A natural gas trade does not finish when the gas flows. It finishes after the delivery period closes, when measurement and allocation decide how much energy actually moved and whose it was - which is why one gas trade exists as several different numbers at once.
In most physical commodity trading, delivery is the moment the argument ends. A parcel is loaded, inspected, discharged, and both sides sign something that says how much of what changed hands. Natural gas has no such moment. Gas is sold as a rate of flow across a period, it disappears into a network the instant it is delivered, and the quantity that finally appears on the invoice is not agreed by the two counterparties at all — it is determined afterwards, by measurement and allocation, and it arrives after the delivery period it describes has already closed.
That single structural fact reorganises everything downstream of it. It is why a gas book carries three or four different numbers for the same trade at the same time, why the month-end position is provisional in a way an oil book's is not, why an imbalance can leave you holding a position with a party you never traded with, and why the people who determine the profit on a gas desk are frequently not sitting on it.
This article sets out where a natural gas trade is actually made final, which numbers exist between the trade and that point, who produces each of them, and what a gas trade line has to state before it can be settled or reported honestly. It is written for the people who have to make the numbers agree — scheduling and operations, the middle office, settlements, and the traders who have to explain a variance they did not create.
If you want the mechanism, start with A gas trade is a rate, not a quantity. If you already work with gas daily and want the part that most often goes wrong in the reporting, start with What you traded is what allocation says you traded.
A gas trade is a rate, not a quantity
A natural gas trade is an obligation to deliver a rate of flow across a period. There is no single moment at which a quantity changes hands, and therefore no moment at which the two parties agree what the quantity was.
A cargo has an identity. It is a specific parcel, on a specific vessel, with documents that follow it, inspected on the way in and on the way out. When it has been discharged there is a set of papers that both sides have signed, and the question "how much did we trade" is answered by reading them.
Gas is not delivered to you. It is delivered into a network, at a point, where it stops being distinguishable from every other molecule in the pipe. Nothing arrives at a place you control, nothing is inspected as it does so, and there is no document that both counterparties sign at the moment of performance, because there is no moment of performance — there is a period of performance.
What the two sides agree in advance is a schedule: how much per day, at which point, in which direction, over which period, sometimes with a shape rather than a flat rate. What they find out afterwards is what the network says happened. Between those two things sits everything this article is about.
What you traded is what allocation says you traded
The quantity on a gas invoice is not the quantity you contracted and not the quantity you nominated. It is the quantity that measurement and allocation assign to you, produced by parties who are not your counterparty, and issued after the period it describes has ended.
At any moment during a delivery month, the same trade exists as several different numbers, and they are not versions of each other — they are different facts, produced by different people, becoming final at different times.
There is the contract quantity, which is what you agreed. There is the nominated quantity, which is what you asked the network to move, and which you may revise during the period. There is the confirmed or scheduled quantity, which is what the operator agreed to accept after matching your nomination against the other side's and against available capacity — it can be less than you asked for, and being cut is an ordinary event rather than a fault. Then there is what was actually metered. And finally there is the allocated quantity: the operator's determination of how the measured flow at a point is divided among everybody who nominated at it.
Only the last of those is the number you are paid on, and it is the only one you do not produce, cannot predict exactly, and receive last. Everything reported before it lands — the month-end position, the provisional P&L, the accrual — is a placeholder standing in for a number that has not been issued yet. When the real one arrives, the difference between them appears in the accounts as a gain or a loss with no trade attached to it.
This is the property that distinguishes gas from most of the rest of the physical book. Elsewhere, the back office reconciles a quantity that is already known. In gas, the back office is where the quantity is established.
You sell energy and you deliver volume
Gas is contracted in units of energy, delivered as units of volume, and converted between the two by a measurement that neither counterparty makes. Two parties can agree exactly on volume and still disagree on the invoice.
The value in a gas molecule is the heat it releases, so gas is bought and sold in energy: a million British thermal units in one market, a therm in another, a megawatt-hour in another. But what a meter observes is volume. The bridge between them is the heating value of the gas — a property of its composition, which varies by where it entered the network and changes as the network's blend changes.
That conversion factor is produced by measurement equipment operated by the network or by a third party, it applies to a point and a period rather than to your trade, and it is subject to correction after the fact. So a quantity dispute in gas is frequently not a dispute about how much moved. It is a dispute about what the gas was, or about which measurement applies, and it is resolved by reference to somebody else's instrument rather than by the two of you comparing records.
