October's Renewal Round: Why Energy Buyers Fear Getting It Wrong

With the October renewal round now largely behind us, the one thing almost every buyer we've spoken to agrees on is that uncertainty has been a constant throughout. Volatility is part of life in energy markets, so in itself that isn't new, but what has struck us this time is how heavily it seems to be weighing on the people responsible for making the decisions.

Since March, disruption in the Middle East and uncertainty around LNG flows through the Strait of Hormuz have changed the picture considerably. At points the disruption affected a route that had previously carried roughly 20% of global LNG supply, which led to significant volatility across international gas markets.

We've written about those fundamentals before, so I don't want to spend this article going back over the geopolitics. I'm more interested in the effect the market has had on buyer behaviour, and in particular the growing sense during this round that decision-makers are worried about making the wrong choice, which has been most noticeable in fixed-price procurement.

How uncertainty is affecting decisions

An unusual number of businesses delayed their procurement decisions until very close to the deadline this round, and it's easy to understand why. In a volatile market, committing to a price for two or three years feels like a significant call: if you wait, prices could rise, if you fix, they could fall and whichever way it goes there's a good chance someone will later ask why you didn't do the other thing. It isn't surprising that so many buyers have found it hard to commit.

I think there's also a question of trust underneath all this. Energy buyers are surrounded by advice, and too often it follows a familiar pattern, telling them that today is a good day to sign, that tomorrow could be risky, that yesterday was a missed opportunity and that they should probably fix for as long as possible while they're at it.

The difficulty with that message is that today can't always be the right day to sign a long-term energy contract, because markets don't behave that way. There are times when a long-term fixed contract offers excellent value and times when a shorter fix is more sensible, just as there are times when waiting is justified or when spreading your purchasing across a flexible contract is a better way of handling the risks you face.

We made the same point earlier this year when we looked at fixed versus flexible procurement. The longest fixed contract doesn't automatically offer the best value; what it offers is greater certainty, and you pay for that certainty in the price.

If a buyer has four advisers telling them to fix for three years today and only one suggesting they consider an alternative, it's hard to know who to believe. That's where the lack of trust begins, and rather than giving buyers confidence, it tends to leave them unable to make a decision at all.

Breaking one big decision into smaller ones

This is why I think businesses should take another look at flexible procurement. Flexible contracts don't remove risk and they don't guarantee a lower price, but they do allow you to manage risk over time rather than relying on reading the market correctly on a single day, and in the current market I'd argue that's far more useful.

With a traditional fixed-price contract, you're effectively choosing one moment and committing a large proportion of your future energy spend to the market conditions on offer at that point. If the contract runs for three years, that's a great deal riding on one decision.

A flexible contract lets you approach the question differently. Rather than trying to decide whether today is the right day to buy the next three years of energy, you can think about how much risk you want to remove now and how much opportunity you'd like to keep open for later, which usually leads to a much more productive discussion.

Managing risk rather than gambling on the market

Flexible procurement is sometimes misunderstood as leaving yourself exposed to wholesale prices and hoping they come down, but that isn't what we're describing here. Run properly, it's a structured approach to managing risk.

You agree a buying window, often covering three years, along with clear parameters for how your energy will be bought within it. That allows you to buy portions of your future requirement when the market presents an opportunity, secure volumes when risks start to increase and leave some exposure open where there's a credible reason to expect conditions to improve, so that one large purchasing decision becomes a series of smaller, controlled ones.

That approach is particularly relevant to the market as it stands. In the short term, prices are still heavily influenced by geopolitical risk and uncertainty over LNG supply, but the fundamentals look different further along the curve. The IEA expects a substantial wave of new LNG export capacity over the rest of the decade, and its latest capacity tracker estimates that around 345 bcm per year of new export capacity from projects already under construction will come online between 2025 and 2030, with annual additions expected to peak at around 95 bcm in 2028.

The disruption in the Middle East has pushed back some of the easing that was previously expected, particularly across 2026 and 2027, so we're not suggesting prices will fall by any particular date, and they may well not. The point is that the risks shaping today's market won't necessarily be the ones that determine prices in two or three years' time, which makes it worth asking whether every unit of energy you'll use over that period should be priced on the basis of today's uncertainty.

Flexibility gives you room to manoeuvre

This is where the real value of a flexible contract lies. You may have to accept some higher prices in the short term, and you'll still need protection against further increases, but you don't need to commit your whole requirement two or three years ahead at prices influenced by the current uncertainty.

Instead, that exposure can be managed with proper governance in place. You agree a risk management policy setting out when positions are bought, how much exposure can remain open and what happens if the market reaches agreed levels, and then you allow the market to develop. If prices rise, there are mechanisms in place to protect the business, and if risk premiums unwind and prices fall, you're still in a position to benefit. Far from being indecisive, it's a way of making decisions in a controlled and deliberate manner.

If you also run the contract on a rolling basis, keeping a forward buying window open rather than working towards a single renewal date, you remove much of the time pressure that comes with a traditional renewal and can make procurement decisions without feeling rushed into them.

Making flexibility available to more businesses

Flexible procurement isn't only an option for organisations large enough to manage their own trading strategy. Fund contracts pool the requirements of several businesses into a larger flexible portfolio, which gives small and mid-sized energy users access to professional trading and risk management without them having to take every purchasing decision themselves.

This is important, because flexibility shouldn't create another full-time job for your finance or procurement team. The aim is to give the business a clear strategy with professional management around it, a defined level of risk and transparent reporting on how it's performing.

Our own guidance generally sees individual flexible contracts as most relevant to larger users, while fund structures make flexibility accessible at lower levels of consumption. The mechanics are different, but in both cases the idea is to move away from trying to make a single perfect decision and towards managing a series of sound ones.

Take back control of your energy spend

Flexible energy contracts have been available for years, but I still believe they're underused by many businesses that could benefit from them. That may be because fixed contracts feel simpler, or because certainty is easier to explain internally or it may be that energy procurement has been treated as a one-off event for too long, where renewal comes round, you gather some prices, choose one, sign and then do the same again three years later.

Given how volatile global energy markets have become, I don't think that approach is enough anymore. Procurement works far better as an ongoing strategy, which means understanding your exposure, deciding how much risk you're genuinely prepared to carry and putting a framework in place for the decisions that follow.

For some businesses, a fixed contract will still be the right answer, and there's nothing wrong with that, provided it's been chosen because the business has considered the alternatives and decided the certainty is worth paying for, rather than because someone has convinced them that today is their last opportunity to secure a good price. For others, flexible procurement or a managed fund could offer something more valuable in the form of time, optionality and control.

Nobody can know exactly what the market will do next, and you don't need to. What matters is understanding the risks, having a strategy for responding to them and being in a position to act when the market gives you an opportunity. That's what allows businesses to make energy decisions with confidence, and after this October renewal round, I suspect it's a conversation many more businesses should be having.