Market dynamics vary at key natural gas pricing hubs

In-brief analysis

October 23, 2024

Data source: U.S. Energy Information Administration
Note: $/MMBtu=dollars per million British thermal units

Pricing hubs provide transactional flexibility to buyers and sellers in the natural gas industry. The integrated North American market has close to 200 pricing hubs, which vary by size, location, type, liquidity, and age. Pricing hubs convey market information and make it easier for buyers and sellers to arrange natural gas deals in physical and financial markets across many time periods: intra-day, daily, weekly, balance-of-month, monthly, seasonally, and annually. Changes in prices at natural gas hubs tend to be reflected in movements in prices at nearby power market hubs or zones. A mix of private price reporting agencies and exchanges offer services and platforms to help buyers, sellers, and market observers obtain pricing information. Pricing hubs are dynamic; new ones are established or are retired based on market conditions and consumer preferences.

Prices can vary substantially at hubs based on many factors: geographic location, unique or seasonal weather conditions, proximity to energy supplies, prevalence of constraints or bottlenecks, access to substitutes, and infrastructure availability.

We examine several key pricing hubs below to better understand regional natural gas pricing.

A closer look at key pricing hubs around the United States

South Central region
Henry Hub in Erath, Louisiana, has many features that make it an important pricing benchmark: pipeline interconnectivity, proximity to storage and production, access to diverse markets, and lots of buyers and sellers of natural gas, especially with growing export markets for natural gas. Henry Hub is the delivery location for natural gas futures contracts transacted on the New York Mercantile Exchange (NYMEX) that go to physical settlement. Most natural gas at U.S. trading hubs is priced relative to Henry Hub, which is also an increasingly relevant benchmark for global liquefied natural gas (LNG) purchases, as U.S. exports increase and as Henry Hub price indexation is used to price deliveries at U.S. export terminals.

The Houston Ship Channel (HSC) is in southeastern Texas in the Port of Houston, surrounded by numerous natural gas and processing plants along the Gulf Coast. The HSC market is diverse, providing price transparency and liquidity for exports markets, industrial and process gas uses, and power generation. Production from the nearby Eagle Ford shale formation accounted for about 6% of total marketed natural gas in the United States last year. Growing LNG exports and related facilities that process the hydrocarbon gas liquids present in natural gas in this region have also further increased the significance of this hub, as have increased natural gas exports via pipeline to Mexico.

The Waha natural gas pricing hub is in West Texas near Permian Basin production activities and helps natural gas market participants get a sense of pricing in West Texas and southeastern New Mexico. The Permian Basin produced 19% of total U.S. natural gas in 2023, with most coming from associated gas from crude oil wells. Because natural gas production in the Permian Basin has increased more rapidly than natural gas pipeline takeaway capacity, Waha prices are typically lower than those at other hubs, sometimes turning negative.

Pacific region
SoCal Citygate is the major natural gas pricing hub in Southern California in the Los Angeles Basin, with substantial natural gas consumption by the various local sectors, averaging about 2.5 billion cubic feet per day (Bcf/d) in 2023. SoCal Citygate prices reflect the price of moving natural gas from diverse nearby basins and Mexico into the Los Angeles metro area's distribution system. Prices also include the cost of transporting natural gas from the California border to the distribution system in the greater Los Angeles Basin. SoCal Citygate traded at prices that were historically low for this hub through the first eight months of 2024, due to milder winter conditions, increased solar generation, more natural gas in storage, and increased hydroelectric power generation.

Opal is a key natural gas pricing hub in southwestern Wyoming. The Kern River Gas Transmission pipeline, which is connected to the Opal Hub, is the only interstate pipeline that delivers natural gas directly from the Rocky Mountain region to Southern California. This pipeline receives about 25% of the Rocky Mountain's natural gas supply, and its deliveries account for approximately 25% of California's natural gas demand, according to pipeline owner BHE. Operations at Opal's large nearby processing plant often influence price volatility.

Northwest Sumas is the key pricing hub along the British Columbia-Washington border for natural gas in the Pacific Northwest, providing customers in the Pacific Northwest with natural gas supply diversity. Sumas prices reflect market conditions in the Pacific Northwest, such as the state of the regional hydroelectric market, natural gas storage availability, space heating needs, upstream gas conditions in British Columbia, and increasing power burn.

Midwest region
At Chicago Citygate in Illinois, seven major interstate pipelines transporting natural gas from Canada, the Southwest, and the Gulf of Mexico converge. Chicago Citygate, the primary pricing hub for end users in Chicago and parts of the upper Midwest, is linked to three pipelines that transport natural gas from Henry Hub, increasing the linkage of prices between the two hubs. This market is also close to storage, and abundant infrastructure helps to moderate seasonal and daily price volatility at this hub.

Northeast region (defined as New York, New England, and Pennsylvania)
Algonquin Citygate is an important pricing hub in the northeastern United States, and prices at this hub reflect natural gas market dynamics in Boston, Massachusetts, and elsewhere in New England. New England relies heavily on natural gas for heating in the winter months, but supplies are constrained by the region's limited natural gas pipeline capacity and changing fuel mix. Price volatility at Algonquin Citygate is typically related to these periods of peak demand.

Transco Zone 6 NY is a key pricing hub primarily serving New York City. Named after the Transcontinental Gas Pipe Line Company, Transco is the main pipeline serving the U.S. eastern seaboard. Price volatility at Transco Zone 6 NY tends to be reflected in locational marginal prices in the New York Independent System Operator's zones in New York City (Zone J) and Long Island (Zone I). Historically, disruptions or constraints along this long-distance pipeline quickly affected prices, but recently, production in the Appalachian Basin has muted those effects. Competing needs for deliveries along the Transco network can contribute to higher prices at Transco Zone 6 NY, especially in the winter.

Eastern Gas South (formerly Dominion South) serves as a pricing hub in the mid-Atlantic and is one of the most important trading hubs in the United States. In addition to being a key point of liquidity for buyers and sellers of Appalachian natural gas, this benchmark has undergone substantial growth in production over the past decade, accounting for 29%, or 37.7 Bcf/d, of gross natural gas production in the United States last year. Prices in this area tend to be discounted to the Henry Hub price because of regional productivity, supply surpassing local demand, and transportation of natural gas supply out of Appalachia being constrained by takeaway pipeline capacity.

We provide the locations of major hubs in our U.S. Energy Atlas geospatial application in the Natural Gas Infrastructure and Resources layer.

Principal contributors: Andrew Iraola, Chris Peterson

Tags: natural gas, prices, map, infrastructure

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