Natural gas is sold in stages. Producers sell to wholesalers and traders, who sell to utilities and large industrial buyers, who deliver the fuel to homes and businesses. The wholesale side runs on trading hubs, pipeline contracts, and federal regulation; the retail side runs on local utilities overseen by state commissions. As of February 2026, the benchmark wholesale price at the Henry Hub sits around $3.62 per million British Thermal Units, though what any given buyer pays depends on where they sit in that chain and what kind of deal they’ve signed.1Federal Reserve Bank of St. Louis. Henry Hub Natural Gas Spot Price (MHHNGSP)
The Path from Wellhead to Customer
Before any sale, the gas has to move. It’s extracted from underground reservoirs, then carried through small gathering lines to processing facilities where hydrogen sulfide, carbon dioxide, and water are removed.2U.S. Department of Energy. Liquefied Natural Gas Value Chain Fact Sheet Propane, butane, and other natural gas liquids are separated out and sold on their own.
Processed gas then enters large interstate transmission pipelines that carry it hundreds or thousands of miles to demand centers. Local distribution companies pick up the last leg, running the smaller pipes under city streets to reach individual buildings. On the demand side, electric power generation is the largest single consumer, followed by industrial users, then residential and commercial customers.3U.S. Energy Information Administration (EIA). Natural Gas Monthly Report A different type of company typically handles each stage, and each sale along the way has its own pricing and contractual logic.
How Gas Is Measured and Quoted
Gas is measured two ways: by volume and by energy content. Volume is tracked in cubic feet, with Mcf (one thousand cubic feet) as the common trading unit. But volume alone doesn’t tell you what you’re buying, because gas from one well may carry more heat per cubic foot than gas from another. So the industry prices by energy content.4U.S. Energy Information Administration (EIA). What Are Ccf, Mcf, Btu, and Therms?
The energy unit is the British Thermal Unit (Btu). Wholesale trades are quoted in MMBtu (one million Btu). Retail bills usually use therms, where one therm equals 100,000 Btu. One Mcf holds roughly 1.038 MMBtu, or about 10.38 therms, though the precise conversion depends on the gas composition at a given delivery point.4U.S. Energy Information Administration (EIA). What Are Ccf, Mcf, Btu, and Therms?
The Wholesale Market
Wholesale trading happens through two main channels. The spot market handles near-term delivery, usually within a day or two, absorbing sudden demand from cold snaps or power plant calls. The futures market, where natural gas trades on NYMEX under CME Group, lets buyers and sellers lock in prices for delivery months or years out.5CME Group. Henry Hub Natural Gas Futures Overview Companies use futures to hedge against price swings driven by weather, production shifts, and power sector demand.
Henry Hub and Basis Differentials
The U.S. reference price sits at the Henry Hub in Erath, Louisiana. The hub connects to nine interstate and four intrastate pipelines, which gives it enough trading volume to serve as a national benchmark. Both spot and futures prices are quoted in dollars per MMBtu at Henry Hub.
The gap between Henry Hub and any other location is the basis differential. A buyer in the Northeast during a cold winter may pay several dollars more per MMBtu than the Henry Hub price because pipeline capacity into the region is limited and demand is high. In producing regions with plenty of pipeline access, local prices can trade at a discount. For a large industrial buyer or a power plant, the basis at the specific delivery point matters as much as the headline number.
Storage
Underground storage smooths out the mismatch between year-round production and seasonal consumption. Gas is injected into depleted reservoirs or salt caverns in warmer months and withdrawn during peak heating and generation periods. Storage operators charge a fixed reservation fee for capacity plus variable fees for injection and withdrawal, and those costs work their way into wholesale prices and eventually retail bills. The EIA’s weekly storage inventory report is one of the most closely watched data points in the market.
Wholesale Contracts
When large buyers negotiate with producers or pipelines, contracts fall into two main categories based on how reliable delivery has to be.
