Quick answer: A natural gas swap is an over-the-counter agreement to exchange a floating market price for a fixed price. Swaps let a company lock in a price tailored to its exact volumes, locations, and dates — offering more customization than exchange-traded futures, in exchange for direct counterparty exposure.

What are natural gas swaps?

In a swap, one party pays a fixed price and receives the floating market price (or vice versa), settling the difference in cash. This fixes the effective price of gas, making swaps a core instrument in natural gas hedging and among the key financial derivatives used.

How do swaps hedge risk?

A buyer worried about rising prices enters a swap to pay fixed and receive floating, so if prices rise, the swap gain offsets the higher physical cost. A producer does the reverse to lock in a selling price.

What are the trade-offs?

Swaps are highly customizable to exact volumes and delivery points, reducing basis risk, but as over-the-counter deals they carry direct counterparty risk managed through credit terms and collateral. Mobius Risk Group's hedge strategy solutions help firms use swaps effectively.

Frequently asked questions

What is a natural gas swap?

An over-the-counter agreement to exchange a floating market price for a fixed price, settling the difference in cash.

How do swaps differ from futures?

Swaps are customizable OTC contracts with direct counterparty risk, while futures are standardized, exchange-traded, and centrally cleared.

Why use a swap?

To lock in a price tailored to exact volumes and locations, reducing basis risk relative to standardized futures.