Natural gas contracts: NYMEX, basis and the delivered price
A natural gas price for a commercial site is built in layers: the NYMEX Henry Hub price, basis to the local market, pipeline transport and fuel, and the utility's delivery charges. Gas contracts fix some of those layers and leave others to float, and suppliers quote them at different points along the way.
The layers of a delivered gas price
| Layer | What it is | Who sets it |
|---|---|---|
| NYMEX | The Henry Hub futures price for the delivery month, in $/MMBtu | The futures market; the contract settles three business days before the month begins |
| Basis | The difference between Henry Hub and the trading point that serves your utility | Regional supply, demand and pipeline constraints |
| Pipeline transport and fuel | Charges to move gas to the utility, and a share of gas kept as fuel | Interstate pipeline tariffs |
| Supplier margin | The supplier's charge for supply and balancing services | The contract |
| Utility delivery | Distribution, customer and balancing charges | The utility's transport tariff |
A quote "at the city gate" includes everything up to the utility. A "burner tip" quote may also include some utility charges. Compare offers at the same point.
Common gas pricing structures
| Structure | NYMEX | Basis | Notes |
|---|---|---|---|
| Fixed price | Fixed | Fixed | Full budget certainty for contracted volumes |
| Fixed basis, floating NYMEX | Floats monthly | Fixed | Locks the regional piece; NYMEX can be fixed later |
| NYMEX trigger | Fixed in tranches when you choose | Fixed or floating | Suits layered buying |
| First-of-month index | Floats | Floats | Monthly index price at the delivery point, set in the last week of the prior month |
| Daily index | Floats daily | Floats daily | Usually for swing volumes above or below a monthly baseload |
Volume, swing and balancing
Gas is bought in volumes nominated to the pipeline and the utility in advance. Usage rarely matches the nomination exactly. The difference is handled in three ways, each with its own charges:
- Swing. Volumes above or below the contracted baseload, priced at a daily or monthly index.
- Imbalance and cash-out. When delivered gas differs from usage, the utility or supplier settles the difference, often at prices that penalize large imbalances.
- Operational flow orders. On constrained days, utilities can require customers to match usage closely to deliveries, with penalties for missing.
Units and conversions
| Unit | Equal to |
|---|---|
| Therm | 100,000 Btu |
| Dekatherm (Dth) | 10 therms, or 1 MMBtu |
| Ccf | 100 cubic feet; converted to therms with the utility's heat content factor |
| Mcf | 1,000 cubic feet; about 1.03 to 1.04 MMBtu depending on heat content |
| Gigajoule (GJ), used in Canada | About 0.948 MMBtu |
Where gas pricing meets the audit
Transport customers carry charges sales customers never see: nominations, balancing, cash-outs and penalties. Sites that qualify for transport service are not always set up for it. In one engagement, correcting the transport setup at 13 sites was expected to save more than $50,000 a month; see the RNG producer case study. Track the NYMEX reference on our Henry Hub price page, and local delivery constraints in our gas capacity outlooks.
Terms to read before signing
- The delivery point of the price: city gate, burner tip or a pipeline point
- Which index prices swing volumes, and the swing limits
- Who is responsible for nominations, imbalances and penalties
- How fuel retention and pipeline charges are handled
- What happens on curtailment or operational flow order days
How gas pricing shows up on the bill
A transport customer usually receives two bills: the supplier's invoice for the gas, in dekatherms, and the utility's bill for delivery. The supplier invoice may show NYMEX and basis separately or one combined price, plus lines for swing volumes at index, balancing and pipeline charges. The utility bill shows transport delivery charges, any imbalance or cash-out, and penalties on constrained days.
- Match dekatherms on the supplier invoice to the volume the utility shows as delivered for the same period.
- Check the NYMEX settlement and basis used against the contract and the published values for the month.
- Check that utility gas cost lines do not also appear on a transport account, which would bill the same gas twice.