Private in-browser planning
Natural Gas Hedge Ratio Calculator
Starting values are hypothetical. Replace them with your own figures. Inputs stay in this browser and are not included in the energy inquiry.
- Allocation arithmetic only; no recommended hedge ratio or executed transaction.
- Basis, delivery, balancing and other contract costs are outside this commodity-only model.
Use a single delivery period and consistent units
Match the forecast and fixed quantity to the same delivery months and service boundary. Annual fixed volume divided by one winter month’s forecast is not a meaningful ratio. Convert volume-based inputs to therms first, using the applicable heat-content factors, so both quantities and both prices share a common energy basis.
Identify what fixed means in the actual arrangement. A supplier may fix the commodity component while leaving basis, transportation, balancing or other costs variable. This worksheet prices only the two commodity portions you enter. It does not infer whether the contract contains volume tolerance, take-or-pay terms or a fixed-price percentage that changes with actual usage.
The ratio and blended-cost formulas
Hedge ratio equals fixed-price therms divided by forecast therms, multiplied by one hundred. Open therms equal forecast less fixed quantity. Modeled commodity cost equals fixed therms times the fixed rate plus open therms times the assumed floating rate. Divide that cost by total forecast therms for the blended commodity rate.
As an illustration, 100,000 forecast therms with 60,000 fixed at $0.60 and 40,000 open at an assumed $0.80 produce a sixty-percent ratio. Modeled cost is $36,000 plus $32,000, or $68,000. The blended rate is $0.68 per therm. These prices are invented examples, and the floating portion’s actual cost will depend on the applicable contract and future market inputs.
Read the open-volume sensitivity
For every $0.10 per therm increase in the assumed floating price, modeled cost increases by open therms multiplied by $0.10. In the example, 40,000 open therms create a $4,000 change. This is a transparent linear sensitivity with fixed usage and fixed-price volume; it is not a probability estimate or a prediction of the next market move.
The model rejects fixed volume above forecast because that creates an over-hedged case requiring separate analysis. Actual consumption can still fall below forecast later, creating contractual exposure even when the initial ratio was below one hundred percent. Review the consequences of surplus fixed commitments, shortfalls and settlement terms directly in the contract.
Use the calculation as a position worksheet
Maintain monthly forecast, fixed and open quantities when the delivery shape matters. One annual ratio can hide an unprotected winter and a heavily fixed summer. Update the worksheet when actual operating plans change, and keep the signed purchase records so fixed quantities are supported by documentation rather than an informal expectation.
A suitable allocation depends on business needs, approved procurement policy and contract-specific risks. This calculator supplies arithmetic for an allocation you choose. It does not assess derivatives suitability, credit, collateral, mark-to-market value, basis exposure or supplier solvency. For a budget discussion, pair the open quantity with clearly labeled price scenarios and review the full delivered cost rather than equating a commodity blend with the final utility bill.
Sources & scope
Primary references reviewed October 15, 2026. These sources support the stated concepts; actual tariffs, program rules and signed agreements govern the account. Decision examples and operational worksheets are original educational analysis.
- EIA: Factors affecting natural gas prices
Natural gas supply, demand, weather, storage and infrastructure can affect prices. No forecast or recommended hedge allocation is taken from this source. - EIA: Energy units and calculators explained
Rounded energy conventions: 1 kWh = 3,412 Btu and 1 therm = 100,000 Btu. Natural gas heat content varies.