Henry Hub Explained: How a Louisiana Pricing Hub Determines What Your Business Pays

If you've ever received a natural gas quote with language like "NYMEX + $0.18/therm" or "Henry Hub basis pricing," you've encountered the benchmark at the center of U.S. commercial gas pricing without necessarily understanding what it means.

Henry Hub is a specific pipeline interconnection point in Erath, Louisiana — and it's the price reference that ultimately flows through to what your business pays for natural gas, whether you're a restaurant in Chicago, a manufacturer in Pennsylvania, or a property manager in New York City.

Understanding Henry Hub isn't just academic. It's a practical tool for evaluating supplier quotes, identifying favorable contract timing, and understanding why your gas costs in New England can be dramatically different from Henry Hub prices on any given day.

This guide explains what Henry Hub is, how NYMEX futures connect to your commercial contract, what basis differentials are and why they matter for your specific location, and how to use Henry Hub trends to make better procurement decisions.

What Henry Hub Is and Why It Became the U.S. Natural Gas Benchmark

The Henry Hub is a natural gas pipeline hub operated by Sabine Pipe Line LLC in Erath, Louisiana. Geographically, it sits at the intersection of nine interstate and four intrastate pipelines, connecting major producing regions in the Gulf of Mexico and onshore Louisiana to the broader U.S. pipeline network.

Why This Particular Hub?

Henry Hub became the dominant pricing benchmark for several interconnected reasons:

Geographic position: Louisiana sits at the junction of Gulf Coast production and multiple major pipeline systems (Transcontinental, Southern Natural Gas, Tennessee Gas Pipeline, Trunkline, among others). Gas can flow relatively freely to and from multiple regions.

Liquidity: Because so many buyers and sellers access Henry Hub, it became the most liquid point in the U.S. gas market — meaning the most transactions happen there, which produces reliable price discovery.

NYMEX selection: In 1990, the New York Mercantile Exchange designated Henry Hub as the delivery point for its natural gas futures contract. That decision — made over three decades ago — cemented Henry Hub's status as the national reference price by making it the settlement point for standardized financial instruments traded globally.

Pipeline access: The interconnected pipeline network at Henry Hub allows gas to flow between the hub and virtually any part of the continental U.S. distribution system, creating physical linkage between Henry Hub prices and prices at other delivery points.

The Evolution Since Shale

The shale revolution — which transformed the Marcellus/Utica (Pennsylvania/West Virginia/Ohio), Permian (Texas/New Mexico), and Haynesville (Louisiana/Texas) plays into the primary supply sources for U.S. gas — has actually reduced Henry Hub's dominance as a pure supply-price indicator.

Today, the largest U.S. gas production basins are the Marcellus and Appalachian shales, which are geographically distant from Henry Hub. Prices at Dominion South (the primary Appalachian pricing hub), for example, can trade at a significant discount to Henry Hub because of proximity to abundant production. Meanwhile, New England prices trade at premium to Henry Hub because of limited pipeline access.

Understanding this divergence — and how your specific location fits into it — is essential for interpreting what Henry Hub movements mean for your gas bill.

How NYMEX Futures Connected to Henry Hub Flow Into Your Commercial Contract

The connection between NYMEX futures prices and your commercial gas contract runs through a relatively straightforward chain:

Step 1: NYMEX Futures Trading

At the New York Mercantile Exchange (now operated by CME Group), traders buy and sell standardized natural gas futures contracts. Each contract represents 10,000 MMBtu of natural gas for delivery at Henry Hub in a specific future month.

These futures are traded by a combination of financial players (hedge funds, banks), physical commodity companies, utilities, and large industrial gas users — all with different objectives (speculation, hedging, arbitrage). The resulting price for each contract month reflects the collective market expectation of natural gas supply and demand conditions for that period.

You can track live NYMEX natural gas futures prices at CME Group or via the EIA Weekly Natural Gas Update.

Step 2: Supplier Hedging

When a competitive natural gas supplier offers you a fixed-rate supply contract, they're making a commitment to deliver gas at a specified price regardless of what the market does. To honor that commitment, they need to hedge their price exposure.

