Team Energy DaisHenry Hub is the pivotal location for the pricing of natural gas since 1990. Located in Erath, Louisiana, US, it is owned by Sabina Pipeline LLC, a subsidiary of Chevron Corporation. The hub connects nine interstate and four intrastate pipelines as well as several private and public pipeline operators. It also functions as New York Mercantile Exchange’s (NYMEX) standard delivery point.
Why Henry Hub?
To avoid the arbitrage in oil prices, many regional markets select the locations’ basis prices. Owning to a lot of geographical and transportation factors, many constraints can vary the oil prices. So, Henry hub convolutes these prices and releases a benchmark price for the market. Primarily, the Northern American markets use Henry hub but still, it is widely recognized as a benchmark price for natural gas around the globe. Its futures contract is the world’s most traded natural gas futures contracts.
Its strategic location in the onshore production region and its proximity with offshore regions is the determining factor for its popularity and acceptance as a barometer for natural gas prices worldwide.
The possibility of Asia’s Henry Hub
A regulated price is the key for any market to flourish and it also gives an equal opportunity for companies to thrive. It’s often debated whether Louisiana’s Henry hub can be replicated in Asia- the world’s largest consumer of LNG. But a lack of adequate infrastructure and a regulatory framework seems to be the biggest challenge in the determination of Asia’s Henry Hub. However, not only this limited inter-connectivity and transparency in operation is a hindrance to the possibility of Asia’s natural gas price determiner but also this doesn’t make it impossible to have an Asian Henry hub.
Some of the most plausible contenders of becoming Asia’s Henry Hub are Japan, India, Singapore, and China. The important parameter to understand here, despite the hindrances as mentioned in the previous paragraph, is ‘linkage’. It’s fairly easy to link the gas prices in India with the international crude prices as its own import contracts are affected by these prices. Hence, Asia can have its own price monitoring by replicating the model adopted by other non-Asian countries by market-linking the international prices with local conditions.
The prime competitors for being the Asia’s Henry Hub
Japan, China, Singapore, and India are the visible competitors for becoming Asia’s Henry Hub. Singapore seems to be in a stronger position by the development of LNG facility on Jurong islands. Billed as the ‘undisputed oil hub in Asia’, Singapore’s refined petroleum continues to be its topmost export commodity with $37.7b. It’s becoming more influential in the commodity space and it has one of the busiest shipping ports in the world. This is why one can argue that it can become the focal point of attraction.
On the other hand, Japan has the requisite infrastructure but the actual liberalization of the Japanese Natural gas market is the challenge. China’s Shanghai Oil and Gas exchange diversified the natural gas market by inviting the gas-on-gas competition but the government interference in it might pose a problem for becoming the ultimate price dominator, which makes it a little difficult for it to be the lead price deciding country.
India, however, being the fourth largest importer of LNG doesn’t have a fixed market regime for gas. But it is promising that it has new prospects of inculcating a market-driven pricing which may become an influential factor in her being Asia’s Henry Hub.
What can be the advantages if India becomes Asia’s Henry Hub?
India, if it becomes the Asia’s Henry Hub would not only become one of the price influencers but it can also help in its aim to surpass China in the race of becoming next superpower. It has a potential to attract new investors. It has 16,000 km of gas pipeline and aims to target 30, 000 km in next few years. It will also help in curbing corruption and opacity in the determination of prices since when India will cater to Asia’s demands, then the picture would be entirely different.
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‘Indian factors’ which can become a hindrance in its own way of being the price controller
India is currently looking forward to the prospects of being a trading hub but the low local output and lack of a structured market seems to be the biggest challenge. While the Government of India is pursuing the goal in order to adopt a global scale for price determination, Economists believe that until and unless the recent discoveries have been commercialized and bureaucratic uncertainties don’t become the hindrance for international buyers to invest in the local market, the idea of India being the Henry hub sounds hollow.
We can say that it would be interesting to witness this competitiveness among these Asian giants. However, challenges like infrastructure deficit and regulation of market will dominate the price sphere like the monopoly which is enjoyed by Henry hub in Northern America.
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