Natural Gas 101: What Goes Into the Price of Natural Gas?

Natural Gas 101: What Goes Into the Price of Natural Gas?

Understanding what impacts the price of natural gas can be confusing for both residential and business customers. Have no fear: Direct Energy Business is here to help you better manage your energy use. We’ve put together a helpful, straightforward guide on what to look for when considering electricity and natural gas pricing offers.

Natural Gas 101: What Goes Into the Price of Natural Gas?
Natural Gas – More than just that blue flame providing heat on your oven.

In general, there are three main factors that determine the price of your natural gas: the price of supply, your overall usage, and the delivery period. Here’s a breakdown of each of the three main cost components.

Supply Pricing

Natural gas supply pricing is influenced by five main determinants:

Natural Gas 101: What Goes Into the Price of Natural Gas?
It’s important to understand that the price you pay for natural gas includes the cost of processing it at the plant and delivering it from the plant to your home.
  1. Commodity price, or the actual price of natural gas;
  2. The basis, or the cost difference between two liquid trading points in the interstate pipeline system;
  3. The costs associated with converting the “paper” value of a gas contract purchased by a supplier into a “physical” value, also known as the physical premium;
  4. The transportation of gas, which involves both reserving space inside a pipeline and moving it; and
  5. Costs associated with losses that occur during the transport of gas.


Natural gas usage is the overall amount you consume during a given period. Pricing offers or quotes from suppliers are often based on your usage history with previous suppliers or recent invoices. Because this information is estimated, increases or decreases in your usage can affect the final cost.

Delivery Period

As the supply and demand of natural gas shift throughout the year, the delivery and usage period can also impact your quote or bill.

For more information on how to find the best natural gas pricing offer for your home or business, download our Energy Pricing Offers 101 eGuide and check out our Energy Pricing Offer 101: Natural Gas infographic.

You can also follow the Direct Energy Business Blog for more insight into powering your business operations. And don’t forget to follow Direct Energy Business on LinkedIn, Twitter, and Facebook!

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