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What is a Spot Price?
Spot prices (or indexes) represent the price of a commodity in the physical market, where delivery occurs almost immediately, or “on the spot.” Payment typically follows very shortly following the transaction. Spot markets develop because not all consumers or producers may desire to buy or sell 100% of a commodity on a long-term, contractual basis. This provides some flexibility to market participants, as a buyer may decide to hit the spot market for additional supply should an unanticipated need arise. In the North American natural gas market, spot market delivery lengths tend to be either day-ahead, monthly (also known as bidweek), or for the remainder of the current month. Spot prices are determined by Price Reporting Agencies (PRAs), including Natural Gas Intelligence in the North American natural gas market, using a variety of different methodologies. NGI uses a weighted average methodology for its U.S. and Canadian indexes. For more information on how we calculate our spot market indexes, please refer to our methodology.
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