NORTH AMERICAN PIPELINE BASIS: WHAT ARE THE DRIVERS?

While gas prices at the Henry Hub are generally understood to be a function of the push and pull of supply and demand in the gas market (or expectations thereof), the drivers of prices at other points around North America are often baffling to market observers. CERA has found that the principal driver of basis (and spread) is the overall pipeline capacity utilization rate for all pipelines into a market or from a market. Basis is found to be well correlated to utilization rates. This provides an important foundation for

*understanding the economic drivers of basis (and spread) and its nuances, which allows one to comprehend and project how changes in gas supply, demand, or pipeline capacity will affect

*gas prices in both upstream and downstream markets

*the Henry Hub gas price

*the value of pipelines

*the value of firm transportation contracts

*gas producer revenue

*end user costs

*understanding the impact of significant expansions of pipeline capacity, which usually reduce the spread between receipt and delivery markets

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.