A second consequence follows for anyone whose book crosses markets. Contracts written in different energy units are not directly comparable without a conversion, and contracts written in volume are not comparable with either. A position aggregated across them is a position aggregated through at least one measured quantity, which is to say the aggregate itself has a measurement error in it — small, usually immaterial, and not zero.
An imbalance is a position with a party you never traded with
Any difference between what you scheduled and what actually flowed leaves you holding a position against the network operator: a counterparty you did not choose, at a price you did not negotiate, on terms written before you traded.
Nobody decides to run an imbalance. It is a residual. It appears because the pipeline or grid moved slightly more or slightly less than you scheduled, because a supplier under-delivered, because a customer's offtake was weather-driven and the weather was not what the forecast said, or because a nomination was cut and the cut was not reflected everywhere it needed to be.
However it arises, the resulting position is not settled with the party you traded with. It is settled with the operator, under a tariff or network code — cashed out against a reference price, required to be made good in kind inside a window, charged against a penalty band, or some combination, depending on the market and the operator. What all of those arrangements have in common is that the terms were set before you traded and are not negotiable by you, and that the price you receive or pay is not the price at which you were doing business.
This makes an imbalance the strangest line in a gas book: a position that nobody took, priced by a rulebook, created by operations, and landing in the trading P&L. It is also usually the last thing to become visible, because you cannot know it until the same allocation process that establishes your delivered quantity has run.
Storage and transport are shapes, not sizes
Storage and transport are not a container and a pipe with a capacity number. They are rights with a shape — what you can move depends on what you already hold and on what you contracted for in advance — and a spread between two points is only a spread if you can actually get between them.
A storage facility does not offer a constant rate. How fast gas can be injected or withdrawn depends on how full it already is: as inventory rises, injection gets harder, and as it falls, withdrawal capacity falls with it. The consequence for trading is that the optionality in a storage position is state-dependent. The volume you are theoretically long is not the volume you can deliver on a given day, and the days on which you would most want to withdraw quickly are frequently the days on which everyone else has drawn the facility down too.
Transport behaves similarly for a different reason. Capacity between two points is a contract with a term, a price, and in many markets a use-it-or-lose-it property. A price difference between two hubs is a tradable spread for the party holding the capacity to move gas between them, and for everybody else it is two separate positions that happen to be correlated. A position report that nets them will show a book that is flat between the two points. Whether that book can actually be delivered is a different question, answered by a different document, held by a different team.
In gas, a mistake in the back office produces a wrong invoice, not only a wrong report
Every one of the mechanisms above lands in the same handful of activities: nomination and scheduling, quantity and quality, invoice checking, settlement discrepancy reconciliation, and cross-system reconciliation. Those are the steps where the working system of record is commonly a spreadsheet and a mailbox, and where the trading system is the place the answer is booked once people have agreed on it.
That pattern is not specific to gas. What is specific to gas is the weight it has to carry. In a book of cargoes, those steps reconcile a quantity that is already established, and getting them wrong produces a reporting error. In a gas book, those steps are where the quantity is established at all, and getting them wrong produces a wrong invoice, a wrong position, a wrong imbalance, and a wrong P&L — in that order, and each one silently, because every number involved looks exactly as authoritative as it did before.
One gas trade carries six numbers, and only the imbalance has no owner
| Contract quantity | Nominated quantity | Confirmed / scheduled | Measured volume and heating value | Allocated energy | Imbalance | |
|---|---|---|---|---|---|---|
| What it is | What the two sides agreed | What you asked the network to move | What the operator agreed to move after matching both sides | What the instrument observed at the point | The operator's split of measured flow among nominating parties | The difference between scheduled and allocated |
| Who produces it | You and your counterparty | You | The network operator | The measurement party | The network operator | Arithmetic, once the two above exist |
| When it is final | At execution | Until the nomination cycle closes, and revisable within the period | When the cycle closes, subject to being cut | Subject to correction after issue | After the delivery period has ended | After allocation, and again on any restatement |
| Where the fact first exists | The trade capture record | Scheduling correspondence and the operator's portal | The confirmation returned by the operator | A statement issued to the point, not to the trade | An allocation statement | A statement, or nowhere until someone builds it |
| How it usually goes wrong | Treated as the quantity for everything downstream | Treated as delivered because it was accepted | Cut, and the cut never propagated onward | Volume compared against an energy contract | Reported provisionally and never trued up | Discovered at cash-out rather than while it was growing |
The row worth sitting with is the last one. Five of these six numbers have an owner and a document. The imbalance has neither until somebody constructs it, and it is the one that arrives as cash.
