The difference between wellhead prices and Henry Hub prices between August 1996 and December 2000 averaged 32 cents/Mcf, with Hub prices averaging 10.8% higher, according to a study by the Energy Department’s Energy Information Administration (EIA). However, the median value between the two of 24 cents/Mcf may be a better measure, EIA said.

The government agency conducted the study in response to questions as to the difference between spot natural gas prices delivered to pipelines that are reported to publications, and prices producers receive at the wellhead as reported to the Interior Department’s Minerals Management Service (MMS) for royalty purposes.

In addition to calculating the average, EIA said the median value of the difference between wellhead prices and the Henry Hub is 24 cents/Mcf or 10.4%. The standard deviation of the mean value of the difference is 38.5.

“Given the large difference between the mean and median values and the relatively large standard deviation, the price difference is not a particularly precise expression of the relationship between the two prices. Because of the non-symmetric nature of the observations, the median value might be more representative of the central tendency of the data than is the mean value,” EIA said.

Beyond that, EIA says calculations based on the percent difference may be more reliable and easily used than the actual $/cents difference. It notes the mean and median percent difference are not far apart at 10.8% and 10.4%, which indicates a more symmetrical distribution. Also, the standard deviation, 8.5%, is less than both the mean and median percentages, indicating a narrower distribution of observations. “Indeed 27 of the 53 observations are larger than 5% and less than 15%. Consequently the percent difference measure appears to be a better measure of the relationship between the Henry Hub spot price and the wellhead price of natural gas.”

Also, the fact that the percent difference relationship can be evaluated without translating nominal prices into real (constant) dollars argues for use of percentages.

EIA did not include 2001 and 2002 data in its study because there is a long lag time in reporting and compilation of royalty reports from MMS. The report, “U.S. Natural Gas Markets: Relationship Between Henry Hub Spot Prices and U.S. Wellhead Prices” by Philip Budzik is available on the EIA website at

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