Firm Service
A firm contract guarantees delivery. The seller commits to a specific quantity, the buyer commits to taking it, and the service gets top priority on the pipeline. Interstate pipelines offering firm transportation must let shippers receive their full daily entitlement without penalty.6eCFR. 18 CFR 284.7 – Firm Transportation Service Power plants and industrial facilities that can’t tolerate interruptions pay a premium for firm service through reservation fees that cover the pipeline’s fixed costs whether gas flows or not.
Interruptible Service
Interruptible contracts cost less and carry a tradeoff: deliveries can be curtailed during peak demand or system emergencies. Interruptible customers step aside so firm customers get served first. It works for facilities with backup fuel or the ability to cut consumption quickly.
Take-or-Pay and Breach Remedies
Many wholesale contracts include a take-or-pay provision. The buyer pays for a minimum volume whether or not they actually consume it, which protects the seller’s revenue baseline. If the buyer’s demand falls below the contractual floor, they still owe payment for the shortfall.
When a seller fails to deliver, the standard remedy is the cost of replacement gas: the buyer recovers the difference between the contract price and what they had to pay on the spot market. Contracts often add negotiated liquidated damages for non-performance by either side.
Force Majeure
Force majeure clauses excuse performance when events beyond a party’s control make delivery impossible or impractical. Qualifying events typically include natural disasters, wars, government actions, and industry-specific disruptions like pipeline failures during extreme cold. What actually counts depends on the contract language, so sophisticated parties negotiate the list carefully. The affected party generally must notify the other side promptly, make reasonable efforts to overcome the disruption, and resume performance as soon as it can.
Federal Oversight of Wholesale Sales
The Federal Energy Regulatory Commission has jurisdiction over interstate gas transportation and sales for resale under the Natural Gas Act.7FERC. RM13-1-000 Enhanced Natural Gas Market Transparency Any company moving gas across state lines or selling at wholesale plays by federal rules. FERC does not set your home gas bill, but it controls the rates charged for the pipeline transportation that carries gas to your region.
The core standard is that all wholesale rates and charges must be “just and reasonable.” A rate that fails that test is unlawful. When a pipeline proposes a rate increase, the burden is on the company to prove it justified, and FERC can suspend the proposed rate while it investigates.8Office of the Law Revision Counsel. 15 USC 717c – Rates and Charges If FERC finds a rate unjust or discriminatory, it can set the rate itself.
How Retail Sales Work
The step from wholesale pipelines to your stove is handled by local distribution companies. These regulated utilities buy gas in bulk on the wholesale market and deliver it through the neighborhood network to individual homes and businesses. State public utility commissions oversee them through a rate-making process that reviews the company’s books, holds public hearings, and sets rates designed to cover legitimate costs while allowing a reasonable return.
Utilities don’t profit on the gas commodity itself. The wholesale cost is passed through to customers via a purchased gas adjustment, which lets the utility update the commodity portion of your bill periodically without filing a full rate case. That’s why the supply portion of your bill moves with the market while the delivery charges stay steadier.
What Shows Up on a Residential Bill
A gas bill breaks into a few pieces. A fixed customer charge covers meter maintenance, billing, and emergency response regardless of usage. A volumetric rate, measured in therms or Ccf, applies to the gas you actually consumed. On top of those, bills often carry riders for infrastructure surcharges, environmental compliance, and energy efficiency programs. Individually small, they add up.
Retail Choice Programs
In roughly two dozen states plus the District of Columbia, residential customers can pick who supplies their gas commodity while still getting delivery through the local utility’s pipes.9U.S. Energy Information Administration (EIA). Natural Gas Customer Choice Programs Competitive suppliers offer fixed-price plans, variable-rate plans, and other structures. The utility still handles delivery, meter reading, and emergency response.
Participation varies. In some states most residential customers buy from competitive suppliers; in others, almost no one switches from default utility service. Switching does not guarantee savings. Competitive supplier rates are not regulated the way utility rates are, so a plan that looks cheaper at signup can cost more over the contract, especially with early termination fees. Compare the total cost per therm over the full term, not just the introductory rate.