Analogous to any other commodity swap, there are gas swaps that settle physically (delivery) or financially (in cash). The processes how these oil and gas instruments are applied are also mostly similar. However, one important different characteristic between oil and gas is that both crude and refinery products are usually delivered at a certain moment (contracts with a delivery moment), whereas gas is usually delivered over a period of time (contracts having defined a delivery period).
Physical gas swaps
Market participants who have (or know that they will get) a physical position in natural gas at one location, but prefer to have the commodity in another location can opt for a basis swap. Another name for a basis swap is a location swap and this type of instrument typically settles physically.
Well-known basis swaps in the European gas markets are swaps between gas hubs, such as the British National Balancing Point (NBP), the Dutch Title Transfer Facility (TTF), the physical hub in Belgium called Zeebrugge (ZEE), Trading Hub Europe (THE) in Germany, The French PEGs (PEG Nord, PEG Sud), the Italian PSV or -for instance- the Austrian Central European Gas Hub (CEGH).
Example:
Suppose market participant A has bought an NBP forward contract and the contract matures. Due to physical settlement market participant A gets delivered gas at NBP. Assume that A does not need the gas in the UK. Suppose, however, that it does need gas in The Netherlands. In such a case market participant A would like to get rid of its UK gas and in return it would appraciate to get delivered gas at TTF. That is why organisation A swaps its NBP position for a TTF position. In other words, the organisation enters into a swap agreement with another market participant (B). The swap is a NBP-TTF swap, which is a location swap with physical delivery.
Due to the settlement of this deal market participant A delivers its NBP gas to market participant B, while B delivers gas at TTF to A.