Suppliers typically execute hedging by:

Buying NYMEX futures contracts corresponding to the delivery months of your contract
Entering into OTC (over-the-counter) swaps with financial counterparties that fix their purchase price

The cost of this hedge — the NYMEX futures price for each delivery month — is the primary input into your fixed supply rate. The supplier adds their margin, operational costs, and a risk premium on top of the hedge cost.

This is why fixed rates track NYMEX forward curve prices — not because suppliers are setting arbitrary prices, but because their underlying cost of delivering a fixed rate is determined by what it costs to hedge on NYMEX.

Step 3: Basis and Transport

Once a supplier has hedged their Henry Hub price exposure, they still need to get gas from Henry Hub to your meter. The cost of transportation from Henry Hub to your local delivery point is the basis differential.

Your effective rate = NYMEX hedge price + basis differential + supplier margin

For index-priced contracts, the formula is even more explicit: "NYMEX monthly average + $X.XX/therm basis adder + $Y.YY/therm supplier margin."

Understanding Basis Differentials: The Gap Between Henry Hub and Your Local Price

The basis differential is often the most underappreciated cost component in commercial gas pricing — and in some markets, it's the most volatile.

What Creates the Basis Differential?

The price difference between Henry Hub and your local delivery point reflects:

Physical transportation costs: The cost of moving gas through interstate pipelines from production areas to your region
Pipeline capacity constraints: When pipeline capacity is limited relative to demand, prices at the constrained end spike above Henry Hub
Local supply/demand balance: Regions with abundant local production (like the Marcellus area) may trade at a discount to Henry Hub; regions dependent on distant supply may trade at premium
Seasonal factors: Winter pipeline constraints can create dramatic, temporary basis spikes

Regional Basis Examples

Dominion South (Appalachian Basin): Historically trades at a discount to Henry Hub — sometimes $0.50–$1.50/MMBtu lower — because the Marcellus/Utica producing regions create abundant local supply that can't fully exit the region during low-demand periods.

Chicago Citygate: Typically trades at a modest premium to Henry Hub — roughly $0.10–$0.40/MMBtu — reflecting interstate transportation costs from producing regions.

Algonquin Citygate (New England): Normally at a modest premium to Henry Hub ($0.20–$0.80/MMBtu) but spikes dramatically during winter demand peaks. During polar vortex events, Algonquin has spiked to $20+/MMBtu versus Henry Hub at $3–5 — a basis differential of $15–$17 driven purely by pipeline capacity constraints.

Tennessee Zone 6 (New York/New England): Similar to Algonquin, with pronounced winter basis risk.

Texas (Waha): Can trade at deep discounts to Henry Hub — sometimes even negative prices during periods of West Texas production surplus — due to insufficient pipeline takeaway capacity from the Permian Basin.

Why Basis Matters for Your Contract

When comparing supplier quotes, always evaluate the total delivered price, not just the Henry Hub component. A supplier quoting "NYMEX + $0.10" may appear cheaper than a supplier quoting "NYMEX + $0.25" — but if the first supplier is using an index that includes a volatile basis component and the second is offering a fully bundled delivered price, the comparison is meaningless without basis context.

Ask suppliers explicitly: "Is your quoted rate inclusive of all basis and transportation to my meter?" If not, ask what additional basis charges apply.

For a deeper explanation of basis differentials as they appear on your bill, see our resource on basis differentials in commercial gas billing.

How to Use Henry Hub Trends to Time a Contract Signing or Renewal

Henry Hub pricing information is freely available and can inform smarter procurement timing decisions. Here's a practical framework:

The Four-Step Timing Process

Step 1: Track Henry Hub Spot and Near-Term Futures

The EIA publishes weekly Henry Hub spot prices in its Natural Gas Weekly Update. Check this weekly during procurement evaluation periods.

Compare today's price to:

The 1-year average (to determine if prices are high or low historically)
The 5-year average (for longer-term context)
The seasonal pattern (what does the market normally do at this time of year?)

Step 2: Access the NYMEX Forward Curve

Look at the forward prices for the months corresponding to your planned contract period. The 12-month strip price (average of 12 monthly futures) gives you the market's expectation for your delivery period.

Step 3: Compare to Supplier Quotes

A fixed-rate supplier quote should be roughly in line with:

The 12-month strip price for your delivery period
Plus basis differential for your region
Plus a supplier margin of $0.03–$0.12/therm (depending on account size and competition)

If a supplier quote significantly exceeds this implied fair value, you have basis for negotiation or should seek additional competitive bids.

