Exploring The Upside And Downside To Business Gas Supply Contracts

In the recent days, we have seen a rise in the number of entrepreneurs and business

managers opting to enter into business gas supply contracts with various gas vendors, rather than purchasing business gas on an 'as need arises' basis. This is something they do in pursuit of a number of things, those things being the advantages, or the upside, to these business gas supply contracts.

For one, entry into business gas supply contracts is advocated for as one of the steps to ensuring price stability in business gas. One thing that tends to bother business managers, with regard to business gas, is the price instability that is characteristic of it. This is seen as being unhealthy for business, especially given that the fluctuations can be quite huge even in relatively short periods of time. Seeing the unhealthiness of it all, the businesspeople express an interest in introducing some stability, and this is where business gas supply contracts make an entry into the discussion. The arrangement is usually to the effect that the vendor with whom a contract is entered is to supply the business firm in question with gas, for a given time duration, and at a given stable price. The instability is beaten and the businessperson entering into the contract is happy. The vendor is happy too, because for one, they have an assured order for their product, and secondly, the stable pricing offered in this way is usually optimized to take care of their interests; even in the event of market prices taking an upward trend.

Entry into business gas supply contracts, with the right vendors, can ensure supply reliability. The vendor with whom the business enters into a contract knows that, by agreeing to be party to the contract, they are under obligation to ensure a reliable supply to the business client they get into the contract with. Even where there is no issue of 'obligations' they can still order good quantities of oil in good time, under the knowledge that they have reliable buyers for it.

But there is a downside, and this is not to be taken for granted either.

Entering into a fixed price business gas supply contract often turns out to be a rather risky move to the entering (buyer) business. The fixed prices fixed for the gas will tend to be somewhat tilted in favor of the supplier, under the assumption that market gas prices are likely to rise and to protect their interests in such an eventuality. The truth of the matter, however, is that business gas prices tend to go either way - and when they happen to be on a downward trend, it is usually the business that entered into the contract that suffers.

Business gas supply contracts get even riskier when the business happens to enter into such contracts with unreliable suppliers (beating one of the major objectives for entering into the contracts, with was to ensure reliability in the supply of gas). It can only get worse when the business happens to have gotten into a bad contract; for instance one whose terms are obviously injurious, or one which lacks proper exit clauses.

by: Gen Wright

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