Commercial energy / Buyer guidance
Henry Hub to the gas meter: benchmark, basis and delivered cost
Build a delivered-gas price bridge and compare consistent energy units, with an original benchmark-plus-basis scenario.
A benchmark identifies a location and a product
Henry Hub is a natural gas benchmark location associated with traded contracts. It is not the delivered price for every commercial gas meter. A buyer needs the quoted unit, delivery period, location and settlement method before comparing a supplier offer with a Henry Hub number.
The CME contract specification identifies the futures instrument. Spot observations, a futures delivery month and a supplier's fixed retail offer are distinct. A current front-month price cannot be substituted for a customer's future twelve-month purchase without matching the delivery period and other components.
Build the delivered-cost bridge
Ask the supplier to identify benchmark commodity, regional basis, transportation, storage or balancing treatment, supplier fees and utility delivery. Some offers bundle several components; others leave named items variable. A label such as fixed gas is incomplete until the price schedule and exclusions are read.
Keep energy and volume consistent. One MMBtu equals ten therms as an energy-unit conversion, but converting cubic feet to energy requires the relevant heat-content factor. Do not assume that one Mcf is always exactly one MMBtu. Preserve the factor from the actual bill or agreed product specification.
Worked example: an energy-unit bridge with stated exclusions
Hypothetical components: benchmark commodity is $3.50/MMBtu, regional basis is $0.70/MMBtu and a supplier component is $0.30/MMBtu. The entered total is $4.50/MMBtu, equivalent to $0.45/therm. At 12,000 MMBtu annually, those components cost $54,000.
If the example also has a $200 monthly supplier fee, add $2,400, producing $56,400. This excludes utility distribution, taxes and anything else not listed. If basis is variable under the actual offer, $0.70 remains a scenario rather than a fixed commitment. All prices and quantities are invented teaching inputs, not current Henry Hub values or actual supplier charges.
Questions to ask before accepting a benchmark explanation
| Question | Evidence |
|---|---|
| Which benchmark and dates? | Product specification and dated observation |
| Which location difference? | Defined basis component and settlement |
| What does fixed include? | Executed schedule and exclusions |
| Who manages deviations? | Volume, balancing and transport clauses |
| Which bill units? | Meter record and conversion basis |
Use a benchmark to explain an exposure, not to infer a supplier's margin from two incompatible prices. A retail offer includes obligations and risks not represented by a benchmark observation alone. Ask for compensation and fee disclosures instead of inventing a standard markup.
Sources and limits
CME Henry Hub specifications identifies the instrument. EIA units supports the energy-unit distinction, and EIA gas price factors provides market context. The cost bridge is original scenario arithmetic, not a quote or guaranteed delivered cost.