Natural gas procurement: How to manage volatility and optimize energy costs

Introduction 

Natural gas prices have averaged around $3.20 over the past decade (EIA data), yet sudden spikes - like those during Winter Storm Uri - can wreak havoc on budgets. Global dynamics add complexity: LNG exports have surged, Europe’s energy crisis reshaped flows, and renewable integration is influencing demand patterns. For energy procurement managers, sustainability leads, and CFOs, the question isn’t if volatility will strike, but how prepared you are when it does.  

Commercial natural gas procurement isn’t just about buying low; it’s about aligning goals, market data, and risk management tools to create a resilient strategy. 

In this blog, we’ll explore why hedging matters, how timing and tools impact outcomes, and what real-world examples teach us about managing uncertainty. By the end, you’ll have actionable steps to strengthen your energy management approach.

The challenge of natural gas procurement 

Why volatility matters for energy management 

Natural gas isn’t just another line item - it’s a critical cost driver that can swing dramatically with market conditions. From weather-driven demand spikes to geopolitical shifts and LNG export growth, price movements often defy expectations. For procurement teams, this volatility translates into real financial risk: missed opportunities when prices fall and budget shocks when they surge. 

Consider these examples: 

• Winter Storm Uri (2021): Spot prices spiked above $600/MMBtu in some regions, leaving unhedged buyers with catastrophic costs.
• European gas crisis (2022): Global LNG demand pushed NYMEX to $6.16/MMBtu—double prior-year expectations.
• 2023 collapse: Prices fell to $2.74/MMBtu, proving timing perfection is elusive. 

Historical data underscores the challenge: 

• Average prices: $3.18/MMBtu over 10 years.
• Seasonal trends: Winter strips average $3.59 vs. $2.84 in summer.
• Spikes: February 2021 saw unprecedented spot market surges. 

For organizations with heating loads or tight budgets, these swings can derail forecasts. The core challenge? Balancing cost management with market opportunity. Procurement teams often ask: How do I manage natural gas procurement without overpaying or leaving risk unchecked?

Building a smarter natural gas hedging strategy 

From fixed price to flexible tools 

Natural gas procurement isn’t just about locking in a price - it’s about building resilience in a market where fundamentals and sentiment can shift overnight. Fixed-price hedging has long been the go-to strategy for budget certainty, but in today’s environment of LNG growth, data center demand, and geopolitical uncertainty, relying on a single tool can leave you exposed. 

A robust natural gas risk management process includes: 

1. Define goals: Budget stability, margin protection, or volatility control.
2. Analyze data: Historical trends, seasonal patterns, and market fundamentals.
3. Execute strategy: Fixed-price hedges, NYMEX triggers, or mechanical buys.
4. Evaluate performance: Benchmark against market averages. 

Key insight: World Kinect analysis, when looking back over 10 years, shows a one-year average hedging strategy cost only $0.02/MMBtu more than doing nothing - minimal insurance for major risk reduction. But timing matters: starting hedges 12–24 months out can smooth volatility. Beyond fixed price, consider option structures like call spreads or collars to manage upside risk while preserving downside participation. 

Natural gas procurement and sustainability 

Natural gas procurement isn’t just about cost; it’s increasingly tied to corporate sustainability goals. As organizations commit to reducing Scope 1 emissions and meeting ESG targets, procurement teams must balance price risk with environmental responsibility. 

Key considerations: 

• Renewable natural gas (RNG): RNG offers a way to decarbonize natural gas consumption. Integrating RNG into procurement portfolios can help meet sustainability targets while maintaining operational reliability.
• Carbon offsets and certificates: Many companies now pair natural gas purchases with carbon offsets or renewable energy certificates to neutralize emissions.
• Regulatory pressure: Emerging regulations and disclosure requirements (such as SEC climate reporting) make sustainable procurement strategies essential for compliance. 

Why it matters: Aligning procurement with sustainability goals not only reduces environmental impact but also strengthens brand reputation and investor confidence. 

Technology and analytics in natural gas procurement 

Data-driven decision-making is transforming natural gas procurement. Advanced analytics and technology platforms provide real-time insights that help procurement managers act with confidence. 

Tools and trends shaping the future: 

• Predictive analytics: AI-driven models forecast price movements based on weather patterns, storage levels, and global LNG flows.
• Risk dashboards: Interactive dashboards allow teams to visualize exposure, compare scenarios, and adjust strategies quickly.
• Automated triggers: Technology enables automated execution of hedges when market conditions meet predefined thresholds, reducing human error and improving timing.
• Integration with sustainability metrics: Modern platforms combine cost and carbon data, helping organizations optimize both financial and ESG performance. 

