Natural Gas Purchasing
Fixed Price Strategy
The Fixed Price Strategy involves locking in a set price per unit of natural gas for a specific period, typically ranging from several months to multiple years. This approach offers budget certainty and protects buyers from market volatility by ensuring that costs remain stable regardless of fluctuations in wholesale gas prices. However, it can result in overpaying if market prices decline during the contract term.
This strategy is ideal for organizations that value stability and predictability over potential savings from market dips.
Index (Floating) Price Strategy
Under an Index or Floating Price Strategy, the natural gas price is tied to a published market index such as the NYMEX Henry Hub, plus or minus a supplier margin. This structure allows buyers to benefit from market price declines and ensures transparent alignment with current market conditions. However, it also exposes them to price spikes during high-demand periods or supply disruptions.
This strategy best suits buyers with higher risk tolerance or flexible budgets who can manage short-term volatility.
Basis + NYMEX (Hybrid) Strategy
The Basis + NYMEX Strategy separates the total natural gas cost into two components: the NYMEX futures price for the commodity and the basis, which represents transportation and regional delivery costs. This hybrid approach gives buyers greater control and flexibility to hedge one or both components depending on market conditions.
This solution is most often used by larger energy buyers who actively monitor market movements and manage risk exposure strategically.