There Is But One True Hub, and His Name Is Henry

Wed May 18 11:41:49 EDT 2016
By Dr. Jeff D. Makholm

In an upcoming column for the June issue of the Wiley journal, Natural Gas and Electricity, NERA Senior Vice President Dr. Jeff Makholm discusses gas trading hubs, focusing on the Henry Hub and its unique role in the commodity futures trading universe. Understanding what hubs are and what they do requires reconciling the intersection of regulatory policy with commodities, financial derivative, and pipeline markets. There are many gas hubs in the world—but the function served by each can vary widely.

As with many issues in the international market for gas, the term “hub” does not translate well from one place to another. Natural gas hubs fall into three categories: (1) physical hubs; (2) notional hubs; and (3) what Dr. Makholm labels fictional hubs. The Henry Hub is unique for key reasons. It sits at a unique junction of independent pipelines within a genuinely competitive continental pipeline transport system (representing three-quarters of all the world’s gas pipelines). The Henry Hub’s role in futures markets has resisted duplication even within North America. Genuine commodity hubs that can support futures markets follow competitive commodity markets, which in the context of the unique features of gas as a commodity, require competitive transport. Considering what drives the financial industry’s participation in commodities futures markets, it is no surprise that the Henry Hub is the only one.

Makholm, Jeff D. (2016, June). There Is But One True Hub, and His Name Is Henry. Natural Gas & Electricity 32/10, ©2016 Wiley Periodicals, Inc., a Wiley company.