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Natural Gas Pricing Options Defined
At RFPES we give our subscribers the option to hedge gas with price options custom tailored to their needs. As each price type negates specific market risks, we can put together a portfolio of contracts to optimize each individual need.
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- First of the Month NGI (Natural Gas Intelligence) Index
- A regional Index price is determined during bid-week (last week of the ending month) prior to the prompt month (the month in which the gas is nominated/used). It is a market average price based on the final 3 trading days of the prior month. It is a weighted average based on price traded, volume traded, and number of trades. Index gas is typically purchased with an adder as the risk premium for volatility within bid week and within the production month. If you buy an index product, that product is good for the stated month only. The First of the Month Index prices are made public in the first week of the active month. Index gas can be more volatile with market conditions and supply/demand. With an index price, there is more flexibility going into a production month to adjust the total contracted amount prior to the start of the month.Because the price is market based and determined the week before the production month, you can buy/ sell out of the position at little to no cost.
- Fixed Price
- A fixed price fixes both the NYMEX portion and the Basis portion of the natural gas price. A fixed price can be as short as a 1-month term to as long as a 10-year term. Most end users purchase 3 or 6 or 12-month fixed price terms. When a price is fully fixed at or below a budget, all market risk has been eliminated on your cost of gas. Regardless of market volatility, the cost never changes.
- Daily Spot Gas Pricing and Balance of the Month:
- The Daily Spot Gas Pricing changes daily and is a published daily price. End users who are unsure of how much gas they will burn on any given day sometimes choose this pricing option to avoid daily imbalances. Daily Spot Gas Pricing can vary greatly throughout the month – falling below or increasing compared to the First of the Month NGI Index price. The Balance of the Month Price(BALMO) is a fixed price for the balance of the month that the end user can execute if they are buying Daily Spot Gas Pricing for that month.The end user can request a BALMO quote and choose to execute the BALMO price transaction during the current month.
- Physical Basis
- Physical Basis is the price component inclusive of all delivered costs, less the NYMEX price – it is the physical cost of delivering the gas to your burner tip. It includes both the Basis price and the Index adder if an index adder is applicable. If you buy a Physical Basis product, you are only floating the NYMEX portion of the price.
- NYMEX is the actual price natural gas is being sold for - it is the financial cost piece of the natural gas price. This is the most liquid gas product in the market and is based off the Henry Hub settle. If you purchase a NYMEX only product, you are floating the Physical Basis price (Basis + Index adder).
- Trigger Price
- Trigger pricing is an agreed upon price point to lock once the market turns and hits the desired pricing level. More times than not, when a new contract is papered, the market has room for the downside. By setting a trigger, our subscribers can convert from the First of the Month NGI Index Price product to the desired Basis, NYMEX, or Fixed Price if/when the market moves down to the desired price(s). We offer this at no cost to the subscriber.