Why it matters: Leveraging technology turns procurement from reactive to proactive, enabling smarter, faster decisions in volatile markets. 

Natural gas procurement lessons from real-world volatility 

2022 was a wake-up call. NYMEX averaged $6.16 - double prior-year expectations. Unhedged buyers faced budget shocks, while those with structured hedges maintained predictability. Conversely, 2023 saw prices collapse to $2.74, proving that perfect timing is elusive. 

Takeaway: Consistency beats speculation. A disciplined approach - layering hedges and using tools like costless collars - can protect budgets even when markets swing wildly. 

Actionable takeaways: How to turn insights into impact 

Managing natural gas procurement in a volatile market requires more than theory - it demands clear, proactive steps.  

Here’s how to put these strategies into action: 

1. Start early and stay disciplined.

• Begin hedging 12–24 months ahead to smooth out price swings and avoid last-minute decisions.
• Use a layered approach, don’t rely on a single hedge; spread risk over time.

2. Segment your risk for better control.

• Treat NYMEX and basis separately. Basis risk often stalls decisions; address it independently to keep momentum.
• Consider regional dynamics when planning basis strategies.

3. Leverage flexible tools beyond fixed price.

• Explore strategies like call spreads, collars, or costless structures to manage upside risk while preserving downside opportunity.
• Blend fixed-price hedges with optionality for a balanced portfolio.

4. Benchmark and measure performance.

• Regularly compare your procurement outcomes against historical averages and market benchmarks.
• Use these insights to refine timing and tool selection for future cycles.

5. Work with experts for data-driven decisions.

• Work with industry experts who provide real-time market intelligence and tailored risk models.
• Leverage analytics to align procurement with your organization’s financial and sustainability goals. 

Bottom line: A structured, data-driven approach to natural gas procurement transforms volatility from a threat into a manageable variable. 

Conclusion 

Natural gas procurement isn’t about predicting the next price swing; it’s about building resilience in an unpredictable market. By combining disciplined hedging strategies, data-driven insights, and flexible tools, organizations can transform volatility from a budget threat into a manageable variable. 

Looking ahead, procurement will play a critical role in achieving both financial and sustainability goals. Integrating renewable natural gas, leveraging advanced analytics, and partnering with experts will help businesses stay ahead of market shifts while aligning with ESG commitments. 

Bottom line: A proactive, structured approach to natural gas procurement ensures stability, supports long-term planning, and positions your organization to thrive in a rapidly evolving energy landscape. 

Natural gas procurement FAQs 

Q1: How do I manage natural gas procurement effectively? 

To manage natural gas procurement effectively, start with clear goals, analyze historical and seasonal data, and implement a layered hedging strategy using fixed-price and optional tools. 

Q2: What’s the biggest risk in natural gas procurement? 

The biggest risk in natural gas procurement is volatility—especially during winter—which can cause budget overruns if unmanaged. 

Q3: Are options better than fixed-price hedges? 

Options are not always better than fixed-price hedges. Options add flexibility but require careful structuring. A blended approach often works best. 

Q4: When should I start hedging? 

Starting to hedge 12–24 months ahead can smooth volatility and improve predictability. 

Q5: How do geopolitical events impact natural gas procurement? 

Geopolitical tensions, such as conflicts or sanctions, can disrupt supply chains and LNG exports, leading to sudden price spikes. Procurement strategies should include scenario planning and flexible hedging tools to mitigate these risks. 

Q6: What role does LNG play in natural gas price volatility? 

Liquefied Natural Gas (LNG) exports link U.S. prices to global markets. Increased LNG demand from Europe or Asia can tighten domestic supply and drive up prices, making it essential for procurement managers to monitor global trends. 

Q7: Can natural gas procurement strategies support sustainability goals? 

Yes. Strategies can incorporate renewable natural gas (RNG), carbon offsets, and efficiency measures. Aligning procurement with ESG objectives helps reduce Scope 1 emissions and supports corporate sustainability commitments. 

Q8: What is renewable natural gas (RNG), and how does it fit into procurement plans? 

RNG is produced from organic waste and can be injected into existing pipelines. Incorporating RNG into procurement portfolios supports decarbonization and helps meet corporate sustainability commitments. 

Q9: How can predictive analytics improve natural gas procurement decisions? 

Predictive analytics uses historical data and market signals to forecast price trends, enabling procurement teams to time hedges more effectively and reduce exposure to volatility. 

Q10: What role do real-time dashboards play in natural gas risk management? 

Dashboards provide visibility into market movements, hedge positions, and budget impacts. They allow procurement managers and CFOs to make data-driven decisions quickly, especially during periods of high volatility.