Natural Gas Prices – What You Need to Know

Natural Gas Prices – What You Need to Know

Who determines natural gas prices?
The prices for natural gas are not uniform. They are determined by supply, demand, proximity to production, regulatory issues and the cost of natural gas flowing in local distribution. Natural Gas Prices – What You Need to Know Some important factors are:

  • Quantity of gas to be purchased
  • Amount of processing in preparation for the buyer
  • The amount of transportation required for delivery

Who pays the lowest and highest prices for gas?
The lower prices are paid by companies who purchase the gas directly from the well source, known as the wellhead price. The price is lower because it is purchased in large amounts and has not been processed or transported. Homeowners generally pay the highest prices for gas, as they purchase very small amounts of processed gas delivered through an expensive distribution system. They pay the high prices because of the required amount of services, such as system maintenance, customer service, metering, billing, processing and delivery. This is knows as the residential price.

How are natural gas prices quoted?
Most natural gas is sold in volume, commonly known as Mcf – a thousand cubic feet. A price quote of $3.50/Mcf means that the price is $3.50 for 1000 cubic feet of gas with standard conditions of temperature and pressure. If large volumes of gas come into play, MMcf is sometimes used, representing one million cubic feet. Outside of the United States natural gas is usually sold by the cubic meter.

Other natural gas terms

City Gate Price – Paid by a natural gas utility when it receives natural gas from a transmission pipeline, as the transmission pipeline often connects to the distribution that supplies a city.
Commercial Price – Paid by a non-manufacturing business in the sale of goods and services such as hotels, restaurants and other service industries.
Electric Lower Price – Paid by electric utilities and other companies who use the gas to produce electricity.
Henry Hub Price – Henry Hub is a pipeline terminal located on the Louisiana Gulf Coast. It is the delivery point for natural gas futures contracts traded on the New York Mercantile Exchange. The Henry Hub Price is the amount that will be paid for the gas at the Hub on a specified date in the future.
Industrial Price – Paid by manufacturing companies who use gas for heat, power or chemical feedstock, including those in mineral extraction, forestry, agriculture and construction.
Futures Price – A quote for delivering a specific quantity of gas at a specific time and place in the future. Generally buyers who are looking for a long-term supply at a known price.
Residential Price – Paid by homeowners who use the gas for space and water heating.
Wellhead Price – Paid at the mouth of a well for gas as it flows without processing or transportation.

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