Step 4: Evaluate the Decision

If current forward prices for your delivery period are at or below the 5-year average for that delivery period, you're looking at a potentially favorable lock-in opportunity. If forward prices are materially above the 5-year average, a shorter contract term or index pricing may be worth considering.

Seasonal Timing Insight

Henry Hub spot prices reliably follow a seasonal pattern:

Spring lows (April–June): Storage injection season, low demand, typically lowest prices of the year
Summer uptick (July–August): Power generation demand, modest price increase
Fall run-up (October–December): Pre-winter demand increase, prices build
Winter peak (January–February): Highest prices of the year during cold snaps

For most commercial buyers, spring is the optimal window to evaluate fixed-rate contracts for the next 12–24 months. The combination of seasonal price softness and forward curves that haven't yet fully priced in next winter's risk premium creates the most favorable conditions.

Frequently Asked Questions

What is Henry Hub?

Henry Hub is a natural gas pipeline hub in Erath, Louisiana, that serves as the primary pricing benchmark for U.S. natural gas. It was designated as the delivery point for NYMEX natural gas futures in 1990, cementing its role as the national reference price.

Why does my business's gas price track Henry Hub?

When competitive suppliers offer fixed-rate contracts, they hedge their price risk by buying NYMEX futures tied to Henry Hub. This links your fixed supply rate to the cost of those hedges — which is derived from Henry Hub futures prices — plus basis costs and supplier margin.

What is NYMEX natural gas?

NYMEX (New York Mercantile Exchange) is the primary exchange where standardized natural gas futures contracts are traded. Each contract specifies delivery of 10,000 MMBtu at Henry Hub in a future month. NYMEX prices provide the baseline reference for commercial gas pricing across the U.S.

What is the difference between Henry Hub price and my commercial rate?

Your commercial supply rate is Henry Hub (or a regional index derived from Henry Hub) plus the basis differential (transportation cost to your region) plus the supplier's margin. Your total gas bill also includes utility delivery charges, which are separate from the supply rate.

How can I find current Henry Hub prices?

Current Henry Hub spot and futures prices are available through: the EIA's Natural Gas Weekly Update (free, published weekly), CME Group's website (live futures, some data free), Bloomberg Terminal (subscription required), and most energy news platforms.

What is a basis differential and why is it important?

The basis differential is the price difference between Henry Hub and your local delivery hub or pricing point. It reflects pipeline transportation costs and regional supply/demand dynamics. In constrained markets like New England, basis differentials can exceed the Henry Hub commodity price during winter peak periods.

How do I use Henry Hub data to evaluate supplier quotes?

Compare the 12-month strip price (average of monthly futures for your delivery period) to supplier fixed-rate quotes. Subtract an estimated basis differential for your region and a typical supplier margin ($0.05–$0.10/therm). This gives you a sense of whether the quote is at market, above, or below.

Does Henry Hub affect index-priced contracts differently than fixed-rate contracts?

Yes. With fixed-rate contracts, Henry Hub exposure is priced in at contract signing. With index contracts, your rate moves with Henry Hub prices monthly — so you benefit from declines but are exposed to increases. Both are tied to Henry Hub, but through different mechanisms.

Conclusion: Henry Hub Is the Starting Point, Not the Destination

Henry Hub is the starting point for U.S. natural gas pricing — but for commercial buyers, it's the basis differential and the competitive procurement process on top of Henry Hub that determine whether you're paying a good rate or an inflated one.

Understanding the Henry Hub/NYMEX connection gives you the vocabulary and the framework to:

Evaluate supplier quotes intelligently rather than accepting them at face value
Understand why your regional gas cost differs from national benchmark prices
Identify favorable seasonal windows for locking in fixed rates
Ask the right questions about what's included in your contracted price

The businesses that use this knowledge most effectively aren't energy traders — they're operators who've built basic market literacy into their procurement process and work with advisors who monitor the signals continuously.

Natural Gas Advisors brings this market knowledge to every client engagement, benchmarking supplier quotes against live market data and helping businesses identify the optimal timing and structure for their next contract.

Call 833-264-7776 or request a market consultation today.

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