Gas trading hubs

US henry hub

The link to oil pricing has been completely broken in the US, where the explosion of shale gas activity has created an extremely liquid market for gas, traded at the Henry Hub exchange in Louisiana.

Here, prices are driven entirely by the interaction of supply and demand, with no link to oil or any other commodity – the pricing mechanism is gas-on-gas competition.

Gas trading hubs in Europe

The National Balancing Point in the UK is the main trading hub that sets spot prices for the rest of the continent, but there are others hubs too, such as the Title Transfer Facility in the Netherlands.

There is definitely strong pressure in Europe to move gas contracts away from oil indexation. Gas prices at the National Balancing Point hub were around US$10 per before 2014.

The market price of gas in the US today before the fall of oil prices was around US$4 per million British thermal units (MMBtu). The difference with America reflects different supply and demand dynamics in the different markets.

Asia’s gas trading hub(s)

The leading contenders are Shanghai and Japan, because of the size of their domestic gas markets, and Singapore. Asia is likely to develop more than one hub.

Singapore is well-placed to become the trading hub for sea-borne LNG. China might also develop into a Henry Hub-style center given the size of its domestic market, and the potential of its domestic shale gas reserves.

References:

• International Energy Agency (IEA). Asian quest for LNG in a globalizing market (Paris, France: OECD/ IEA, 2014).
• International Energy Agency (IEA). Developing a natural gas hub in Asia: Obstacles and opportunities (Paris, France: OECD/IEA, 2013).
• Patrick Heather, “The evolution of European traded gas hubs,” Oxford Institute of Energy Studies, Working Paper 104, December 15, 2015.
• Howard Rogers, The impact of lower gas and oil prices on global gas and LNG markets. Oxford Institute for Energy Studies, Working Paper (July 2015).