Natural gas is essential for heating, process load, and on-site generation across countless commercial facilities — and its price is famously volatile and seasonal. This guide explains how commercial natural gas procurement works and how a disciplined approach turns an unpredictable commodity into a manageable budget.
The basics: supply vs. delivery
As with electricity, natural gas markets separate the competitive commodity from regulated delivery. Your local utility (the Local Distribution Company, or LDC) delivers gas through its pipes, while in competitive markets you can choose a supplier for the gas itself.
Commercial gas usage is measured in therms or dekatherms, and many procurement programs have therm-based eligibility thresholds — for example, minimums of 50,000 or 75,000 annual therms in certain markets.
Why natural gas prices move so much
Gas prices respond sharply to weather, storage levels, production, and demand from power generation. A cold snap can spike prices within days; a mild winter with full storage can suppress them for months.
- Weather: heating demand peaks in winter and drives seasonal spikes.
- Storage: inventories above or below the five-year average signal tightness or comfort.
- Production: robust output tends to ease prices; disruptions tighten them.
- Power sector demand: gas-fired generation competes for the same molecules.
How procurement works
1. Understand your consumption curve
Reviewing twelve months of gas bills reveals your seasonality — how much your usage climbs in heating months. That curve shapes the right procurement and hedging plan.
2. Consider transportation and basis
The delivered price reflects not only the national benchmark (such as Henry Hub) but also 'basis' — the regional price difference — and transportation. A complete strategy accounts for these, not just the headline commodity number.
3. Source competitively
Your load is taken to vetted suppliers who compete for the business, with terms normalized so offers are truly comparable.
4. Hedge appropriately
Rather than buying all supply at one moment, layered and fixed structures spread purchases across time to smooth volatility, often ahead of heating season.
Pricing structures for gas
- Fixed: a locked per-therm price for budget certainty.
- Index (NYMEX or basis): floats with the market for potential savings and more risk.
- Layered/managed: portions purchased over time to average out volatility.
Real-world examples
A food manufacturer with heavy process load might layer purchases across the year and fix a large share ahead of winter to protect margins.
A hotel portfolio with strong winter heating demand may align contract timing to occupancy and seasonality, consolidating multiple properties under one strategy.
Common mistakes
- Buying all supply at a single moment, exposing the business to bad timing.
- Ignoring basis and transportation, then being surprised by the delivered price.
- Overlooking seasonality when timing purchases.
- Failing to gather twelve months of bills, leading to inaccurate quotes.
Best practices
Align procurement to your consumption curve, hedge in layers rather than all at once, account for the full delivered cost, and revisit the strategy each year as markets and usage evolve.
