LNG sale and purchase agreements

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

  • LNG sale and purchase agreements
  • Types of LNG sale and purchase agreements
  • Model form contracts
  • Key legal issues
  • Destination flexibility
  • Take-or-pay
  • Volume flexibility
  • Off-spec LNG
  • Price review
  • Force majeure

LNG sale and purchase agreements

Types of LNG sale and purchase agreements

Liquefied natural gas (LNG) is commonly traded as a portfolio commodity, in which a participant may break up several long-term sales agreements into short-term transactions to optimize transport costs and balance supply obligations with market conditions. The LNG industry also maintains its own spot-trading market, in which cargoes are bought and sold through competitive tenders and brokered trades. Alternatively, swap arrangements (under which two buyers or two sellers agree to swap cargoes) is another trading model becoming more common in the LNG industry.

The common types of LNG sale and purchase agreements are:

  1. short-term sales agreements—one to five-year bilateral agreements, often with little flexibility of terms

  2. master agreements—a popular arrangement under which seller and buyer sign an agreement that sets out the general terms under which they will buy and sell LNG, without committing the parties to an obligation to actually buy or sell specific quantities. When the parties wish to transact, they will complete a supplementary ‘confirmation notice’, deemed to include the general terms of the master agreement and the transaction-specific terms such as contract price, contract quantity and LNG specification

  3. long-term sales agreements—typically for a term of 20 years, the long-term LNG sales agreement remains the traditional collateral for financing the capital-intensive LNG value chain. The majority of worldwide LNG volumes are sold

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