Gas Basis Differentials | Location, Benchmark & Charges

Define the local component before fixing it

Do not add a charge twice when it is already embedded in an all-in rate. Ask for an example calculation and compare offers with the same included components.

Worked example: keep the benchmark and local component distinct

Assume a hypothetical commodity formula of $0.30 per therm for the reference component plus $0.08 for an included local differential. The defined components total $0.38 per therm. That sum is not necessarily the whole bill: fixed fees, other contractual items, utility delivery and taxes still need their own treatment.

If a competing quote already includes both components, do not add the $0.08 again. Ask whether its differential covers the same delivery location and services and whether it stays fixed over the same months. A lower reference with a larger differential can produce a higher comparable commodity cost. Use separate sensitivity lines to show which exposure changes rather than describing every local charge as basis without checking its contractual definition.

Define both the benchmark and the location term

A basis differential is meaningful only with its specified reference and delivery location. EIA’s Henry Hub series identifies one benchmark in dollars per MMBtu; the pipeline network and local delivery arrangement help explain why a premises’ pricing need not match it. Identify whether the contract fixes the differential or allows a changing location-related component. EIA: Henry Hub natural gas spot-price series and units; EIA: natural gas pipeline transportation and distribution.

Test a favorable hub scenario with an adverse local component

Build the model with separate benchmark and differential columns so a lower benchmark does not conceal an offsetting increase elsewhere. Confirm observation periods, units and rounding for both. Ask whether capacity or balancing sits inside the differential or is billed separately. Keep the result labeled as a scenario and compare it with a written offer using the same cost scope. EIA: supply, demand, weather and storage price drivers.

A basis stress test that keeps the reference unchanged

Hold the benchmark path constant and vary the local differential to see how that component affects the defined supply cost. Then test the benchmark separately. Keep the contract’s unit, delivery location and observation period fixed while doing each sensitivity. If capacity or balancing is outside the differential, show it in another line rather than silently including it in both. Request a written invoice calculation when the proposal does not make those boundaries clear.

Use the appropriate planning tool

Monthly gas budget: Build monthly delivered-price assumptions from separately documented components; the tool does not source a live basis quote.