A gas trade line has to state seven things before it can be settled
| The line states | Which question it answers | What happens when it is missing |
|---|---|---|
| Delivery point, and the network it sits on | Where the obligation physically exists | Two points treated as one market |
| Period and profile, not just a total | What you owe on any given day | A monthly total that no daily schedule can meet |
| Unit, and the conversion basis used | Whether this quantity is comparable with the next one | Volume and energy added together |
| Nominated, confirmed and allocated, as separate fields | Whether this number is a request, a promise or a fact | One number doing three jobs, and being wrong in two |
| Capacity held between the relevant points | Whether the spread on the report is deliverable | A flat book that cannot be delivered flat |
| Imbalance position and how it will be resolved | What the residual will cost and to whom | A charge that first appears as a statement |
| Which counterparty each of these is against | Who you are actually relying on for what | The operator's exposure counted as the counterparty's |
None of these is difficult on its own. What makes the line hard to assemble is that its fields are owned by different people and arrive at different times — trading holds the first two, scheduling the fourth and fifth, settlements the sixth — and that a trade can look completely booked while three of its seven fields are still provisional.
Questions people ask about this
How is natural gas trading actually different from trading oil or metals?
The difference that generates most of the others is that gas is delivered continuously into a shared network rather than discretely into your custody. That removes the parcel — the thing that in oil or metals carries an identity, a document trail and an agreed quantity. Without a parcel, the delivered quantity has to be established by the network rather than observed by the parties, which is why it arrives late, why it can be restated, and why a gas desk carries several live numbers for one trade. Pricing, hedging and credit work broadly the way they do elsewhere. It is the physical and settlement side where the shape of the business is genuinely different.
What is a nomination, and why does it matter if the gas flows anyway?
A nomination is the instruction telling the network operator how much you intend to move, at which point, in which direction, for which day. It matters because it is the thing the operator matches, confirms and can cut — the flow is not authorised by your contract with your counterparty, it is authorised by the operator's confirmation. It matters a second time afterwards, because your nomination is one of the inputs to how measured flow gets allocated back to you. A trade with a perfect confirmation and a botched nomination is a trade that did not happen the way you think it did.
Why does our gas invoice never match the volume we scheduled?
Because there are at least three reasons for it not to, and they compound. The nomination may have been confirmed at less than you asked. Actual flow rarely equals scheduled flow exactly. And the invoice is denominated in energy, which is measured volume multiplied by a heating value that you did not measure and that applies to the point rather than to your trade. A difference between the schedule and the invoice is therefore the normal case rather than the exception. What is worth investigating is not that a difference exists but whether you can decompose it into those three causes — if you cannot, you are not in a position to challenge any part of it.
What is an imbalance, and who is the counterparty on one?
An imbalance is the difference between what you were scheduled to move and what was allocated to you as actually moved. The counterparty on it is the network operator, not the party you traded with, and the terms are whatever the applicable tariff or network code says rather than anything you negotiated. Depending on the market it may be cashed out against a reference price, required to be made good in kind within a window, or charged into a penalty band. The practical point for a trading business is that it is a real, priced position that nobody chose to take, and it is created by operational events rather than trading decisions.
Do we need to hold transport capacity to trade a locational spread?
To trade it as a spread you have to be able to move gas between the two points, and that means holding transport capacity between them or being able to acquire it. Without that, what you have is two positions at two points that are usually correlated and occasionally are not — and the occasions when they are not are precisely the ones that make the spread look attractive, because a price dislocation between two points is generally a sign that moving gas between them has become constrained. It is worth being clear internally about which of the two you are running, because the position report will look the same either way.
Why is our gas position not final at the end of the delivery month?
Because the allocation that determines your delivered quantities is produced after the period ends, and because measurement can be corrected after that. The month-end position is therefore a well-informed estimate rather than a fact, and the truing-up that follows shows up as a variance nobody traded. This is normal and it is manageable, but it needs to be visible as an estimate. The failure mode is a report that presents provisional quantities in the same typeface as settled ones, so that the eventual correction reads as an error rather than as the process working.
Can we run a gas book in spreadsheets?
Many are, and the question is not really about the tool. A spreadsheet is a poor place to hold the same trade as several concurrent quantities that mature at different times, mostly because a cell does not record which version of a number it holds or where that version came from. The specific failure to watch for is the one where a nomination that was cut is corrected in the scheduling file and not in the file the position is run from — after which two internally consistent spreadsheets disagree, and the reason is unrecoverable. If your gas book is on spreadsheets, the highest-value thing you can add without changing anything else is a field on every quantity that says which stage it came from and when.
