A natural gas swap is a financial derivative that allows parties to exchange fixed natural gas prices for floating prices, or trade relationships between different natural gas markets. These swaps enable producers, consumers, and traders to manage price risk without physical delivery, providing flexible hedging tools for natural gas price exposure across various regional markets.

Natural gas swaps can reference multiple pricing points including Henry Hub, regional basis differentials, or international LNG prices. These instruments help manage basis risk between different natural gas markets and provide arbitrage opportunities for traders. The growing natural gas swap market improves price discovery and risk management capabilities for this volatile energy commodity.

Real-world example: A power plant enters a natural gas swap to pay fixed $4.50 per MMBtu while receiving floating Henry Hub prices, protecting against natural gas price spikes that could increase electricity generation costs during peak demand periods.