1. Natural Gas Contract and Sale Agreement
Lecture-4
Widodo W. Purwanto, *Hanan Nugroho
Departemen Teknik Kimia
Universitas Indonesia
*Bappenas

2. Two major types of gas contracts
Depletion contract
Allocation of all the reserves economically recoverable from a field or accumulation to the buyer
This type of contract is generally preferred by the producer
Part of the risk is transferred to the buyer
The price will tend to be lower
Supply contract
The producer agree to supply an annual volume of gas for a number of defined years
Gas supplies originates from several sources
This does not necessitate to show reserves to the buyer
This type of contract is generally preferred by the buyer

3. Conssesion contract
Conssesion contracts: Tax/royalty conssesion contract, conventional type – North america, Argentina, Australia, part Middle east

4. PSC
Production sharing contract (PSC), more complex – Asia, Africa, part of South america and Middle East

5. Key provisions of contracts

6. Contract Duration

7. The Gas Sales Agreements: Its Contents
Reserves (identified, evaluated and certified)
Quantities (detailed contracted volume, allowed flexibility, priority rights, make-up gas which concerns the rights of the buyer to take gas previously paid for but not taken …)
Quality of gas (specifications of the molecules, pressure conditions, extent of allowed variations, impact on the price …)
Metering conditions (place, frequency)
Price (base price, indexation formula, currency, period of reference, price revisions) and invoicing (frequency, disputes, delays in playing bills …)
Other clauses (Force-majeure, termination …)

8. GSA Between …?
Trader
Consumer
Producers
Transporter
Anchor

9. Other type of agreement: Example from a gas processing plant
National Oil & Gas Company
Indemnity for minimum payment
SPE Gas Processing Plant
Gas Acquisition Agreement
Gas Sales Agreement
Government Shareholders
Power Co
Gas Dist. Co
Oil & Gas Producers Co

10. Types of LNG Sales Contracts
FOB (Free on Board)
- delivery point at connection between ship and loading facility
CIF (Cost, Insurance, Freight)
- delivery point at the buyer’s receiving terminal
- risk of loss passes to the buyers at loading point or an agreed point on the trip
DES (Delivered Ex. Ship)
- delivery point at flange connecting ship to receiving terminal
- the seller bears all costs and risks up to terminal

11. Main Terms of LNG Contracts
Duration
Quantities
Build up volume
Annual Contract Quantity (ACQ)
Downward Quantity Tolerance
Upward variation
Take-or-Pay clauses
Shipping Agreements
Price
Quality

12. Build up and Plateau Arrangements

13. Main Terms of LNG contracts (1)
Duration
Mostly long term contracts, 20 years
Trend toward medium and Short Term contracts, SPOT with deregulation
Buyers and Sellers prefer Long Term, to secure financing of infrastructure
Build up volume
Sellers prefer fast build up to recover investment
Buyers prefer slow build up to follow market growth
Compromise to be found

14. Main Terms of LNG contracts (2)
Plateau Quantities
ACQ (Annual Contract Quantity), expressed in energy (TBtu/year) or in number of cargoes per year
DQT (Downward Quantity Tolerance): volume that the buyer can defer without going to Take or Pay obligation. Generally 10% with a maximum on cumulated volume. May be subject to Make Up arrangement.
Upward Variation: additional volumes required by buyers, depending seller ability to supply.

15. Main Terms of LNG contracts (3)
Take or Pay clauses
Obligation for the buyer to pay a cargo, even if he cannot take it for market or other reasons
Transfer the market risk to the buyer, and secures cash flow for the seller
The Downward Quantity Tolerance is negotiated, generally leading to a Take-or-Pay level of 90% (DOT=10%)
Volume under Take-or-Pay called “Minimum Bill”

16. Main Terms of LNG contracts (4)
Prices
Base price
Escalation formula: crude oil linkage
Frequency of calculation: quarterly or monthly
Procedures for renegotiation, either regular (every 5 years) or according to change in context.

17. LNG Project Structure (1)

18. LNG Project Structure (2)

19. LNG Project Structure (3)

20. LNG Project Structure (4)

21. LNG Project Structure (5)

22. LNG Project Structure (6)

23. Bontang LNG Project Organization

24. Offshore proceeds account, NY
Badak Train F Project Finance
Japanese Buyer
Offshore proceeds account, NY
PT Badak
LNG Plant
Turn key contractors
Plant use & operation agreements
Processing agreements
Trustee
Gov. of Indonesia
Pertamina
Loan agreements
PSC
Gas Supply agreements
Producers agreements
Banks
E. Kalimantan Gas Producers
Source: International Advisory & Finance

25. LNG Terminal - Tolling Model Contractual Structure Diagram
LNG Producer
END USERS
LNG Receiving Terminal
Terminal Used Agreement (TUA)
Gas Sales
Agreement
LNG Vessel Owner
Time Charter
Party Agreement
Company
Operation & Maintenance

26. LNG Terminal - Merchant Model Contractual Structure Diagram
LNG Producer
END USERS
LNG Receiving Terminal
LNG Sale and Purchase
Agreement
Gas Sales s
LNG Vessel Owner
Time Charter
Party Agreement
Company
Operation & Maintenance