What should we fix first if our gas settlements are always late?
Look at where the delay actually is before changing anything, because there are two very different causes and they need opposite responses. If you are waiting on operator statements, the settlement process is not late — it is correctly waiting on an input, and the thing to improve is the estimate you report in the meantime, plus a clear signal when it is superseded. If the statements arrive and then sit while somebody rebuilds the comparison by hand, the constraint is the reconciliation, and the fix is to hold nominated, confirmed and allocated quantities as separate fields on the same record so the comparison is a lookup rather than a reconstruction. Automating the second while the first is your real bottleneck buys nothing at all.
Where this lands in a trading system
Nothing above is an argument for buying software. It is an argument about which facts have to exist, on whose record, and by when. But some of this article's conclusions do map onto capabilities that are published, and it is worth being specific about which ones — and about where the mapping stops.
The first conclusion is that a gas trade has to be held as a physical obligation, a hedge and a settlement against one another rather than as three records that meet at month end. That is the job of a CTRM/ETRM system providing complete trading lifecycle management for commodity traders, integrating physical trade, financial hedging, risk control, and settlement in one platform; Time Dynamics' Fusion is one, and the parts of it that bear on this article are complete physical trade lifecycle management and execution, automated financial settlement and payment processing, and — for the storage argument above — real-time inventory tracking and optimization. The trades are recorded there. X-Ray is the other half of the same system. It unifies scattered data sources, provides one-click reports, risk alerts, and enables data-driven decision making, and the components named below are part of it.
The second conclusion is that the facts which decide a gas quantity are produced outside any trading system. Nominations and confirmations live in scheduling correspondence and in the operator's own web portal; measurement and allocation arrive as statements; the working comparison is a spreadsheet. That is a different problem, and it is the one X-Ray addresses: a non-invasive data processing and analysis platform, whose collection toolkit XDK does non-invasive automated data collection from databases, Excel files, and web interfaces, and which is built to collect data without disrupting existing systems or workflows. The last property is the relevant one here, because the operator portal is not going to be replaced to suit you, and the scheduler's file is working.
The third conclusion is that a provisional quantity has to be visibly provisional and has to be re-cut when it is superseded. One-click generation of personalized reports with Excel-like interface is what X-Sheet does, and re-cutting a month by point, by counterparty and by stage is that kind of work.
One conclusion of this article is deliberately not mapped. The heating-value and measurement-dispute argument does not correspond to anything on the published capability list, and the honest thing to do with it is to leave it unmapped rather than to stretch a nearby capability over it.
And here is where the rest of it stops. None of this measures gas. It does not operate a meter, does not determine a heating value, and has no standing in a measurement dispute. It does not nominate on your behalf, does not obtain capacity for you, and does not decide whether an imbalance should be cashed out or traded out — those are commercial and operational decisions with money on both sides of them. It will not make an allocation statement arrive earlier than the operator issues it. What a system can settle is narrower and duller than the subject of this article: which quantity on this trade is a request, which is a promise and which is a fact, where each came from, when it changed, and whether the person who has to explain the variance can see all of that without asking anyone. That is a large part of the difficulty in a gas book, and it is not the whole of it.
A note on the evidence in this article
There are no statistics in this article, and that is a decision rather than an oversight. The observations behind it — which steps in the trade lifecycle are still run on spreadsheets and email, and how much of a gas book's outcome is decided in them — come from material we are not in a position to publish as a citable figure. A number we cannot source would make the argument look stronger and would make it worth less, and it would be the part of the article most likely to be quoted.
So the argument is structural instead. Each claim is made from the mechanism, and each is stated in a form you can check against your own book rather than accept on our authority. The check proposed above is the intended way to use it: take one recently settled gas trade, write down the contract, nominated, confirmed, metered and allocated quantities side by side with the date each became available, and see how many of them your systems can still produce. If your own records contradict what is written here, your records are the better evidence.
Practices also differ by market. How a nomination cycle runs, how flow is allocated back to shippers, which energy unit contracts are written in, and how an imbalance is resolved are all set by the operator and the applicable rulebook in each jurisdiction, and none of them is universal. Where this article describes a mechanism, it describes the shape that mechanism takes rather than any one market's rules — the rules that apply to you are in the tariff or network code you actually trade under.
The gas flows for a month. Agreeing how much of it was yours takes longer.