A price swap contract whereby a natural gas producer sells its gas under a gas sales contract that pays a variable price based on the index price of gas sold at a marketing point. The gas producer seeks to receive a fixed price for its gas production by swapping the index price for a fixed price for specific amounts of produced gas for specific production periods. The swap entitles the gas producer to receive payments if the contractual fixed price exceeds the variable index price. And it will have to make payments to the counterparty in the opposite scenario: if the fixed price drops below the index price.
This swap is a means to mitigate the so-called energy price risk (with regards to the sale price).
Comments