Presentation on theme: "Commercial Terms in Pipeline Transportation & Gas Processing Agreements Dwight Howes Partner Reed Smith LLP 412-288-5933."— Presentation transcript:
Commercial Terms in Pipeline Transportation & Gas Processing Agreements Dwight Howes Partner Reed Smith LLP firstname.lastname@example.org 412-288-5933
Long Term Firm Capacity Pipeline Transportation Agreement Commercial terms for natural gas and natural gas liquids contracts are same – specifications are different A separate Interconnection Agreement may be necessary No Interconnection Agreement necessary if Receipt Point is the outlet flange of the processing plant or the interconnection between the gathering system and the pipeline Specified contract volume Shipper pays for capacity whether used or not No force majeure out for Shipper and limited remedies for shipper for Transporter force majeure Usually provides for making up volume shortfalls with deliveries above firm capacity if capacity available
Long Term Firm Capacity Pipeline Transportation Agreement Capacity shortfall make up typically limited in time Usually cannot make up shortfalls with third party gas/product Term typically 15 – 20 years If FERC regulated, rates in accordance with tariff, adjusted annually by the FERC Index (but never below original rate) If not FERC regulated, rate specified in contract, subject to annual adjustment (but never below original rate) Monthly payment Creditworthiness – Transporter can request adequate assurances of performance – letter of credit, pre-payment, etc. Gas/Product specifications – heat content, water, other impurities
Long Term Firm Capacity Pipeline Transportation Agreement Indemnity for damage to pipeline for gas/product not delivered in accordance with spec Shipper indemnifies Transporter for any encumbrance on title Transporter indemnifies Shipper for third party claims due to Transporter negligence while gas/product under Transporter’s control Mechanism for verifying meter accuracy and accounting for previous inaccuracies Right for Shipper to observe meter verification Transporter charges Shipper pro rata share for lost gas/fuel gas Often a “most favored customer” provision Significant limitations on Transporter’s liability
Long Term Firm Capacity Gas Processing Agreement Many terms similar to long term pipeline transportation agreement Processor re-delivers residue (processed) gas to Producer at the outlet flange of the processing plant (interconnection with pipeline) Processor will market for Producer’s account Producer’s raw make or fractionated products Producer has right to take in kind If Producer opts to take in kind, but fails to do so, Processor has right to sell Per gallon fee or variety of per gallon fees that may off-set each other, depending on degree of processing/fractionation Ethane as purity product or mixed with propane
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