What Is Basis Risk in Natural Gas? | Mobius

QUICK ANSWER

Basis risk in natural gas is the risk that the price at your local delivery point moves differently from the Henry Hub benchmark most hedges reference. You can lock the benchmark price perfectly and still see costs or revenue move if basis — the local-minus-benchmark spread — widens. A complete program hedges flat price and basis separately.

Basis is the quiet risk in natural gas. Companies hedge the headline Henry Hub price, assume they are covered, and then find their realized price moved anyway because the local market decoupled from the benchmark.

What is basis in natural gas?

Basis is the difference between the Henry Hub benchmark and the price at a specific delivery point — Waha, Midland, a city-gate, or a plant tailgate. It reflects local pipeline capacity, regional supply and demand, and weather. When those shift, basis moves independently of the national price.

Why does a benchmark hedge leave basis exposed?

Most financial hedges settle against Henry Hub, but you buy or sell at your local point. The table below contrasts the two.

The upshot: a Henry Hub hedge neutralizes the national price but not the local spread. In constrained regions or during weather events, basis can move more than the flat price — turning a “fully hedged” position into a real exposure.

How do you hedge basis risk?

Basis is hedged with basis swaps and location-specific structures that lock the local-minus-benchmark spread, used alongside the flat-price hedge. The first step is simply measuring basis exposure by delivery point, which many programs never do explicitly.

How Mobius Risk Group helps

Mobius makes basis and delivery-point risk explicit in RiskNet™ and helps clients structure basis hedges alongside flat price — as an unconflicted advisor benchmarking every quote independently.

Frequently Asked Questions

What is basis risk in natural gas?

The risk that your local delivery price moves differently from the Henry Hub benchmark your hedge references, so a benchmark hedge leaves the local spread exposed.

Can you hedge basis?

Yes, with basis swaps and location-specific structures that lock the local-minus-benchmark spread, used alongside the flat-price hedge.

Why does basis matter so much in some regions?

In pipeline-constrained areas like the Permian (Waha), basis can be large and volatile, sometimes moving more than the benchmark price itself.