LNG Contracts
- • Understand the LNG industry and the factors shaping global LNG markets, trading, and infrastructure.
- • Analyse LNG Sale and Purchase Agreements (SPAs), including their structure, key clauses, and commercial implications.
- • Develop effective negotiation skills for LNG contracts, including pricing, force majeure, termination, and dispute resolution.
- • Evaluate LNG pricing mechanisms, including oil-indexed pricing, gas hub pricing, and spot market dynamics.
- • Understand volume and delivery obligations, including Annual Contract Quantity (ACQ), take-or-pay, and deliver-or-pay provisions.
- • Assess diversion rights and destination flexibility within LNG SPAs and their commercial impact.
- • Understand LNG shipping and logistics, including vessel chartering, transportation, loading, and terminal operations.
- • Manage contract performance and risk, including invoicing, payment obligations, force majeure, and contract settlement.
- • Apply commercial and legal principles through practical case studies and contract analysis.
- • Identify emerging trends in the LNG industry and evaluate their impact on future contracting and commercial strategies.
Overview
As the global LNG industry continues to evolve, so too, do the requirements of the underpinning commercial contracts. The LNG industry, once focused on long-term contractual arrangements – given the capital requirements for infrastructure development, has the potential to become increasingly focused on the short term and medium-term time frames for contractual arrangements. Flexibility appears to be the new watchword and as the worldwide infrastructure continues to develop and grow – contracting parties are faced with an expanding range of choices and options in terms of location; vessel providers and loading/unloading facilities. This course has been specifically developed to provide an immersive and interactive forum with an emphasis on open discussion and delegate interaction/participation.
Location
Course Syllabus
Day 1
TOPIC 1: An insight into the LNG market
- An evolving market – making the right strategic choices – maximizing opportunities, mitigating threats
- Capacity issues (greater demand for gas for power generation; ‘floating infrastructure;’ transportation fuel substitute, etc.) and delivery capabilities
- Increasing global infrastructure (new pipelines; more LNG maritime transportation;) – a greater emphasis on ‘spot’ markets?
- Security of supply – increased or decreased certainty?
- Where is the destination market? A very key variable of consideration
- Long term oil indexed prices – a thing of the past?
Topic 2: Key features of developed gas trading hubs – what does this mean for commercial contracting?
- Degree of regulation
- Number of buyers and sellers
- Developed/access to transportation infrastructure
- Substantial trading volume
- Transparency in price and volume reporting
- Degree of liquidity to create indexation
- Futures trading
TOPIC 3: Overview of some key issues within LNG Sale & Purchase Agreements (SPAs)
- The traditional LNG contract – key aspects reviewed (quantity; quality; conditions of delivery i.e. FOB; CIF, DES etc.)
- Examining portfolio spa’s – a better way forward?
- Standardization – the best way to promote transparency in contracts? Key benefits of standardization – reduction in uncertainty – cost reduction in terms of time and price
- an end to destination clauses? Re-selling cargos into the spot market – an efficient way to reduce import costs? Renegotiation
- Why stabilization clauses are a good idea
- Reopener clauses
- Renegotiation (oil indexed vs. gas hub prices) clauses – the problem of project investment and FID
- Renegotiation clauses – combating the impact of price divergence due to market volatility
- Stabilisation clauses
- The confirmation memorandum
- Case study: A SPA dissected
Topic 4: Key negotiation issues within a SPA
- Term
- Force Majeure
- Termination protocols
- Assignment issues
- Dispute resolution mechanisms (clauses)
- Warranties and guarantees
- Relevant incoterms
- Vessel/terminal/berthing facilities and any upgrades required
- Stakeholder identification and management – local content provisions (example – Barrow Island)
- Quantum of liquidated damages – when LDC’S are triggered – cap and collar valuations
Topic 5: Diversion rights in a SPA:
- The buyer’s (inclusion) and the seller’s (limitation) perspective relative to diversion rights
- Commercial rationale – key reasons for including diversion provisions
- Storage and capacity – 2 other key reasons for the inclusion of diversion provisions
- Diversion rights and Force Majeure
- Ship to shore compatibility issues (seller’s perspective)
- Diversion provisions and destination clauses – a potential conflict?
- Case study – examining a diversion provision
- Class exercise – negotiating diversion rights
Topic 6: The Annual Contract Quantity (ACQ):
- Stipulation of ACQ and units to be utilised
- Annual date of commencement, annual date of cessation
- The AACQ
- Round Up and Round Down Quantities
- Impact on AACQ due to scheduled major maintenance and inspection works
Topic 7: Buyers purchase obligations – take or pay grounds for reduction in AACQ:
- Quantity reductions due to seller’s actions (including Force Majeure)
- Quantity reductions due to buyer suffering Force Majeure event(s)
- Buyer issuing a ‘Notice of Suspension’
- The ‘Cargo Shortfall Quantity’
- Mitigation sales
Topic 8: Sellers purchase obligations:
- Quantity reductions due to buyer’s actions (including Force Majeure)
- Buyer issuing a ‘Notice of Suspension’
- The ‘Cargo DoP Quantity’ (deliver or pay)
Topic 9: LNG vessel chartering:
- The traditional perspective (single project, long term) -challenged by the growing ‘spot’ (short term) or medium term (designated number of cargos) market evolution?
- Key stakeholders in vessel chartering
- Contracts of Affreightment
- Cargo ‘swaps’
- Voyage charters
- Shelltime4
- Exxonmobiltime 2000
Topic 10: Transportation and loading:
- Adverse weather conditions provisions
- Compatibility of tankers with loading facilities
- Tanker inspections
- Port liability agreements
- Loading of tankers
- Notice of Readiness
- Berthing assignments
- Berth laytime
- Excess laytime (tanker not ready to load)
Topic 11: Contract settlement (invoicing and payment):
- The buyers’ and sellers’ obligations to the contract (purchase and supply), (liability for shortfall)
- Statements of LNG not taken; unavailable or undelivered
- Payment terms (due dates; currency and payment methodology)
- Late payment and refunds
- Sellers rights to suspend performance
- payment disputes
Topic 12: Force Majeure in LNG contracts
- FM defined
- Scope of FM events pertinent to the contract
- Exclusions
- Resumption of normal performance
- Rights of parties in the event of FM event
