Energy Price Risk Management Solutions

Energy Price Risk Management

Avoid second-guessing what the market prices will do next.

The market fluctuates - your fuel and energy spend shouldn't. World Kinect Energy Services recommends that any energy procurement plans should always be integrated with a solid energy price risk management strategy.

We help you:

Stay on budget
Seize market opportunities by hedging your fuel and energy, whether we physically supply it to you or not
Execute price hedges
Utilize a range of price risk management instruments with the aim of minimizing volatility to your business

If you do not have the ability to easily pass on an increase in electricity, natural gas, and fuel prices to your customers, our energy price risk management experts provide the insight and data to help you hedge your commodity prices and smooth out potential market price fluctuations.

World Kinect helps you assess how much risk is appropriate to take on to strike the right balance between uncertainty (your unhedged supply) and price certainty (hedged supply).

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel. Secure more protection against energy price volatility and more predictability for your budget.

Stabilized energy spend

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel. Secure more protection against energy price volatility and more predictability for your budget.

Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 100 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.

Reliable partnership

Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 100 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.

Fully flexible and customized buying options from a full suite of hedging tools and contracts, both physical and financial. We always work with you to design price risk management strategies to accomplish the specific needs of your business.

Tailored to your goals

Fully flexible and customized buying options from a full suite of hedging tools and contracts, both physical and financial. We always work with you to design price risk management strategies to accomplish the specific needs of your business.

Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In our unique workshops, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.

Stakeholder alignment

Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In our unique workshops, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.

Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence and insights. We also deliver ongoing assessment of your portfolio and tactical recommendations.

Actionable insights

Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence and insights. We also deliver ongoing assessment of your portfolio and tactical recommendations.

How It Works: Managing Price Risk

3 ways World Kinect recommends for you to control and potentially lower your fuel and energy cost:

#1. Consuming Less

Conduct Energy efficiency audits - the highest cost reductions come from the TWH and gallons not consumed
Consider alternative fuel and energy mix (for example, CHP for onsite electricity production, or onsite solar vs.the grid)
Install fleet and tank telemetry, and use fuel cards to prevent fuel theft.

#2. Managing Commodity Cost

Assess your price risk management strategy to mitigate unexpected price hikes
Hedge with fixed-price contracts if budget certainty is paramount
Hedge with flexible contracts with the potential to benefit from market opportunities
Switch to bigger fuel tanks to stop paying premiums for more frequent deliveries
Re-evaluate your current suppliers.

#3. Managing Non-Commodity Costs

Estimate grid cost reduction opportunities
Review tax reduction potential
Assess all legal reduction possibilities
Audit your electricity and natural gas invoices for billing and tariff errors.

What is the Energy Risk Management Process?

Our process is dynamic and collaborative. We start by listening to understand your objectives and price risk tolerance. From there, we determine the appropriate risk management, commodity, and non-commodity cost management, and hedging strategy that meets your unique goals. This is an ongoing process of continuous evaluation, mitigation, and improvement against your objectives for cost, carbon, and supply.

Audit of your requirements & financial objectives. Risk assessment & alignment workshop

Documented risk plan

Hedging analysis and instrument recommendations

Weekly online market updates

Customized online reporting

Basis monitoring

Daily monitoring of markets

On-going assessment of strategies and objectives

What are Energy Price Risk Management Models?

Fixed Price Model

Pros: Absolute budget certainty. You know your exact commodity costs for the duration of the contract
Cons: there is a high risk that if commodity prices fall, you could pay more than the current open market rate. Moreover, customers pay extra to the supplier to hedge the supplier’s own market risk.
Best for: customers with low-risk tolerance, requiring a high degree of budget predictability, and looking to maintain a set commodity expenditure.
Budget risk potential: relatively low.
Additionally:
- You lock 100% of your fuel or energy consumption at a fixed price from Day 1
- Available in regulated & deregulated energy markets
- Administrative support requirements: medium

Variable (Spot or Indexed) Model

Pros: more flexibility by allowing you to capitalize on market price fluctuations
Cons: no commodity budget predictability, with customers being fully at the mercy of market fluctuations
Best for: customers with a high-risk tolerance and a low need for price certainty during the energy contract (perhaps because they can easily pass on price increases to their own customers)
Additionally:
- Your fuel or energy prices are tied 100% to the market price; no hedging is implemented
- Available in regulated and deregulated energy markets
- Administrative support requirements: lower
- Budget risk potential: relatively high.

Flexible Price Model

Pros: flexibility to take advantage of market falls while enabling a certain degree of budget certainty for some portion of the commodity demand. In addition, the block-lock structure allows customers to take advantage of demand reductions.
Cons: requires adequate ongoing bandwidth to manage commodity pricing as the market moves.
Best for: customers who want to lessen market risk but still retain some price predictability.
Additionally:
- A compromise between the fully Fixed and fully Variable models, where you purchase part of your fuel or energy at a fixed price (either as a percentage of consumption or a flat load block) and part at spot market rates
- Available only in deregulated energy markets
- Administrative support requirements: higher
- Budget risk potential: most manageable.

What is the Difference Between Physical and Financial Hedging?

Our range of Energy Price Risk Management options for fuel and energy includes all major financially settled products globally, and many less common hedging products and indices locally. Credit lines are provided separately for Physical Hedging (embedded in your World Kinect physical supply) and Financial Hedging (for commodities not supplied by World Kinect).

Physical Hedging

Physical Hedging (embedded in physical supply) commonly incorporates: Fixed Forward Pricing (FFP).

Instead of being exposed to spot market movements between now and future consumption, the FFP option allows you to fix a fuel or energy price at a certain level for a specific period (typically for 1-3 years).

Key benefits:

Removes uncertainty of commodity cost, assisting the budgeting process
Provides flexibility of volume delivery across multiple locations
Includes option of rolling volume forward (subject to price agreement)
Full price upside protection
Reduced burden/greater assurance of supply
Easy to administer
Can avoid margin call risk

Obligation:

Take or pay will apply. Once committed to lift a specific volume, you must either take the agreed volume, or cover the cost of the product.

Financial Hedging

Financial Hedging (separate from physical supply) commonly includes Swaps, Collars, and the popular Capped Supply Pricing option.

The capped pricing derivative protects your business from fluctuating commodity prices, whilst providing the flexibility of benefit from falling prices.

Key benefits:

Known maximum price of your commodity purchases – price increase protection
No minimum price required - benefit from lower prices
Capped price can apply to volume delivered across multiple locations
Financial settlement of derivatives offsets price movements on physical commodity

Obligation:

All Capped Maximum Pricing contracts are subject to a pre-agreed and pre-approved volume fee.

FAQs: Fuel & Energy Hedging

Case Study: Price Risk Management

How can we help you with energy price risk management?

Get in touch with us.

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These materials are neither advice or recommendations of any kind with respect to any matters herein, nor should they be construed as an offer, solicitation or statement of intent, are being provided without any warranties of accuracy, use or fitness for any purpose, and are not an offer to buy or sell in any jurisdiction to any person or entity to whom it is unlawful to make such an offer or solicitation.

Energy Price Risk Management Solutions