Henry Hub Spot Price

Source: Bloomberg

Updated: Every weekday

I track the spot price of gas as a proxy for wellhead price, which is the pricing measure that royalty owners should follow. Henry Hub is a point where multiple pipelines come together near Erath, LA. It is used as the pricing point for the New York Mercantile Exchange (NYMEX). The spot price reflects the price to buy one Mcf (thousand cubic feet) of gas today without a contract. It may change during the day but it is usually only reported once, around 4 PM Central Time. Here is a link to a chart showing the spot prices since January 2008.

Often the media reports the futures price, which usually is the "near month" futures price. In other words, in July the near month futures price is for gas to be delivered in August. Futures are traded and actively tracked on the NYMEX for many different delivery dates. While it is good to understand the movement of futures prices, they do not reflect what appears on a royalty owner's check. Another pricing related measure that many operators promote is a hedged price. Operators (and financial players) sell specific quantities of gas in the future to make their revenue more predictable and to try to lock in higher prices. Hedging prices generally is a good thing for producers, but it doesn't really help the royalty owner, so I don't spend much time focusing on it.

Rig Count

Source: Baker Hughes

Updated: Friday

I track the rig count in north Louisiana to understand the drilling activity in the area. Because gas is the primary target in this region, I do not attempt to break down the oil/gas rig split. I focus only on north Louisiana because the drilling activity there is more "pure play" Haynesville than in the east Texas area. To me it makes a good for the whole Haynesville Play. This is not a perfect count because there are other targets in the region, including Cotton Valley, Hosston, etc., but the point is to track changes in activity. Please see this link for a recent discussion of changes in North Louisiana rig count.

U.S. Gas in Storage

Source: EIA

Updated: Thursday

The gas in storage tracks natural gas that is stored commercially and as part of a seasonal and strategic storage scheme. I track this measure because storage is a proxy for supply in the supply/demand relationship, which is so important for pricing. Gas is stored in old salt domes, it is injected into retired gas fields, it is stored along pipeline routes and it is accumulated by end users. Because gas demand increases with the winter heating season, gas is actively stored during the summer and fall. During winter it is withdrawn in greater quantities for use in generating heat and electricity. The "injection season" usually ends around October 31 when cold weather begins. I compare the current week's storage number against the previous week, the previous year and the five year average. I don't compare against the figure six months ago because the seasonality of gas storage makes it a non-meaningful comparison.