What does Basis Price mean?

In the simplest terms, a basis price is the difference between any two pricing points. For the North American natural gas market, a basis price is typically the difference between a physical trading location and either the cash market or prompt futures price of gas at the Henry Hub in Erath, Louisiana, although it could be between any two physical locations. For example, gas at the Florida Citygate tends to trade at a basis differential to the Florida Zone 3 index. If gas at the Chicago Citygate is trading at $5.00 per MMbtu, and gas at the Henry Hub for the same delivery period is trading at $4.25 per MMBtu, then the Chicago Citygate would have a positive basis price or differential of $0.75 per MMbtu.