Course Outline

The current state/structure of the gas/ LNG business

• Technical appraisal of gas and LNG chain
• Natural gas, condensate, associated gas, LNG, LPG, Natural Gas Liquid (NGL)
• Global gas/LNG industry and the evolving geopolitical scene
• Comparative analysis of gas market structures and regulatory models
• UK/US models and the evolving gas market regulation
• Vertically integrated structures vs unbundled operations

Gas/LNG – The contract sequence and licensing

• A model of the contract sequence and relative shares of risk and reward
• Contracting parties in the gas/LNG chain and spread of contracts
• Incorporated and unincorporated JVs
• Various contracting options
• Exploration and production licensing – concession, production sharing contract, service contract, royalties and taxes and buy back

Gas contract terminologies and structures

• Terminologies used in gas contracts to include ACQ, DCQ, load factor, swing, TOP, Make Up, Carry Forward and Shortfall
• Physical relevance of contract conditions contained in the Articles
• Basic principles in structuring gas contracts
• Inter-dependence of contracts in the chain
• Inter-relationship between technical, financial and legal aspects of contracts
• The gas contract sequence – a flow chart

LNG contract terminologies and structures

• Basic LNG technology and the LNG chain
• The LNG contract sequence – flow chart
• Cost drivers (liquefaction, transportation and regasification)
• Checklist of Articles for inclusion
• New contract trends with international examples from the Middle East, South East Asia, Asia Pacific, West Africa, Europe and Australia

Review of contract principles and Articles

• Contract types including supply and depletions
  Summarised Articles of gas/LNG contracts
• Rationale of basic principles underlying gas/

LNG contacts

• Structure of each Article and their contractual significance

Structuring Gas and LNG contracts

• Recital, Scope, Conditions Precedent (CP), compliance/waiver milestones
• Gas reserves, verification. and reserve certification – 1P, 2P and 3P concepts
• Contract duration/contract extension -Window mechanism
• Contract quantities – ACQ, DCQ, load factor and supply swing
• Energy/volume, quality and pressure
• Non specification liabilities
• Gas pricing/Indexation/Price Re-opener provisions
• Billing/payment, annual reconciliation and treatment of tax in the contract
• Take or Pay, shortfall liabilities, Carry Forward and Make up
• Scheduling and nomination for the supply day
• Alignment of the LNG import contract to the gas supply contract

Measurement, variations, shipping and legal clauses

• Gas measurement, accuracy limits, error correction, calibration and verification
• Types of shipping contracts and fiscal arrangements
• Financial implications of ship chartering
• Risk allocation: liquefaction, regasification and shipping
• Assignment, indemnities, liabilities, insurance, confidentiality and governing laws
• Dispute resolution – sole expert, conciliation and arbitration
• Force Majeure – exemptions, mitigations and termination
• Treatment of change of law and government events
• Contract suspension, termination and associated liabilities
• Heads of Agreement (HOA) leading to LNG SPA and GSPA (piped gas)
• LNG spot sale/agreement – key elements
• Side letters
• Arbitrage, spot sale, swaps – examples and calculation of value
• Project financing structures

Case Study 1:
Analysis of a live Gas Sales and Purchase Agreement (GSA)
With reference to each Article highlighting the principles already discussed, and the significance of language used

Case Study 2:
Analysis of 2 live LNG Sales and Purchase Agreements (SPA)
With reference to each Article and an analysis of the risks implicit in each and method of mitigation

The concept of high pressure gas transmission

• Relevant physical aspects of gas transportation
• Gas balancing and management of overrun/ under run
• Transportation network contract conditions for system balancing
• Open access, entry/exit, postalised, distance related
• Transportation tariffs
• Standard Transportation Agreement (TA) Articles- imbalance penalties, off specification liabilities, default conditions
• Capacity booking, maximum daily quantities
• Contract carriage and open access arrangements
• Network code
• Energy balancing and mass balancing for ownership reconciliation
• A model gas transportation contract – analysis

Basic contract negotiation principles

• Gas/LNG contract negotiation stages
• Specific aspects of gas/LNG contract requiring careful negotiation approaches
• Negotiation team structure, negotiations limits and ranges in gas/LNG contracts
• Tradable variables, non negotiable items, entry and walk away positions
  Sequence in which different aspects of gas/LNG contracts should logically be dealt with
• Case history involving negotiations in different countries
• Examples of failure and success Interactive session

Complex contract structuring and negotiation

An exercise will be carried out involving structuring four inter-dependent contracts in the LNG/gas chain, involving:

• LNG sales
• Sale of regasified LNG
• Transportation of regasified LNG and;
• Sale of gas (regasified LNG) to the end consumer

Following attempts by the participants, an optimum solution covering four interdependent contracts will be discussed covering:

• Heads of Agreement (HOA) containing terms for LNG sales
• HOA for gas transportation
• HOA for sale of regasified LNG to intermediate offtaker
• HOA for sale of gas to the end consumer