The price of natural gas has been broken down from a world market to a regional market for various nations, countries, states and cities. This is due to the fact that there is no worldwide cost for this resource to have sustainable but regulated control over the actual product cost.

At the first stage of the production chain the resource has a wellhead-price that is placed upon it as a starting basis, which represents the value of the gas itself, or cost of it as a commodity. The wellhead-price settlement of the product normally displays costly volatility rates, depending on various market factors as well as weather conditions of the buyer’s location.

Different measures occurring in the price of natural gas are put in place to assure that important end-users such as; residential groups, industrial consumers, commercial distributors and electric companies are able to purchase this commodity at a reasonable price and are not over paying for it. A few benefits helping to keep the volatility price down for these end-users are the advancements being applied to the storage and transportation when dealing with deliveries of this resource.

Determining the price of natural gas does not only depend upon the market type that a consumer might buy from, but the pricing process also falls under three core components which are; the wellhead-price, the local distribution costs, and the long-distance cost of transporting the commodity.

The price rates of these expense variables were traditionally made by major production corporations, which in the government\’s view was considered to be a monopolistic characteristic type of production. This factor eventually led to the deregulation of the pricing of this commodity in the United States, as well as North America, so that end-users where not being charged unfairly.

In the United States the two specific market types that the price of natural gas is determined under are the NYMEX futures (financial) market and the physical market, which both deal with different processes of the supply chain. The futures market is mainly used by corporations in the process of purchasing deliveries, as well as possibly buying other contracts in event of their expiration. This exercise of involvement by corporations is for financial profit in the net cash flow that occurs in the market industry.

The physical market aspect in the price of natural gas is the actual purchasing of the commodity in every individual delivery. Prices made under the physical market are considered to be the basis costs for the location of the buyer, in which once the amount is agreed upon, the contract is drawn up and signed to complete the process.

In the event that a contract has reached its expiration date, that utility is moved to the day ahead market and is traded among the buyers. The pricing of this free floating contract is then determined by the weather conditions, competition, demographics, economic growth, export, and storage location of the individual buyers. Characteristics such as these can affect the cost of gas for any consumer world-wide.

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