Gas index pricing: name the publication, location and pricing period

Define the reference precisely enough to reproduce it

An indexed gas offer should name the price publication or other reference, delivery location, price type, pricing period, units and any adder or adjustment. Ask whether the commodity index is fixed at a monthly reference or follows a daily series, and whether regional basis is fixed, floating or included elsewhere. Do not substitute the number from a market newsletter simply because both numbers are called gas prices.

EIA's gas price-factor explanation provides market context. It does not identify a private agreement's settlement benchmark. A futures quotation, a published spot observation and the invoice formula should remain separately labeled in the review file.

Reconcile the formula with the operational arrangement

List the pricing period, actual or scheduled quantities used, quantity conversion, regional component, fuel treatment, balancing responsibility and fixed fees. Ask what happens if the named publication is unavailable or revises a price. Where an index source requires a subscription, request sufficient settlement detail from the supplier to verify the calculation without assuming a different free series is equivalent.

If daily quantities determine cost, preserve the relevant gas-day mapping and corrected usage. Monthly volume alone is not enough to recreate daily weighting. If the agreement instead uses one monthly index, apply that formula rather than imposing daily prices from a different product. The right method is the documented one, not whichever produces the preferred result.

Worked example: daily weighting changes the effective rate

Fictional daily-index product: day one consumption is 100 MMBtu and the applicable index is $3.00/MMBtu; day two consumption is 300 MMBtu and the applicable index is $8.00/MMBtu. The invented adder is $0.50/MMBtu on both days, with a $100 charge for the modeled period.

The amount is (100 × $3.50) + (300 × $8.50) + $100 = $3,000. The weighted commodity index is [(100 × $3.00) + (300 × $8.00)] ÷ 400 = $6.75/MMBtu. Including the adder and fixed charge gives $7.50/MMBtu. A simple $5.50 average of the two index prices understates this pattern's commodity exposure.

For contrast, a different fictional product using one $5.00 monthly commodity index, the same $0.50 adder and $100 fixed charge would total (400 × $5.50) + $100 = $2,300. The $700 difference compares two invented formulas and assumptions. It is not evidence that monthly indexing is cheaper in future periods. The monthly reference could differ, and contract scope must still match.

Verify the invoice without double counting

Request the quantity ledger and index inputs for a sample settlement. Reconcile commodity first, then separate adders and other authorized charges. If a supplier already includes a regional component in its delivered index, adding a separate assumed basis can count it twice. Identify exactly where each component enters the formula before calling an invoice wrong.

Sources and limits

EIA's units reference supports using consistent energy units. All settlement terms above are invented. The gas pass-through guide covers the separate inclusion review; this article promises neither a tradable price nor savings.