For decades, energy markets operated on a predictable, if complex, cadence. Prices fluctuated, but the overarching structures of supply and demand were generally stable, governed by long-term contracts and a handful of geopolitical levers. That era is over. From the sudden paralysis of the pandemic to the seismic shock of the war in Ukraine and the ongoing instability in the Middle East, the energy sector has entered a period of permanent volatility.
In this environment, risk management has evolved from a defensive back-office function into a primary competitive advantage. When the “exceptional” event becomes a monthly occurrence, the ability to hedge against extremes is no longer just a prudent financial move—It’s a survival requirement.
Marco Saalfrank, head of merchant trading at Axpo, sees this shift clearly. As a leader at Switzerland’s largest electricity producer and a global heavyweight in energy trading, Saalfrank argues that the only viable strategy in the current climate is to assume that the unpredictable will happen. For Axpo, which operates across nearly every European country and has expanded into the U.S., Singapore, and soon Japan, the goal is to provide a buffer between their clients and the chaos of the global commodities market.
The company’s recent performance in the Energy Risk Commodity Rankings—taking the top spot in UK power and placing second and third overall in natural gas and power, respectively—suggests that a diversified, decentralized approach to risk is paying dividends.
The Anatomy of a Volatile Market
To understand why risk management has become so critical, one must look at the compounding nature of recent global crises. The energy market is currently reacting to a “perfect storm” of overlapping pressures. Geopolitical tensions in the Middle East threaten transit chokepoints and supply stability, while the war in Ukraine fundamentally decoupled Europe from its traditional energy dependencies.
Beyond geopolitics, regulatory shifts are moving targets. Governments are simultaneously pushing for rapid decarbonization while struggling to maintain energy security and price stability for voters. This creates a paradox for energy producers and consumers: they must invest in the future (renewables) while ensuring the present (conventional power) doesn’t collapse.
Saalfrank notes that this “new normal” requires a fundamental shift in how companies view their exposure. Rather than trying to predict the exact price of a commodity six months from now, the focus has shifted toward “hedging against extremes.” In plain English, this means ensuring that if a pipeline closes or a conflict escalates, the financial blow is absorbed by a strategic hedge rather than the company’s bottom line.
Navigating the Energy Transition Bridge
One of the most contentious debates in the industry is the role of natural gas. As the world pushes toward net-zero, some argue that gas is a relic of the past. However, the reality of the grid suggests otherwise. Renewable energy, while growing rapidly, remains intermittent; the wind doesn’t always blow, and the sun doesn’t always shine.
Natural gas currently serves as the essential “bridge fuel.” It has a lower carbon footprint than coal or oil and provides the necessary flexibility to balance the electricity system. Gas-fired power plants can be ramped up quickly to provide backup capacity when renewable generation dips, preventing the kind of systemic blackouts that can cripple an economy.
However, the reliance on gas introduces its own set of risks. The current crises have reinforced the need for diversification—not just in where the gas comes from, but in the ability to switch energy sources entirely. This is where Axpo is focusing its efforts, leveraging Power Purchase Agreements (PPAs) to help corporate clients secure long-term, stable pricing for renewable energy, effectively locking in costs and reducing exposure to the volatile spot market.
| Risk Factor | Traditional Approach | Modern Risk Management |
|---|---|---|
| Geopolitical Shock | Reactive sourcing/Spot buying | Diversified portfolios & strategic hedging |
| Energy Transition | Reliance on single-fuel assets | Multi-commodity flexibility (Gas, Wind, Solar) |
| Price Volatility | Short-term forecasting | Long-term PPAs & customized derivatives |
| Operational Speed | Centralized corporate approval | Decentralized, proximity-based decision making |
Diversification Beyond the Grid
Risk management isn’t just about financial instruments; it’s about expanding the footprint of the business to ensure that a failure in one region or commodity is offset by success in another. Axpo’s strategy involves a deliberate spread across the entire value chain—from retail supply and wholesale physical power to the trading of carbon, oil, and coal.
This diversification is extending into new sectors, most notably maritime transport. As the shipping industry faces immense pressure to decarbonize, Axpo has moved into small-scale LNG (ssLNG) bunkering. By providing refuelling solutions for vessels worldwide, the company is hedging its bets on the future of maritime fuel, moving away from heavy fuel oils toward lower-emission alternatives.
Technology is also playing a pivotal role. The integration of artificial intelligence is no longer a futuristic goal but a current operational necessity. AI allows trading firms to process vast amounts of geopolitical and meteorological data in real-time, identifying market inefficiencies and supply gaps faster than human analysts could alone. This speed is critical when a single headline from the Middle East or a regulatory announcement from Brussels can shift prices in seconds.
The Bottom Line for Stakeholders
For the industrial consumer or the utility provider, the lesson is clear: clarity is the first step toward resilience. Understanding exactly where a company is exposed—whether it is a lack of diversified sourcing or an over-reliance on short-term contracts—is the only way to build a defense.
The current environment rewards those who treat risk not as a cost to be minimized, but as a variable to be managed. By utilizing customized products and maintaining a global presence, firms can transform market uncertainty from a threat into an opportunity for efficiency.
Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice.
Looking ahead, the industry’s focus will shift toward the operationalization of new markets, with Axpo’s expansion into Japan scheduled for 2025 serving as a key indicator of how European energy expertise is being exported to the Asia-Pacific region to manage similar volatility.
Do you think the energy transition is moving fast enough to mitigate geopolitical risk, or is our reliance on bridge fuels a permanent vulnerability? Share your thoughts in the comments.
