An introduction to take-or-pay clauses in energy contracts
Produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP

The following Energy practice note produced in partnership with Phillip Ashley, Judith Aldersey-Williams, David Rutherford, and Leontine Mathew of CMS Cameron McKenna Nabarro Olswang LLP provides comprehensive and up to date legal information covering:

  • An introduction to take-or-pay clauses in energy contracts
  • Introduction to ‘take-or-pay’ clauses in the energy sector
  • Regulatory issues
  • History of take-or-pay in gas sales agreements
  • Competition law
  • Future of take-or-pay clauses
  • International considerations

An introduction to take-or-pay clauses in energy contracts

This Practice Note introduces take-or-pay clauses in the energy sector and considers some of the regulatory and competition law issues regularly encountered when considering take-or-pay clauses in the energy contracts.

For more information on drafting take-or-pay clauses and the common features of such clauses, see Practice Note: Drafting take-or-pay clauses in energy contracts.

For more information on to English Court’s attitude to take-or-pay clauses and a thorough consideration of take-or-pay clauses and the rule on penalties, see Practice Note: Take-or-pay clauses in energy contracts: the rule on penalties.

Introduction to ‘take-or-pay’ clauses in the energy sector

A take-or-pay clause is a contractual provision whereby a buyer agrees to pay for a minimum quantity of a good, or service, to which the relevant contract relates, whether or not that minimum quantity is taken by the buyer.

Take-or-pay clauses are used in contracts across a range of industries. In the energy sector, such clauses are commonly found in liquefied natural gas (‘LNG’) sale and purchase agreements (‘SPAs’), natural gas SPAs, power purchase agreements and other long-term purchase or supply arrangements. Similar ‘send-or-pay’ clauses are found in gas transportation agreements.

By requiring the buyer to make payments regardless of whether it does or does not take a minimum quantity of a good or service, take-or-pay clauses seek to guarantee the seller a consistent revenue stream. This

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