2021 U.S. Natural Gas Monthly Settlement Prices

JAN:  $2.467

FEB:  $2.760

MAR: $2.854

APR:  $2.586

MAY:  $2.925

JUN:  $2.984

JUL:   $3.617

AUG: $4.044

SEP:  $4.370

OCT:  $5.841

NOV: $6.202

DEC: $5.447

AVERAGE MONTHLY PRICE FOR 2021: $3.841

2022 U.S. Natural Gas Monthly Settlement Prices

JAN:  $4.024

FEB:  $6.265

MAR: $4.568

APR:  $5.336

MAY:  $7.267

JUN:  $8.908

JUL:  $6.551

AUG: $8.687

SEPT: $9.353

OCT:  $6.868

YEAR-TO-DATE AVG:  $6.783

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U.S. market mechanisms

The natural gas market in the United States is split between the financial (futures) market, based on the NYMEX futures contract, and the physical market, the price paid for actual deliveries of natural gas and individual delivery points around the United States. Market mechanisms in Europe and other parts of the world are similar, but not as well developed or complex as in the United States.

Futures market

The standardized NYMEX natural gas futures contract is for delivery of 10,000 million Btu of energy (approximately 10,000,000 cu ft or 280,000 m3 of gas) at Henry Hub in Louisiana over a given delivery month consisting of a varying number of days. As a coarse approximation, 1000 cu ft of natural gas ≈ 1 million Btu ≈ 1 GJ. Monthly contracts expire 3–5 days in advance of the first day of the delivery month, at which points traders may either settle their positions financially with other traders in the market (if they have not done so already) or choose to "go physical" and accept delivery of physical natural gas (which is actually quite rare in the financial market).

Most financial transactions for natural gas actually take place off exchange in the over-the-counter (OTC) markets using "look-alike" contracts that match the general terms and characteristics of the NYMEX futures contract and settle against the final NYMEX contract value, but that are not subject to the regulations and market rules required on the actual exchange.

It is also important to note that nearly all participants in the financial gas market, whether on or off exchange, participate solely as a financial exercise in order to profit from the net cash flows that occur when financial contracts are settled among counterparties at the expiration of a trading contract. This practice allows for the hedging of financial exposure to transactions in the physical market by allowing physical suppliers and users of natural gas to net their gains in the financial market against the cost of their physical transactions that will occur later on. It also allows individuals and organizations with no need or exposure to large quantities of physical natural gas to participate in the natural gas market for the sole purpose of gaining from trading activities.

Physical market

Generally speaking, physical prices at the beginning of any calendar month at any particular delivery location are based on the final settled forward financial price for a given delivery period, plus the settled "basis" value for that location (see below). Once a forward contract period has expired, gas is then traded daily in a "day ahead market" wherein prices for any particular day (or occasional 2-3-day period when weekends and holidays are involved) are determined on the preceding day by traders using localized supply and demand conditions, in particular weather forecasts, at a particular delivery location. The average of all of the individual daily markets in a given month is then referred to as the "index" price for that month at that particular location, and it is not uncommon for the index price for a particular month to vary greatly from the settled futures price (plus basis) from a month earlier.

Many market participants, especially those transacting in gas at the wellhead stage, then add or subtract a small amount to the nearest physical market price to arrive at their ultimate final transaction price.

Once a particular day's gas obligations are finalized in the day-ahead market, traders (or more commonly lower-level personnel in the organization known as, "schedulers") will work together with counterparties and pipeline representatives to "schedule" the flows of gas into ("injections") and out of ("withdrawals") individual pipelines and meters. Because, in general, injections must equal withdrawals (i.e. the net volume injected and withdrawn on the pipeline should equal zero), pipeline scheduling and regulations are a major driver of trading activities, and quite often the financial penalties inflicted by pipelines onto shippers who violate their terms of service are well in excess of losses a trader may otherwise incur in the market correcting the problem.

Basis market

Because market conditions vary between Henry Hub and the roughly 40 or so physical trading locations around United States, financial traders also usually transact simultaneously in financial "basis" contracts intended to approximate these difference in geography and local market conditions. The rules around these contracts - and the conditions under which they are traded - are nearly identical to those for the underlying gas futures contract.

Derivatives and market instruments

Because the U.S. natural gas market is so large and well developed and has many independent parts, it enables many market participants to transact under complex structures and to use market instruments that are not otherwise available in a simple commodity market where the only transactions available are to purchase or sell the underlying product. For instance, options and other derivative transactions are very common, especially in the OTC market, as are "swap" transactions where participants exchange rights to future cash flows based on underlying index prices or delivery obligations or time periods. Participants use these tools to further hedge their financial exposure to the underlying price of natural gas.

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Thanks.  That is also a good price relative to the Henry Hub basis.

I was a bit disappointed by my batch of royalty checks from this week.  gas prices ranged from $3.49 to 3.83.  Vine is my biggest interest, and their prices were $3.49 to 3.51.  Comstock was my highest at $3.83.  

For some strange reason, I got a check from CHK with no stub, and no explanation.  However, it was 10X of my most recent checks from CHK, so I'm not going to question it too much.  Other family members also got checks, with no explanation, in the 10X range.  I'm assuming it's some sort of catch up.  

I had expected my royalty prices to be closer to $4, but that didn't pan out.

November payment is based on September settlement price.  Is that what you see on your check?  September production?  Or August?  August settlement was $4.04 and September was $4.37.  Both being the monthly settlement basis, the prices that the operator's received were some discount to that.  $3.83 sounds about right while ~$3.50 seems a little low.  The major price increases started in October so should show up in December or January statements/checks.

08/01 sales date.  Comstock is highest.  Vine is lowest.

Thanks. It is worth mentioning again that the Henry Hub is The Basis Hub.  If your gas is sold at Henry, the basis discount should not be too great.  If your gas is sold at Perryville (majority of LA HA gas) or at the Carthage Hub (likely all of the Harrison and Panola gas and maybe some further south)  those hubs will have a basis differential to Henry.  Probably an additional discount.

Vine is showing up on Energylink for the November check based on September production.  3.93

Thanks, Quattro

XTO gave $4.15 for NG in September.  It's a shame the production on BSI Keydets was down about two thirds, and it's probably going to be worse for October and November.

The monthly settlement prices for the last half of 2021 boosted the yearly monthly average to $3.841.  This is the highest monthly average for a year going back to 2014 when the monthly average was $4.415.

This late 2021 price increase comes about through an increase in demand and a decision by major natural gas producers to not over produce as they have repeated times over the last thirteen years.  This "discipline" was forced upon the industry by financial firms and investors who were tired of seeing over production leading to depressed prices resulting in low profit margins.  The "money people" threatened to stop providing credit and investing in O&G company stocks if the industry didn't stop the knee jerk reaction to improved prices.  If this discipline holds, 2022 prices could very well remain in a $3 to $4 range.  Most gas focused operators can now make a decent rate of return at prices just over $3.  At $4 they will be bragging about their profitability to the street and to investors.  We'll see.

Why do you say "it's probably going to be worse for October and November?" You talking price or something going on with that well?

I was referring to the production for BSI Keydets.  Its gonna be worse because another member stated that they've seen a workover rig on it for quite some time now.

Guys,  don't you think this interest in the BSI Keydets would be better off on the county discussion page instead of on this one on the natural gas monthly settlement price?  Suggest you post your comments/questions in this discussion -

https://gohaynesvilleshale.com/forum/topics/bsi-keydets?groupUrl=sa...

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