Fixed vs Index Gas Contracts | Formula & Risk Comparison

Model an explicit index formula

Compare a fixed offer with the modeled indexed total over the same delivery months. The lower scenario is conditional on your inputs; it is not a prediction of the index or a recommendation to speculate.

Worked example: monthly weighting changes an index scenario

Use hypothetical all-in commodity assumptions of $0.35 per therm for a month with 2,000 therms and $0.50 for a month with 200 therms. Commodity cost is $700 plus $100, or $800 for 2,200 therms. The usage-weighted rate is approximately $0.3636 per therm. The simple average of the two prices, $0.4250, would overstate cost for this particular load pattern.

These inputs are not a forecast or supplier offer. An actual indexed model must use the agreement’s benchmark convention, included differential and each delivery month’s forecast quantity. Add the corresponding fees and unresolved exclusions separately. When comparing a fixed alternative, use the same months and quantities; changing the load profile at the same time as the product obscures which assumption caused the result.

Identify the index before modeling it

EIA publishes a Henry Hub spot-price series in dollars per MMBtu. That series is not automatically the daily or monthly index named in an offer. Record the exact benchmark, publication, observation period, delivery point and adjustment convention. Distinguish a historical spot observation from a forward delivery price before comparing either with a fixed proposal. EIA: Henry Hub natural gas spot-price series and units.

Locate the residual risk in both products

For a fixed offer, list the components that remain variable. For an index offer, separate the index from fixed or variable location, capacity and service adders. Then model both on the same monthly quantity schedule. Keep operational curtailment, credit and volume obligations in a separate decision column; the lower modeled supply total does not resolve those risks. EIA: supply, demand, weather and storage price drivers; FERC: firm capacity release and secondary transportation markets.

A comparable scenario grid with residual exposure

For each delivery month, show volume, fixed-offer commodity cost, assumed indexed cost and each excluded component. Use the same volume in both alternatives before testing operational changes. Include a base and adverse index path, but avoid implying probabilities you cannot support. State what would make the choice inappropriate, such as a volume change or insufficient tolerance for variable bills. Keep supplier credit terms and physical service continuity beside the grid rather than converting every issue into an unsupported dollar estimate.

Use the appropriate planning tool

Monthly gas budget: Use monthly price assumptions for the indexed scenario; compare a constant-rate offer separately with all recurring fees included.