2021 U.S. Natural Gas Monthly Settlement Prices
AVERAGE MONTHLY PRICE FOR 2021: $3.841
2022 U.S. Natural Gas Monthly Settlement Prices
YEAR-TO-DATE AVG: $6.061
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.
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.
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.
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.
That $7 is awesome and $6+ is what I been hoping for for a LONGGGGggggg time. But I fear it won't last. Impossible to predict but a recession sure looks imminent. And drilling count keeps increasing. Which is good in that development occurs and bad because more gas comes to market. Would love to be able to see what price is six months from now and one year from now.
True. It's always wise to be skeptical. I say: Don't spend it until the check actually clears the bank. Then save as much money as you can. Hold on to the $ for the next downdraft.
Boom/bust. The oil patch. It comes; it goes.
Note: My family has been leasing and reaping mailbox money --> going all the way back to 1916, all the way back to the very first shallow oil boom. I'm talking shallow. So that's over a hundred years. And let me tell you. Those bad old leases that HBP-ed and thus dragged on for so darn long were quite mean. But us dumb hicks were happy to get what we got.
Ergo, you're right. You can't let it go to your head. You have to manage your mineral estate like a savvy taskmaster.
You are welcome, Jesse. We must keep in mind that the cure for high prices is...high prices. In the natural gas space, trends change quickly and often with very little fore warning. I hope that your family has a very Merry Christmas and socks some of the revenue away for a rainy day. Not only will this price range not last indefinitely, it will hasten the switch to renewable energy sources across many developed nations. Our Henry Hub related natural gas prices are propped up by current and projected European LNG demand. Western Europe will likely lead the way in the energy transition.
"it will hasten the switch to renewable energy sources" - They're gonna catch that unicorn one day ;)
Whistlin' past the graveyard.
I'm glad to hear others are doing well! I still haven't seen any production out of mine since October...
What well is that? Something seems wrong.
BSI KEYDETS DU
June 2022 Settlement Price: $8.908
2022 Year To Date Monthly Price Average: $6.061
Since I'm not a mineral lessor, WOW! is what I say also ......when my Centerpoint Energy bill comes. What the settlement price giveth, it also taketh away.
I usually get my royalty check and my Centerpoint bill on the same day. It's little things like that that tickle me...