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 mmBtu (10,000 million Btu) of energy (approximately 10,000,000 cubic feet (280,000 m3) of gas) at Henry Hub in Louisiana over a given delivery month consisting of a varying amount of days. As a coarse approximation, 1000 ft3 of natural gas ≈ 1 MMBtu ≈ 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).
It should be noted that 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.
How much you pay this year will be a complex game of high finance. One this is sure, the more efficient your furnace operates the less natural gas you will use and the less money you will spend.
Looking for a fast and fair company to work with your furnace this heating season? Give Aaron’s Mechanical Services a call and let us help you get cooled off! Call 623-388-4436
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