Basis Differential

AAA

DEFINITION of 'Basis Differential'

The difference between the Henry Hub spot price and the corresponding cash spot price for natural gas in a specified location. The Henry Hub pipeline, located in Erath, Louisiana, serves as the official delivery location for New York Mercantile Exchange (NYMEX) futures contracts. The settlement prices at the Henry Hub are utilized as benchmarks for the natural gas market in North America. When trading natural gas, the quoted price is the difference between the Henry Hub price and a specific location's price – called the basis price. A basis position is one that has exposure to two different locations: the Henry Hub and separate location's price. An actual position, on the other hand, also called the "all in price," refers to exposure to the price of gas at one location only.

INVESTOPEDIA EXPLAINS 'Basis Differential'

A hub is where two or more pipelines connect. The Henry Hub is the most important natural gas hub in North America. The price differences between the Henry Hub and at different locations are often dependent on factors such as weather, location, natural gas pipeline capacity and product quality. The U.S. gas inventories report, issued by the Energy Information Administration, is released every Thursday at 3:30 p.m. EST, and is used to gauge current supply and demand from the previous week. This report often has an immediate impact on the markets.

RELATED TERMS
  1. Liquefied Natural Gas

    The liquefied state of natural gas, which is created by cooling ...
  2. Billions Of Cubic Feet Equivalent ...

    A natural gas industry term typically used to measure the amount ...
  3. Barrel Of Oil Equivalent (BOE)

    A term used to summarize the amount of energy that is equivalent ...
  4. New York Mercantile Exchange - ...

    The world's largest physical commodity futures exchange. Trading ...
  5. Henry Hub

    A natural gas pipeline located in Erath, Louisiana that serves ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
Related Articles
  1. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  2. Fundamental Analysis

    A Natural Gas Primer

    Learn why natural gas is playing a larger role in the energy industry.
  3. Forex Education

    Natural Gas Industry: An Investment Guide

    Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms.
  4. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  5. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  6. Economics

    Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country's economy.
  7. Chart Advisor

    Commodities Are Pulling Chile And Brazil Lower

    Strategic investors should not only keep an eye on charts of falling commodity prices, but they should also watch the impact falling commodities are having on South American nations like Chile ...
  8. Options & Futures

    A Quick Guide for Futures Quotes

    Here is a quick guide to futures quotes.
  9. Chart Advisor

    As Oil Prices Drop, Traders Look To Lumber

    While much attention is being given to declining energy prices, it may prove strategic for active traders to shift their focus to sectors like lumber that are offering better risk/reward scenarios; ...
  10. Options & Futures

    Is short selling ethical?

    Understand the concept and practice of short selling, and examine the ethical questions that some investors raise in regard to this practice.

You May Also Like

Hot Definitions
  1. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  2. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  3. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  4. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  5. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center