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How to design LNG contracts

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Andrius Simkus from the Energy Community Secretariat presented on the optimal design of LNG contracts at the Vienna Forum on European Energy Law 2016

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How to design LNG contracts

  1. 1. 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
  2. 2. 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”
  3. 3. Security and resilience Sustainability Competitiveness
  4. 4. Sale and purchase agreement Tolling agreement
  5. 5. 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
  6. 6. 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]
  7. 7. #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
  8. 8. #2 Conditions precedent Tolling agreement Sale and purchase agreement Long-/medium- term commitments conditions precedent securing long-term commitments - infrastructure developments - commercial operations
  9. 9. #3 Damages Tolling agreement Sale and purchase agreement Take-or-pay Damage compensation* (market price indexation) End use requirements*
  10. 10. #4 Termination Tolling agreement Sale and purchase agreement Early termination right - contractual party's fault - Force Majeure - authorisations (regulatory effects)
  11. 11. Volumes / destination flexibility in LTCs Short-term contracts - Spot trading Swap agreements - Re-export Sourcing supply from multiple locations
  12. 12. www.energy-community.org Thank you for your attention!

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