Take or pay arrangements are back in the spotlight for Australian businesses in 2025. With supply chain volatility, energy market reforms, and new regulatory scrutiny, understanding these contracts is more important than ever. Whether you’re negotiating energy, commodities, or transport agreements, take or pay clauses can make or break your bottom line.
What Is a Take or Pay Contract?
At its core, a take or pay contract obliges the buyer to either purchase and take delivery of a specified quantity of goods or services—or pay a penalty if they don’t. This structure offers suppliers revenue certainty, while buyers secure supply (sometimes at better rates). You’ll see take or pay terms most often in:
- Energy and gas supply (LNG, electricity)
- Mining and resources (iron ore, coal exports)
- Transport and logistics (rail freight, port usage)
- Infrastructure projects (water utilities, pipelines)
For example, a manufacturing company might sign a take or pay deal with a gas supplier for 10 petajoules per year over five years. If demand dips and they only need 7 petajoules, they still pay for 10.
2025 Trends: Take or Pay in a Shifting Market
Several factors are reshaping how take or pay contracts are negotiated and enforced in Australia in 2025:
- Energy Market Reform: With the National Energy Transformation Partnership in full swing, energy providers are revisiting take or pay terms to accommodate renewables and grid flexibility. The AEMC’s 2025 reforms mean more variable demand and new risk-sharing models between generators and large buyers.
- ESG & Decarbonisation: Corporates are embedding environmental clauses into take or pay agreements—like flexibility to shift to green energy sources or emissions-based pricing triggers.
- Regulatory Oversight: The ACCC has flagged closer scrutiny of take or pay terms in essential services to prevent anti-competitive behavior and ensure fair access, especially in gas and transport infrastructure.
- Contract Disputes: Recent court decisions (including the 2024 Queensland Supreme Court ruling on LNG off-take) have clarified that penalties in take or pay must be proportionate and not punitive, reshaping how damages are calculated.
These trends mean that both buyers and suppliers need to be nimble—negotiating for flexibility, clarity, and contingencies in their contracts.
Risks, Rewards, and Real-World Lessons
While take or pay can deliver pricing certainty and supply security, it’s not without pitfalls. Here’s what Australian businesses need to weigh up in 2025:
- Risks for Buyers: Overcommitting to volumes can lead to significant financial penalties if market conditions or demand shifts unexpectedly. For example, several Queensland manufacturers faced multi-million dollar liabilities in 2024 after a downturn in export markets left them unable to take contracted gas volumes.
- Risks for Suppliers: Suppliers may face challenges if buyers default or try to renegotiate terms due to force majeure (as seen in the 2023 floods disrupting rail freight in NSW). Enforcing take or pay clauses requires robust contract drafting and a clear dispute resolution pathway.
- Negotiation Leverage: Large buyers—like energy utilities or mining majors—often negotiate more flexible terms, such as ‘carry forward’ provisions (allowing unused volumes to roll over) or hardship clauses tied to global commodity prices.
- Best Practices:
- Model various demand and supply scenarios before signing.
- Negotiate for flexibility: look for make-up rights, hardship clauses, or price adjustment triggers.
- Ensure compliance with the latest ACCC guidelines and contract law updates for enforceability.
Take or Pay: How to Future-Proof Your Contracts
In 2025, a smart take or pay contract should strike a balance—delivering certainty for both parties, but with enough flexibility to handle market and regulatory shocks. Key strategies include:
- Data-Driven Forecasting: Use real-time demand analytics and scenario planning to set realistic minimum volumes.
- Legal Review: Engage legal specialists to ensure clauses are enforceable and aligned with the latest case law and ACCC rulings.
- ESG Alignment: Consider integrating decarbonisation pathways or renewable transition options to future-proof the agreement.
- Regular Reviews: Build in periodic renegotiation windows to adjust for market or policy changes.
Ultimately, take or pay contracts are a powerful tool—but only if you know the risks and stay on top of the latest developments.
