, you lose 3,000 dollars.

Seasonality and storage drive these moves. Going into winter with storage below the five-year average tends to support prices, because the market has a thinner cushion against a cold snap. A mild winter that leaves storage full can crush prices in spring. The rise of US LNG export terminals adds a new force: when overseas gas prices are high, exporters pull more US gas abroad, tightening domestic supply and linking Henry Hub to global markets.

Common Mistakes

1. Confusing the spot price with the futures price. The EIA Henry Hub spot reflects physical Louisiana deals, while the headline futures number reflects the active contract month. They track but are not identical.

2. Ignoring basis differentials. Gas at a distant location is not priced flat to Henry Hub. The local basis can be large, and in pipeline-constrained regions it can swing wildly.

3. Underestimating storage and weather. Natural gas is far more weather-sensitive than oil because it is harder to store. Skipping the weekly storage report and forecasts misses the main price driver.

4. Treating gas like oil. Gas markets are more regional and storage-bound. Strategies built for the deeper, more global oil market can misfire when applied to gas.

5. Overlooking the LNG link. US LNG exports increasingly tie Henry Hub to global prices. Ignoring overseas demand can leave a trader blind to a growing influence on US gas.

Frequently Asked Questions

What is Henry Hub natural gas in simple terms? Henry Hub natural gas is the benchmark price for natural gas in the United States, named after a pipeline hub in Louisiana where the futures contract delivers. It is the number most US traders mean when they quote gas prices.

How does Henry Hub natural gas affect investment decisions? It sets the reference price for gas producers, utilities, and power generators, so it drives their earnings and costs. Investors also read the Henry Hub futures curve and storage data as signals of supply tightness.

What is a real-world example of Henry Hub pricing? A power plant might buy gas at "Henry Hub plus 0.30 dollars" per MMBtu, using the benchmark as the base and adding a local transport cost called the basis.

How can investors account for gas-price volatility effectively? Track the weekly EIA storage report and weather forecasts, since gas is hard to store and highly seasonal. Watching the futures curve helps gauge whether the market expects winter tightness.

How is Henry Hub natural gas different from TTF or JKM? Henry Hub is the US benchmark in dollars per MMBtu, while TTF prices European gas in euros per megawatt-hour and JKM prices Asian LNG cargoes. US LNG exports increasingly connect all three.

Sources

1. CME Group. "Henry Hub Natural Gas Futures (Rulebook Chapter 220)." https://www.cmegroup.com/rulebook/NYMEX/2/220.pdf
2. U.S. Energy Information Administration. "Henry Hub Natural Gas Spot Price." https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm
3. U.S. Energy Information Administration. "Natural Gas Weekly Update." https://www.eia.gov/naturalgas/weekly/
4. CME Group. "Natural Gas Futures Product Overview." https://www.cmegroup.com/education/courses/introduction-to-natural-gas/nat-gas-product-overview.html

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.