The basics of basis

Basis plays an important role for trading in the very complex US natural gas markets: spot will differ from the benchmark Henry Hub New York Mercantile Exchange price on the same day. Eric Fishhaut describes how the basis works and demonstrates the relationship between the different market prices

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In the US natural gas markets, basis plays an important role for trading. The basis is the difference between the natural gas futures contract price – for delivery at the Henry Hub in Louisiana – and the cash or spot price paid in a specific location. Several price reporting organisations survey buyers and sellers of natural gas to find out what the ‘going rate’ is for each day, establishing the reported spot prices. Those prices are always likely to differ from the New York Mercantile

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