An introduction to tolling agreements in the LNG sector
An introduction to tolling agreements in the LNG sector

The following Energy guidance note provides comprehensive and up to date legal information covering:

  • An introduction to tolling agreements in the LNG sector
  • Introduction
  • Tolling Model—structure and key differences with merchant model
  • Tolling Agreement—key issues and clauses

Introduction

The business model underpinning a liquefied natural gas (LNG) project is of fundamental importance since this will determine the risk profile of the project as a whole and consequently, the type of financing that will be required. The choice will ultimately depend on a number of factors, including the risk appetite, fiscal and tax considerations and financing issues of the relevant investor as well as their interest in investing in one or more of the LNG chain segments. (For more details on the LNG value chain, see Practice Note: LNG—an introduction.)

LNG projects can be structured in a number of different ways:

  1. integrated/non-integrated

  2. merchant/tolling

In an integrated model, there is unity of ownership throughout the entire LNG chain, from production through to liquefaction—that is, one or more investors holding the underlying upstream concession/PSC also own the rights to the natural gas reserves. As a result, the upstream owners build the infrastructure which is necessary both to extract the natural gas from the ground as well as to monetise it—the LNG liquefaction/regasification plant being a key component of such an integrated project, as it is required to process/liquefy the natural gas and market the LNG produced as a result.

The upstream concession holders also retain an interest in the LNG plant, in the same proportion as each of their upstream project interests.

In