How to design LNG contracts?

Andrius Šimkus │Gas Expert │ Energy Community Secretariat

4th Vienna Forum on European Energy Law │ Energy Community Secretariat

Vilnius, 15 April 2016

Communication from the Commission

on an EU strategy for LNG and gas storage

(16.2.2016, COM(2016)49)

“further diversification of the EU’s natural gas supply remains a key

objective, particularly as domestic production in the EU will continue to

decline in coming decades”

“the prospect of a dramatic (50%) expansion [of LNG] in global supply

over the next few years and consequently of lower prices presents a

major opportunity for the EU”

Security and

resilience Sustainability

Competitiveness

Sale and

purchase

agreement

Tolling

agreement

Liquefaction

facility

Tolling

agreement

Customer

Loading point of the

customer’s vessel at

the liquefaction

terminal

-

EXW / FCA / FAS

Regasification (LNGT Op.)

Transportation (TSO/DSO)

Market realisation

Feed gas

Shipping

Seller

Sale and

purchase

agreement

Customer

Liquefaction facility

(FOB)

-

LNG terminal

(CPT/CFR/CIF)

Liquefaction

facility

Feed

gas LNG

[Shipping]

Regasification (LNGT Op.)

Transportation (TSO/DSO)

Market realisation

[Shipping]

#1 Services and obligations

Tolling agreement Sale and purchase

agreement

Liquefaction facility

- treating of the feed gas

- rendering the liquefaction service

- storage of feed gas / LNG*

Consumer

- fixed charge for the right to receive

the service

- variable charge for actual services

Seller

- delivering the LNG

- shipping*

Consumer

- payment for LNG received (+)

quantity

adjustment

-

operational

tolerance

Destination

clauses

#2 Conditions precedent

Tolling agreement Sale and purchase

agreement

Long-/medium- term commitments

conditions precedent securing

long-term commitments

- infrastructure developments

- commercial operations

#3 Damages

Tolling agreement Sale and purchase

agreement

Take-or-pay

Damage compensation*

(market price indexation)

End use requirements*

#4 Termination

Tolling agreement Sale and purchase

agreement

Early termination right

- contractual party's fault

- Force Majeure

- authorisations (regulatory effects)

Volumes /

destination

flexibility in LTCs

Short-term

contracts

-

Spot trading

Swap agreements

-

Re-export

Sourcing supply

from multiple

locations

www.energy-community.org

Thank you

for your attention!