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Oil & Gas ProPermalink Reply by Skip Peel - Mineral Consultant on February 17, 2021 at 10:28

Most natural gas supply contracts are based on the Monthly Settlement Price.  This price is posted in the last few days of the month as a basis for contracts in the following month.  The vast majority of natural gas is sold this way.  The Spot Price is the price that an end user must pay for gas not covered by a monthly, or longer term, contract when they run out of gas before the contract expiration date. The Futures Price is published for trading purposes.  It is a means of betting on the price of natural gas at some point in the future.  When you look at futures prices, they are monthly going years out into the future.  They represent a prediction of the price in some future month. Traders hope to get a contract for a current price lower than the future price when they hope to sell the contract for a profit.  Most traders are basically speculators trying to make a buck and do not take physical delivery of gas.  If they make a bad bet, they will pay someone to take the contract off their hands before the delivery date.

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landownerPermalink Reply by JHH on February 17, 2021 at 11:25

very good, thanks.  who pays for the huge spot market price?  The spectators or consumers?

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Oil & Gas ProPermalink Reply by Skip Peel - Mineral Consultant on February 17, 2021 at 11:34

Electric providers will pass along the spot price to their customers.  I read an article where one provider said they would cut off electricity to their customers when the spot price hit $600/mcf.  I don't know if that has happened or which is worse, losing power or keeping it and getting a big bill.  Hopefully most providers will not have to hit the spot market for additional supply until later in the month when spot prices have come down.

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