Henry Hub Natural Gas futures contract (NG) allows you the opportunity to profit from or hedge against the price movements of this increasingly important fossil fuel.
Though once considered a mere byproduct of oil production, natural gas is becoming the most important fuel in the energy complex, with NG trading as the third-largest futures contract in the world by volume.
As the cleanest burning fossil fuel, natural gas is widely considered a bridge fuel to the next generation of alternative fuels. With new methods of transport being devised to deliver and consume the gas and new supplies continually being discovered, the price of natural gas continues to be pushed between the demand and supply sides of this dynamic market.
The Contract
Each Henry Hub futures contract represents 10,000 million British thermal units of deliverable natural gas with a minimum tick price of $.001 per MMBtu. The contract trades electronically six days a week, 23 hours per day, with a daily 60-minute break at 5 p.m. Eastern Time.
Supply and Demand
The price of NG is based on delivery at the Henry Hub delivery point in Louisiana. This price can be volatile and market participants buying or selling the contract should be prepared for weather- or demand-related price swings as well as supply disruptions. Heating demand drives natural gas price higher during unusually cold winters.
As natural gas is increasingly used for electricity generation, hot weather can spike the price in the summer as people switch on their air conditioners.
Conversely, recent discoveries of large natural gas supplies can put downward pressure on the price of natural gas and cause structural changes to the market.
As such, traders of NG must stay alert to the fundamentals underlying this critical market and the many of ways in which they impact the daily price.
