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
![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”](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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How to design LNG contracts
- 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. 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”
- 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. 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. #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. #2 Conditions precedent Tolling agreement Sale and purchase agreement Long-/medium- term commitments conditions precedent securing long-term commitments - infrastructure developments - commercial operations
- 9. #3 Damages Tolling agreement Sale and purchase agreement Take-or-pay Damage compensation* (market price indexation) End use requirements*
- 10. #4 Termination Tolling agreement Sale and purchase agreement Early termination right - contractual party's fault - Force Majeure - authorisations (regulatory effects)
- 11. Volumes / destination flexibility in LTCs Short-term contracts - Spot trading Swap agreements - Re-export Sourcing supply from multiple locations
- 12. www.energy-community.org Thank you for your attention!